A non-compete clause has been one of the hottest topics of discussion among employees, especially employees of MNCs. Considering the exponential growth of start-up culture in India, the non-compete clause has never been more important than now. Therefore, it is important to know the constitutional validity and legal enforceability of such a clause in India. Along with that, it is important to understand what stance the judiciary has taken, which can help employers draft the said clause in a legally enforceable manner.
What is a non-compete clause
Non-compete clauses are standard in employment agreements, especially with top executives, senior managers, and co-founders. Along with such employment agreements, these clauses form part of merger and acquisition transactions. Under such a clause, a person agrees to not start a new business in competition with the current employer or take up new employment with a competing entity. Periodic and geographical restrictions are imposed under this clause, which implies that the person bound by such clause shall be restrained from working in the same or similar businesses, which are either in direct or indirect competition with the business of the employer, for a reasonable, specific period within the specified geography.
Rationale for a non-compete clause
High-ranking executives have access to confidential and proprietary information, including business-related intellectual property. If departing officials carry this knowledge to their subsequent employment, it could provide an unfair advantage to the new employer and, in certain instances, pose a serious threat to the original company. In mergers and acquisitions, the commercial value of acquired entities may significantly diminish if the founders leave and join a competing business, resulting in a loss of competitive edge for the acquiring entity. Consequently, any contractual provision aimed at safeguarding the interests of business advancement should not be considered a restraint of trade. Instances like these have the potential to discourage investors from supporting new and emerging enterprises, leading to a funding shortage and ultimately impeding economic development.
Rationale against a non-compete clause
Freedom to choose any occupation, trade or profession is a fundamental right guaranteed by the Constitution of India under Article 19. Such a right is secured because it is important for the overall growth of the economy that the people of the country are encouraged to be self-reliant. The right to livelihood, as interpreted by the Hon’ble Supreme Court under Article 21 of the Constitution, provides citizens of India with the right to choose his/her livelihood and to live life with dignity. As per Section 27 of the Indian Contract Act, 1872, an agreement in restraint of any lawful profession, trade or business is void to that extent. An exception has been carved out for cases involving the sale of the goodwill of a business. Accordingly, an agreement restraining a person from choosing his livelihood must be considered a violation of fundamental rights under the Constitution and a void contract under the Indian Contract Act of 1872.
Important excerpt from landmark judgements on the topic
Superintendence Company of India (P) Ltd. vs. Sh. Krishan Murgai (1980)
In this case, it is firmly established that employee covenants warrant meticulous examination due to the inherent inequality of bargaining power between the involved parties. In fact, bargaining power might be entirely absent, as employees are often presented with standardised contracts to either accept or reject. During the agreement phase, employees may not have given much consideration to the restrictions imposed due to their eagerness to secure employment. Such contracts “tempt individuals lacking foresight, driven by immediate gains, to relinquish their ability to pursue future opportunities, leaving them vulnerable to exploitation and abuse.”
Pepsi Foods Ltd. and Others vs. Bharat Coca-cola Holdings Pvt. Ltd. & others (1999)
In this case, it was held that the granting of an injunction aimed at creating a scenario akin to “Once a Pepsi employee, always a Pepsi employee” cannot be justified. Such a situation could be likened to ‘economic terrorism’ or the establishment of conditions resembling ‘bonded labour’. However, unlike the situation in India, Pepsi managed to secure an injunction from the Seventh Circuit U.S. court against Mr. William Redmond Jr., who had departed PepsiCo to join Snapple Beverage Corp, which was acquired by Quaker. The Seventh Circuit U.S. Court thoroughly examined the case and ruled in favour of PepsiCo, issuing an injunction preventing Redmond from joining Snapple. This decision was based on the principle of “inevitable disclosure” and imposed a permanent injunction against the use or disclosure of any trade secrets or confidential information belonging to PepsiCo. The doctrine of inevitable disclosure necessitates that an employer demonstrate in a court of law that an employee cannot fulfil their duties in a new job with another employer without relying on the trade secrets acquired from their previous employment.
Niranjan Shankar Golikari vs. Century Spinning and Manufacturing Company Ltd (1967)
In this case, it was held that restrictions imposed on employees while they are obligated to work exclusively for their employer are not classified as restraints of trade and, therefore, do not fall within the purview of Section 27 of the Indian Contract Act, 1872. A negative provision preventing the employee from engaging in trade or employment with another employer for whom they would undertake comparable or substantially similar duties is not treated as a restraint of trade, unless the contractual terms are judged to be unconscionable, unduly severe, unreasonable, or unilaterally biassed.
V.F.S. global services Pvt. Ltd vs. Mr. Suprit Roy (2007)
In this case, it was held that the provision in consideration, known as the “garden leave clause,” which grants the company the authority to compel a senior manager to stay away from work or employment for three months following the termination or resignation of their services, is considered a restraint of trade and is subject to Section 27 of the Indian Contract Act.
The Hon’ble Supreme Court of India and various high courts have consistently taken the view that:
The negative covenants can only be enforceable to the extent that they are reasonable and
The purpose of the covenant is to protect the legitimate business interests of the buyer. Even in the aforementioned circumstances, the restraint cannot be greater than necessary to protect the interest concerned.
Global view
United Kingdom
Some restrictions imposed after the termination of employment are legally enforceable, but they must meet the criterion of reasonableness. This means that the restriction should aim to safeguard the legitimate interests of the employer or buyer. Key considerations in assessing the validity of a non-compete provision involve evaluating the potential for improper use of confidential information and ensuring that the scope of the covenant is not broader than reasonably necessary to protect those interests.
The United States of America
In certain states, an intriguing legal principle known as the ‘blue pencil’ principle is recognised, granting courts the authority to modify an excessively broad non-compete clause to make it reasonable. When courts engage in reforming a non-compete clause, they consider factors such as the bargaining power of the parties and the extent of the restriction. Proponents of this principle argue that, since the parties intended to be bound by a restrictive covenant, it is justifiable for courts to adjust the clause to make it enforceable. However, critics of the ‘blue pencil’ principle contend that it empowers courts to interfere with commercial agreements between parties, a domain they believe should be left to the parties’ commercial acumen. Additionally, they argue that such court authority may encourage employers to draft broad restrictive covenants, leaving it to the courts to narrow down the scope on a case-by-case basis, potentially leading to increased disputes and litigation surrounding such clauses.
Australia
The legal stance is evident: clauses designed solely to suppress competition are unacceptable. A clause lacking a legitimate and reasonable safeguard for a business interest cannot be upheld. In New South Wales, these clauses are presumed unenforceable under the Restraints of Trade Act. This legislation empowers courts to modify clauses to align with the public interest, ensuring they go beyond mere anti-competitive purposes.
Practical example in India
In 2022, Infosys’s ‘non-compete clause’ hit the news. The clause restrained parting employees from joining competitors if they had worked for the same customer for a period of six months. Additionally, the new contract had a clause that prohibits employees from accepting employment from customers they had dealt with in the 12 months prior to parting ways with Infosys for a period of six months. TCS, IBM, Accenture, Wipro, and Cognizant are recognised as competitors to Infosys. A Pune-based non-governmental organisation, NITES, filed a complaint with the Central Labour Ministry against Infosys, urging the removal of the clause.
Infosys described it as a standard business practice in many parts of the world aimed at safeguarding confidential information. The company asserted that such controls are necessary to protect the confidentiality of information, maintain customer connections, and safeguard other legitimate business interests. Infosys clarified that these conditions are fully disclosed to all job aspirants before they decide to join the company and emphasised that they do not impede employees from pursuing career growth and aspirations in other organisations.
Conclusion
There is no “one size fits all” concept in the case of a non-compete clause. Even the employees working under such clauses have divided opinions. The laws of the country and the specific circumstances of the case would eventually decide whether the non-compete clause is reasonable or not. If the restrictions in a non-compete clause in an employment agreement are necessary and reasonable, such clauses will be held legal in India.
This article is written by Sakshi Kuthari. It discusses all the details one should learn about the definition of the term ‘other authorities’ under Article 12. The impact of the decision in University of Madras v. Shantha Bai (1953) plays a significant role in the interpretation of Article 12, as it led to a string of subsequent judgments that established certain tests to determine whether an entity qualifies to be an agency or instrumentality of the government.
It has been published by Rachit Garg.
Table of Contents
Introduction
The interpretation of the term ‘other authorities’ in Article 12 of the Constitution of India has long been a subject of debate, especially with judicial opinions evolving over time. There has been a significant shift in the interpretation of this Article after the major economic reforms of 1992, popularly known as the LPG, or Liberalisation, Privatisation, and Globalisation model. Today, instead of solely functioning as a service provider, the State now performs multiple functions because of the existing philosophy of social welfare. It acts not only as a provider but also as a facilitator and regulator of the economy. Many functions that were previously carried out by the State are now performed by private entities. With a few exceptions, fundamental rights are enforceable against the State as defined under Article 12 of the Constitution. Thus, the concept of the ‘State’ under Article 12 serves as the threshold for claiming fundamental rights. However, with private entities now assuming certain functions traditionally belonging to the State, the protection of fundamental rights has also fallen within the purview of these private actors.
Governmental functions are carried out through both the already existing traditional governmental departments and officials as well as autonomous bodies existing outside the departmental structure, such as companies and corporations. While governmental actions through departments or officials undoubtedly fall within the definition of ‘State’ under Article 12, doubts have been raised regarding the status of autonomous bodies. Whether such bodies could be regarded as ‘authorities’ under Article 12 and thus subject to fundamental rights has been a matter of debate.
In University of Madras v. Shantha Bai (1953), the question of whether the University of Madras fell within the scope of the expression ‘other authorities’ was discussed. Alongside this, the issue of whether the denial of admission to Shantha Bai due to discrimination (against women) in a State-funded institution, like the University of Madras, constituted a violation of her right to equality under Article 14 of the Constitution was examined.
Details of University of Madras v. Shantha Bai (1953)
Facts of University of Madras v. Shantha Bai (1953)
Before going into the facts of this case, it is essential to discuss the events and circumstances that led to the petition in the first place.
There was an increase in the number of female students seeking admission to colleges that rendered the already existing women’s colleges at that time insufficient to accommodate this increase. As a result, colleges that used to admit only men also began to admit women; co-education became common. At this junction, the Syndicate decided to lay down certain rules to regulate the admission of female students to such co-ed colleges. They fixed the total number of female students to be admitted based on amenities provided by the colleges and made it so that no female students could be given admission to co-ed colleges without prior sanction of the Syndicate.
In 1945, a Commission was appointed in accordance with the provisions of Section 16(12) of the Madras University Act, 1923, to report on the state of higher education and its progress in the state of Madras. The Commission reviewed the status of women’s education and documented its findings. While acknowledging the then-recent growth and progress of women’s education, the Commission highlighted that despite the establishment of more women’s colleges, the State of Madras faced challenges in accommodating the increasing number of women applicants seeking collegiate education across various fields. Additionally, the Commission referred to the rules set by the Syndicate in 1943, stating in their report that most colleges had only nominally complied with the conditions imposed by the University, such as providing common rooms, recreational facilities, etc.
The Commission found that the conducive environment necessary for the proper development of women students was lacking in those colleges. Moreover, the imposition of restraints for maintaining discipline among students further disadvantaged them. Citing these reasons, the Commission unanimously recommended that men’s colleges refrain from admitting women to the intermediate classes. It was believed that women might face challenges adjusting to the transition from school to college due to their age and the differing conditions of life and instruction. Such adjustments could only be facilitated by establishing more women’s colleges with hostel accommodations.
In 1949, a new college named Mahatma Gandhi Memorial College was established in the town of Udupi, affiliated with the University of Madras. When granting affiliation to the college, the Syndicate permitted the admission of only 10 girls in the junior intermediate class as a temporary measure for that year. It also directed that, in the future, no female students should be admitted without the prior sanction of the Syndicate. Against this backdrop, petitioner Shantha Bai applied for admission to the intermediate course at this college on July 24, 1951. However, the college Principal rejected her application, citing the policy of not admitting female students. Consequently, she filed a petition, seeking a writ of mandamus against the Principal for not admitting her to the intermediate course.
This petition was heard by Justice Subba Rao. There were two respondents in this case: first, the University of Madras, and second, the Principal of the college.
The petitioner, Shantha Bai, argued that the directions of the Syndicate were clearly contrary toSection 5(1) of the Madras University Act, 1923, which stated that admission to any degree or course cannot be denied solely based on grounds of sex, race, class, creed, or political views. The petitioner further argued that the directions were also in violation of Article 15(1) of the Indian Constitution, as they constituted discrimination against the petitioner on the ground of sex and were therefore void.
On the other hand, the second respondent, against whom the petitioner had claimed the relief, contended that the directions were based on practical convenience and were not discriminatory or unjust. They also argued that the directions did not violate Section 5(1) of the Madras University Act or Article 15(1) of the Constitution. They argued that the matter fell within the ambit of Article 29 of the Constitution and did not infringe upon any fundamental rights of the petitioner, thus the petition should be dismissed.
Justice Subba Rao interpreted Section 5(1) of the Madras University Act, 1923, differently and ruled that the section pertained to “admission to any degree or course of study,” referring to specific courses such as law, medicine, engineering, and related subjects, not admission to colleges as a whole. He also stated that Article 29 of the Constitution did not exclude the application of Article 15(1). The directions issued by the University were found to violate Article 15 as they discriminated against Shantha Bai on the grounds of sex and were therefore held to be void. He issued a mandamus to the Principal to consider the petitioner’s application without any discrimination on the grounds of sex.
The first respondent disagreed with the Hon’ble Judge’s decision and chose to file this appeal before the Madras High Court.
Issues raised
The University of Madras raised the following issues in their petition:
Whether the University of Madras can be considered a ‘State’ under Article 12 and whether it falls within the ambit of Article 15(1) of the Constitution of India;
Whether the right to get admission into an educational institution comes within the ambit of Article 15(1) or Article 29, and whether Article 29 prohibits any restriction based on sex;
Whether the University’s directives are discriminatory on the grounds of sex and thus unconstitutional under Article 15(1).
Issue-wise judgment in University of Madras v. Shantha Bai (1953)
Issue 1
The Madras High Court perused the relevant provisions, including Article 15(1) of the Constitution, which explicitly prohibits the State from discriminating against any citizen of India solely on the grounds of religion, race, caste, sex, place of birth, or any of these factors.
The term “State” as used in various Articles of Part III of the Constitution is defined inArticle 12. It includes “the Government of India and Parliament of India; the Government and Legislature of each State; and all local or other authorities within the territory of India or under the control of the Government of India”. The Court emphasised that in order to determine whether the University of Madras falls within the ambit of “local or other authority” under Article 12, these terms must be interpreted ejusdem generis with the government. This would specifically mean authorities that can exercise governmental authority and wouldn’t include any natural or juristic persons.
The Madras High Court observed that the University of Madras is a corporate body established under the Madras Act VII of 1923. Its primary role is to provide education and it is not involved in performing any governmental functions. Although, under Section 44 of the said Act, the University receives funding from the Government, it also generates funds through fees, endowments, and other similar means. It is a “State-aided institution” and not “State-maintained”.
It was held that educational institutions would fall within the ambit of Article 15(1) only if they are maintained by the State. Therefore, the regulations of the University of Madras, which is only aided by the State, do not fall within the ambit of Article 15(1)
Issue 2
The Hon’ble Madras High Court discussed the difference in the language used in Article 15(1) and Article 29(2) of the Indian Constitution. The Court observed that while Article 15(1) is a general principle, Article 29(2) is concerned with a particular issue, i.e., admission to educational institutions, and thus, each offers protection against different grounds of discrimination.
Article 15(1) prohibits discrimination based on “place of birth,” a protection that is not available under Article 29(2). This difference and omission of certain grounds, including “place of birth” and “sex,” among others, is deliberate to allow educational institutions to decide for themselves based on the conditions and circumstances of their respective regions. Such exclusion won’t contravene the provisions of Article 15.
The Court further observed that Article 15(3) allows the State to establish women-only educational institutions and the exclusion of men from these institutions doesn’t contravene Article 15(1). It was held that when it comes to admission to educational institutions, the matter is governed by Article 29 and not Article 15. Moreover, a combined reading of Articles 15(3) and 29(3) made it clear that male students cannot claim a right to admission to women’s colleges, and similarly, admission of women to an educational institution remains at the discretion of such institution’s authorities.
Issue 3
The Hon’ble Madras High Court was of the view that there was an increase in the number of women seeking college education while the number of women’s colleges was not sufficient. The Court acknowledged the need for co-educational institutes but also emphasised that, in the absence of regulations, such institutions could lead to more evil than good. The Court further observed that there were no regulations that prohibited the admission of women, and rather, these regulations were against colleges to ensure that they have the requisite facilities before they can admit female students. For instance, admission to a science course could be denied on the grounds that the college did not have a science lab. Therefore, it was held that the regulations were not discriminatory.
Laws discussed in University of Madras v. Shantha Bai (1953)
Article 12 of the Indian Constitution
Part III of the Constitution of India guarantees fundamental rights to all individuals without any discrimination. And one may note that these rights are guaranteed against the “State”, thus highlighting the importance of defining it. Article 12 does this job of defining the term “State” for the purposes of Part III of the Constitution.
According to Article 12, the term “State” includes the following:
Government and Parliament of India, i.e., both executive and legislature of the Union government;
Government and legislature of States, i.e., both executive and legislature of the respective state governments;
All local authorities; and
All other authorities.
This definition of “State” is conceptually broad, as it includes not only the government and its various branches but also its agencies. Thanks to this definition, the actions of these agencies can also be challenged in court if they are in contravention of their fundamental rights.
While it has been easy to decipher what the government is and what the legislature is, issues have arisen with respect to the interpretation of the term “local or other authorities”. This question has been presented before the Supreme Court of India time and again, and the Apex Court has laid down the rules of interpretation in this regard.
The present case, University of Madras v. Shantha Bai, also dealt with the question of whether the University of Madras would fall within the ambit of “local or other authorities”. It was held by the Madras High Court that the University did not fall within the meaning of “State” under Article 12, a decision that was later upheld by the Apex Court. However, it was subsequently overruled by the Supreme Court in Rajasthan State Electricity Board v. Mohan Lal (1967).
Article 15(1) and 15(3) of the Indian Constitution
Article 15(1) of the Indian Constitution specifically prohibits the state from discriminating against any Indian citizen on the grounds only of religion, race, caste, sex, place of birth, or any of them. Two words in this Article require special mention. The first one being “discrimination,” and the other being “only.”. While the former means that no adverse distinctions must be made, the latter means that the discrimination cannot be made specifically based on the above-mentioned grounds. Discrimination on other grounds is not prohibited.
Article 15(1) serves as an extension of Article 14, expressing a specific application of the general principle of equality enshrined under Article 14. Just as the principle of classification applies to Article 14, it also applies to Article 15(1). The combined effect of Articles 14 and 15 is not to prevent the State from passing unequal laws, but rather, if it does so, the inequality must be based on some reasonable grounds. Furthermore, Article 15(1) makes it so that religion, race, caste, sex, or place of birth alone cannot be considered reasonable grounds for discrimination.
Article 15(3), on the other hand, offers an exception to this general rule of non-discrimination provided under Article 15(1). It provides that the state can make any special laws or regulations for women and children. Similarly, the state can also make any special laws or regulations for the advancement of any socially and educationally backward classes of citizens.
Article 29(2) of the Indian Constitution
Article 29 was put in place by the framers of our Constitution to protect the interests of minority groups. The above-discussed case did not concern any minority group but admission to an educational institution, which is provided for in Article 29(2) of the Indian Constitution.
This Article provides that a citizen cannot be denied admission into any educational institution that is maintained by the State or is receiving aid out of state funds on the grounds only of religion, race, caste, or language. This provision guarantees the educational right of any citizen, irrespective of their community, whether minority or not. This was also held by the Supreme Court that this Article does not specifically belong to minority groups.
Relevant judgments
Smt. Ujjamm Bai v. State of Uttar Pradesh (1962)
In Smt. Ujjam Bai v. State of Uttar Pradesh (1962), the Hon’ble Supreme Court rejected the narrow interpretation of ‘other authorities’ as decided in the case of University of Madras v. Shantha Bai. The Court held that even a quasi-judicial body, acting within its jurisdiction under a valid law, should not infringe on a fundamental right merely by misinterpreting a law. Additionally, the Court ruled that the ejusdem generis rule could not be applied while interpreting this expression. The Court further clarified that the entities covered under Article 12 include the Government of India, the states, the Legislature of the Union and the states, and local authorities. It emphasised that there is no common genus between these bodies, nor can they be placed in one single category on any judicious basis.
Rajasthan State Electricity Board v. Mohan Lal (1967)
In thiscase, the Hon’ble Supreme Court ruled that if a state electricity board is established by statute and has commercial functions to discharge, it would qualify as ‘other authority’ under Article 12. The Court stressed that the commercial nature of some of the powers granted to the concerned authority is not decisive because the government is empowered under Article 298 to carry out trade or commerce. Therefore, the fact that the Electricity Board, established under the Electricity (Supply) Act, 1948, is bound to be involved in certain commercial activities does not mean that the Board should not be subject to the definition of ‘State’ under Article 12.
Sukhdev Singh v. Bhagat Ram (1975)
In the precedent set in the above-mentioned case, by a majority of 4:1, the Hon’ble Supreme Court, in thiscase, found out that the Oil and Natural Gas Commission, Life Insurance Corporation, and Industrial Finance Corporation are all entities falling within the ambit of Article 12 of the Constitution, thereby qualifying as entities within the definition of ‘State’. These three statutory corporations have the power to establish regulations under their respective statutes for the regulation of the conditions of the employees. These regulations have the force of law and are binding upon these entities. The statutes define the terms of employment under which the employees of these statutory bodies are eligible to assert their employment status when their dismissal or removal violates statutory provisions. Such employees have a right to seek redressal under Articles 14 and 16 of the Indian Constitution against these corporations.
Ramana Dayaram Shetty v. International Airport Authority of India (1979)
In this case, Justice P.N. Bhagwati took a broader approach compared to what was proposed by Justice Mathew in the above-mentioned case. The Court held in this case that if a body serves as an agency or instrumentality of the government, it may fall within the definition of “authority,” whether it may be a statutory corporation, a government company, or even a registered society. Consequently, it was ruled that airport authority, established by an Act of Parliament, fell within the definition of “State” under Article 12. The authority to appoint any board member and the capital required for the airport’s operation were solely possessed by the Central Government.
However, still the question remained: what are the essential criteria to determine whether an entity is an agency or an instrumentality of the government? The Court laid down the following tests to establish whether an entity qualifies as an agency or instrumentality of the government:
Inspection of the financial resources of the State;
Evaluation of the extent of deep and extensive State control; and
Governmental functions.
Analysis of the case of University of Madras v. Shantha Bai (1953)
The Hon’ble Madras High Court in this case evolved the principle of ‘ejusdem generis’ i.e., of the like nature. It means that only those authorities are covered under the expression ‘other authorities’ which perform governmental or sovereign functions. Further, it cannot include persons, natural or juristic, for example, Unaided universities. The Hon’ble Court held that the University of Madras did not fall within the ambit of Article 12 and does not come under the definition of ‘State.’ It also held that the regulations issued by the University were not subject to the prohibitions provided in Article 15 of the Indian Constitution. It was of the opinion that the admissions done in the colleges were regulated by Article 29(2) and the regulations of the University provided that certain basic facilities for women were must before they were admitted to the college. These regulations, according to the Court, were not held to be discriminatory on the grounds of sex. But the subsequent judgment in Rajasthan State Electricity Board v. Mohan Lal overturned the ruling in Shantha Bai’s case. The Supreme Court in this Rajasthan State Electricity Board case held that the expression ‘other authorities’ is wide enough to include all authorities created by the Indian Constitution or statute on whom the powers are conferred by law. It is not necessary that the statutory authority be engaged in performing governmental or sovereign functions.
Conclusion
The Indian Constitution serves a two-fold purpose from the point of view of fundamental rights. It provides fundamental rights to the citizens of India and imposes a corresponding mandatory duty upon the State to safeguard these rights. Based on the facts of the case and the judgment delivered by the Hon’ble Madras High Court, it was concluded that the University of Madras does not qualify as a State under the definition provided in Article 12 of the Indian Constitution. This led to the implication that the University of Madras was not bound by the restrictions laid down in Article 15(1). The Court also held that admission to the colleges fell within the purview of Article 29(2). The requirement of specific facilities for granting admission to female students was not discriminatory based on sex. As a result, the appeal filed by the first respondent was approved by the Madras High Court.
Frequently Asked Questions (FAQs)
What does Article 12 of the Constitution mean and include?
Article 12 of the Indian Constitution defines the term “State” which is used in Part III of the Constitution. It provides for the application and enforcement of the Fundamental Rights of the citizens of India. It includes within its definition unless the context provides otherwise the following-
The Government and Parliament of India (Legislature & Executive of the Union);
The Government and Legislature of each State;
All local or other authorities, within the territory of India or under the control of Government of India.
Is ‘University’ a State under Article 12 of the Indian Constitution?
Yes, a University comes under the definition of State under Article 12 of the Indian Constitution. The Hon’ble Supreme Court was first of the opinion that a University does not fall within the definition of State. But the Hon’ble Supreme Court with time has evolved the concept of agency or instrumentality, by which a University comes under the definition of “other authorities” mentioned in Article 12 of the Indian Constitution.
What is the rule of ejusdem generis?
Ejusdem generis means of the same kind and nature. When a list of specific terms is followed by more general words, the general terms should be understood in a manner that limits their scope to include only items or things of the same kind as those specified by the specific terms. This rule is used whenever there is an ambiguity or unclarity in the interpretation in the language of the provisions of the statute or wherever in a provision there is a possibility of two views.
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This article has been edited and published by Shashwat Kaushik.
Table of Contents
Introduction
Effective time management is a crucial skill that significantly influences personal and professional success. In the rapidly moving pace of today’s world, the art of managing time efficiently can be a very essential factor between achieving productivity and facing the life hassles. This composition explores the principles of time management and provides practical strategies to enhance productivity.
Understanding time management
Effective time management involves prioritising tasks to maximise time availability. It’s not about cramming numerous tasks into a day; rather, it’s about wise allocation of time to attain desired results
The key is to strike a balance between work and personal life while guaranteeing that essential tasks are completed efficiently.
Prioritization and goal setting
It is crucial to establish clear goals and priorities for successful time management. Outline long-term objectives first and then break them down into smaller, achievable milestones. Prioritise these tasks based on their urgency and significance. Tools like the Eisenhower Matrix, which categorises tasks into quadrants predicated on urgency and significance, can be immensely helpful in this regard.
Creating a schedule
A well-structured schedule is the foundation of effective time management. Allocate specific time slots for different exertions, including work tasks, breaks, and particular commitments. Stick to the schedule as closely as possible, but remain flexible to accommodate unlooked-for events.
Establish clear objectives. Define your short- and long-term goals very clearly. This clarity would help in prioritising tasks and allocating time to efforts that align with your objectives.
Identify priorities: Determine tasks that are crucial and significant. Focus on high-priority particulars that contribute significantly to your milestones or have imminent deadlines.
Specific time blocks for different activities: Categorise based on the nature of the task (e.g., work,personal, leisure, hobbies) and assign dedicated time slots for each of them.
Break down tasks: Divide larger tasks into smaller,manageable components This makes it easier to handle each part systematically, preventing overwhelm.
Set realistic timeframes: Be realistic about the time demanded for each task. Overcommitting leads to emotional breakdown and compromise in the quality of work.
Prioritise the most important tasks: Identify the most crucial tasks for the day and make sure to schedule them during your peak productivity hours. When you are at your best, significant work is completed, as emphasised in Brian Tracy’s book. Eat the delicate or large frog first.
Include buffer time: Account for unforeseen interruptions or detainment by incorporating buffer time between tasks. This helps maintain strictness and reduces stress if activities don’t go as planned.
Utilise technology: Explore productivity tools and apps to streamline your scheduling process. Calendar apps, task management tools, and reminders can be very helpful for staying organised.
Review: Assess the effectiveness of your schedule regularly. Identify what works fine and what needs modification. Refine your approach based on priorities and circumstances.
Plan Breaks: Incorporate short breaks to prevent burnouts. Brief breaks enhance overall productivity and internal wellbeing. Pomodoro apps can be very helpful here.
Batch similar tasks: Group similar tasks together to minimise context switching. This helps with better focus and efficacy.
Reflect and celebrate: Be grateful for your accomplishments at the end of the day. Celebrating achievements builds confidence. Utilise the insights gained for upgrading future schedules.
Following these simple steps, you can create a schedule for a day/ week/ month that enhances time management, increases productivity, and contributes to overall success.
The pomodoro technique
This is a time management method that involves breaking work into intervals. traditionally 25 minutes in length, separated by a 5 minutes break. After 4 cycles, indulge in a more prolonged break. This technique of structured periods of focused work and regular breaks enhances productivity.
Exclude time wasting activities
Time-wasters are pervasive in our quotidian lives, subtly stealing precious moments and eroding focus.
Heedless social media use
Endless scrolling through news feeds and advertisements diverts attention, creating a vortex of distraction. Mindless internet surfing, driven by the allure of entertainment, is another time-consuming activity. This is also one of the reasons why the concentration span of humans has been reduced to 8 seconds. Video platforms and online games are other culprits that lure individuals into prolonged periods of unproductivity.
Procrastination
This is a significant contributor to the destruction of time. Postponing essential tasks consistently often results in feelings of guilt and heightened stress. Meetings lacking clear agendas or objectives consume time without producing any significant results.
Multitasking
This is constantly incorrect for effectiveness and can actually hinder focus as the brain struggles to switch between tasks seamlessly.
Frequently checking emails
Constantly checking emails throughout the day, rather than batching them for specific intervals, interrupts workflow and diminishes attention.
Disorganised and inadequate planning
Productivity reduces looking for misplaced information and attempting to remember commitments. Acknowledge this to regain focus and enhance efficiency.
Effective delegation skills
Project managers are reluctant to delegate responsibilities, fearing loss of control over design issues. Some of them view delegation as time consuming whereas delegation skills are very effective management skills to master. These challenges of assigning tasks not only hinder team potential but also overwhelm managers with excessive tasks. It is important to identify your strengths and weaknesses and assign tasks accordingly for optimal efficiency. Delegating not only lightens your workload but also allows team members to develop their work potential and contribute to overall productivity.
Use of technology for time management
Adopt technology to streamline work and enhance productivity. Utilise productivity applications, project Management tools, calendars, and artificial Intelligence to maintain organisational efficiency. Automation can also be employed for repetitive and time-consuming processes, freeing up time for further critical exertion.
Be assertive
It’s amazing to be cooperative and collaborative; however, learning to say no is a vital aspect of time management. leads to stress and a decline in the quality of work. Assess your capacity realistically and decline tasks that exceed your bandwidth.
Review, reflect, and adapt
Review your time management strategies regularly. Adjust them based on their effectiveness. Identify patterns, learn from successes and failures, and refine your approach to continually improve productivity.
Work-life balance
Effective time management plays a pivotal role in striking a balance between work and life. This is imperative for both personal wells being and professional productivity. Individuals who lack proper time allocation, expose themselves to stress, anxiety, and a detonation of overall health.
One can establish dedicated slots for work, family, and self-care by effective time management. When people find enough time for their personal lives, they work with a positive mindset and renewed energy in their profession too. Conversely, when there is satisfaction in work, it prevents the spillage of stress into personal life. This equilibrium safeguards against exhaustion and enhances productivity
Striking a balance through time management fosters a healthier, more sustainable lifestyle, promoting both individual happiness and professional success.
Few popular apps for time management and productivity
Todoist
Todoist is a versatile task management app that allows users to set deadlines, organise tasks on a monthly, weekly and daily basis. This app also helps to collaborate with others Its intuitive interface and cross-platform accessibility make it a favourite among professionals.
Toggl
Toggl is a time tracking app that helps users monitor the time invested in various tasks. It provides insightful reports, making it an excellent tool for freelancers and teams looking to optimise their workflow.
Focus@Will
Focus@Will is an app specifically designed to enhance concentration and productivity by providing personalised background music. Based on neuroscience research, the app aims to help users enter a state of flow and accomplish tasks more efficiently.
Pomodone app
An intuitive app with customisable timers, task tracking, and productivity insights for effective time management
Conclusion
Mastering time management is an ongoing journey that demands self-awareness, discipline and adaptability. Technological tools and various time management apps can amplify one’s ability to effectively manage time. We can elevate productivity, eliminate stress and attain a more gratifying and well-rounded life by applying these measures.
Embrace the above principles and tools to unleash your full potential and attain success in both personal and professional spheres. Successful time management is all about prioritising efficiently and purposefully focusing on what truly matters.
This article is written by Tejashree Anant Salvi. In this article, you get detailed information on resolutions in company law. This article helps you understand why resolution is an important decision-making process for a company and how the different types of resolution help the company handle the decision-making processes that can play a crucial role in the economic progress of the company. This article helps to understand how the shareholders and directors of a company play an important role in the progress of the company and in maintaining its economic health. In this article, we learn about the different types of resolutions that are mentioned in the Companies Act, 2013.
Table of Contents
Introduction
In the complex framework of Companies Law, resolution plays a crucial role in the decision-making process under the Companies Act 2013. Any decision made by a company through a resolution ensures that this decision complies with the law and the company must adhere to all rules established through resolutions. A resolution represents a decision made by the company members or directors by voting, by formal expression of their opinion, or by will. According to the Companies Act 2013, there are two types of resolutions: member resolutions and director resolutions. Member resolutions have been further categorised into ordinary resolutions and special resolutions.
A resolution is a written document that is created by the board of directors of a company. A board of directors is a group of persons who act as the governing body of a company on behalf of the shareholders of the company. The Board of Directors created a proposal for resolution and presented this proposal in front of shareholders in a meeting and shareholders gave approval for this proposal, and that resolution was passed by the company. A resolution is a legally binding decision for a company.
This article delves into the resolutions outlined in the Companies Act of 2013. From ordinary to special resolutions, and from director to member resolutions, each type holds an important role in the company’s decision-making process. In this article, we understand provisions that help in the appointment of directors, changes in the Memorandum of Association (MOA) and Articles of Association (AOA), voluntary winding of companies, producers of passing any resolution, and types of resolution. Some more provisions, like transparency in decision-making, enforcing accountability, and shareholder participation, highlight the importance of resolution under company law.
Meaning of resolution in Company Law
A company needs to make many decisions to grow its business and fulfill its legal requirements. For decision-making, the company needs to pass a resolution. A company is an artificial person created by laws; therefore, the company itself cannot make decisions. Therefore, company members, directors, and shareholders are making decisions for the company. Important decisions that impact the constitution or rules of a company require a resolution. However, at the time of making decisions for the company’s regular day-to-day operations, resolutions are not necessary, and decisions can be made without the formal process of a resolution. Resolutions play a crucial role for a company, as without passing resolutions, the company cannot make important decisions. Every company must adhere to all rules and regulations regarding resolutions; otherwise, the company may face legal action.
Under the Companies Act 2013, a resolution is a decision or agreement made by the directors, shareholders, and members of a company. When a resolution is proposed, it is referred to as a motion. Once a company completes the proper formalities regarding a motion, it becomes a resolution. After a resolution is passed, the company must act in accordance with it. When a company needs to make a major decision, it convenes a meeting of all its members. During this meeting, company members pass resolutions using various methods such as voting, expressing their will, or formally expressing their concerns.
Resolution by board
Directors of companies have the crucial power to run any company. All board members are appointed by shareholders of the company and they give power to the board of directors to take any important decisions regarding the company. But if any decision of the board of directors is wrong and reckless for any reason, this can directly affect the shareholders of the company. This is because any wrong decision can affect the business of the company, it can directly affect the share value of the company. To protect any company from all these disadvantages and to protect the interests of shareholders, the duties of directors are created in a legally binding way, and board resolution is one of the legally binding duties of the board of directors.
Passing board resolution
As per the Companies Act 2013, a board resolution is an official document of the company that formalises the decisions of the board members they take in a board meeting of the company. Under this act, Section 179 provides provisions and powers for the board of directors to pass board resolutions.
In Section 179(3)(c), the Board of Directors can issue securities, which means they can issue new shares and debentures in the company by passing a board resolution.
The board of directors can decide to borrow money on behalf of the company, but the amount they are borrowing must not exceed the amount mentioned in the AOA of the company as per Section 179(3)(d).
The board of directors can approve any financial transaction and grant a loan on behalf of the company, as per Section 179(3)(f).
The board of directors can approve investing company funds, but limits should not exceed those mentioned in the AOA of the company as per Section 179(3)(e).
The board of directors can provide approval for the merger and amalgamation of the company as per Section 179(3)(i).
The board of directors has the power to call on shareholders to pay the unpaid share amount of the company as per Section 179(3)(a).
A board resolution is a legal and written document for the company. The company board of directors makes a decision on the board resolution at the board meeting of the company. The board resolution is certified by the chairperson of the company and it must be signed by all board members who are present in the meeting. The company maintains records of every detail of the meeting as minutes of the meeting. The minutes of the meeting and the board resolution passed in the meeting are noted and preserved for future use by the company. And after finalising the board resolution by the board of directors, that resolution is a legally binding decision of the company.
As per Section 174 of the Companies Act 2013, to pass the board resolution, the company must maintain the quorum of the meeting. To maintain a quorum, the company must decide how many directors are present in the meeting and what the minimum number is for the quorum of the meeting. For example, if a company decides that the quorum for a meeting is 2, then if the company has a total of six directors, at least two directors must be present in this meeting to maintain the quorum of the meeting. The company decides the quorum for each meeting, which depends on the size of the company and the business of the company.
In a board meeting for any proposal, if members give equal numbers of votes, chairperson voting plays an important role in passing any board resolution. All board members of the company who are presented in a meeting appoint one person in between them as chairperson for the meeting. The chairperson helps the meeting go smoothly and casts their vote when the numbers of votes for both sides are equal in the meeting.
As per Section 173 of this Act, every director must get prior notice of the meeting and in that notice, they must know that they can participate in the decision-making process of the company. As per Section 118 of the Companies Act, recording minutes of every proceeding of every meeting must be maintained. Records of every proceeding of the company must be preserved. All these minutes serve as legal records of the company’s decision-making process, including passing board resolutions.
Passing of resolution by circulation
As per Section 173 of the Companies Act 2013, every company must conduct four board meetings in the year. In the board meeting, the director conducts discussions and reviews of the company’s performances, solves company policy issues, or discusses any topic related to company growth. Directors are participating in the meeting either in person or through video or audio conferencing.
In the board meeting, directors give their opinions on resolutions to decide particular matters; normally, resolutions are passed at a meeting. However, for specific matters, the company passes a special or ordinary resolution. Otherwise, the board resolution is passed by circulation for all matters of the company.
As per the Companies Act 2013, Section 175 provides provisions for the board to pass resolutions by circulation. This section must read and follow secretarial standards to pass a resolution for circulation. To pass a board resolution, a draft of the resolution, along with the required documents, is required to be circulated to all directors. This directors list includes all directors and members of the company, as well as all interested directors of the company and directors who are entitled to vote on the resolution. The company must send a draft resolution along with the necessary documents to the registered address of the directors, either by hand delivery, by post or courier, or by any electronic means like email that is approved by the majority of the directors and members.
To pass a resolution by circulation, there must be at least one-third of the total number of directors of the company required for deciding the resolution by circulation.
In addition, Section 118(10) of the Companies Act 2013 provides that every company must observe and follow the Secretarial standards regarding general and board meetings that are mentioned by the Institute of Company Secretaries of India under the Company Secretaries Act, 1980, Section 3 and this is also approved by the central government of India.
Procedures for passing Resolution by circulation
Board resolution passing by circulation need to follow Section 175 of this Act with The Companies (Meeting Of Boards And Its Power) Rules 2014 with Secretarial Standards-1
The chairperson of the board decides that the company can take any decision by passing a resolution by circulation. But if he is absent, then any managing director or any other directors, except for the interested directors, can approve that the company can take any decision by circulation.
Once a company director decides to pass a proposal by circulation, they first start making a draft of the proposal for resolution. In this draft, they must include some mandatory details like serial numbers and details of the proposal with relevant facts and the importance of the resolution, so that when the resolution reaches the directors, they can know the meaning, scope, importance, and necessity of the implications of that proposal. In this draft, they also include the concerns or interests of any director in the proposal, provided any director disclosed them earlier.
The resolution must include the last date of response, so before that, the director of the company needs to respond to the resolution and this last date must not be more than seven days from the date of circulation of the proposals. However, it must include two more days if the company sends the resolution by post or by courier to the directors.
Once the resolution is ready, the company must circulate the necessary documents with all the directors, including all the interested directors, to their registered addresses by post or email.
The company must maintain proof of documents that they are sending a draft proposal on a particular date to all the directors.
A resolution is passed when the majority of the directors provide approval for it. At least one-third of the total number of directors in the company must pass this approval. In this resolution, directors must provide their concerns in either a positive or negative manner before the date mentioned in the resolution. If the majority of directors provide positive responses to the resolution, it will be approved. If the director fails to express their concern for resolution before the mentioned date, the resolution is not passed.
After that, the company arranges a board meeting. In this meeting, the company makes note of this resolution and makes minutes of the meeting. Once they finalise the resolution in the meeting, this resolution is valid and passed by circulation.
Circulation of member’s resolution
As per Section 111 of this Act, the circulation of a member resolution is a resolution that is authorised by circulation among the members of the company. This resolution was passed when there was an urgent situation or when there were no requirements for conducting the board meeting. Company members who are eligible to call the annual general meeting can take part in a company activity. All the members who are eligible to vote must send the notice to them before the meeting. The period depends on what type of resolution they want to pass.
Which authority engaged in the circulation of a member’s resolution?
The company chairman is important for this but if the chairperson is absent, the top authority of the company is eligible to make decisions regarding resolutions by circulation and will get the approval of the board for a specific company. The company must maintain records of the meeting and all drafts and related documents must be preserved for at least three years from the date of the meeting.
In the process of member’s circulation resolution, notices and agendas are not playing an important role. Still, it is necessary to provide draft resolutions along with notices and give brief explanations in notices regarding proposals. It would be advisable to provide brief explanations for passing this resolution by circulation. There is a time limit for all the directors to respond to this notice; normally, it is seven days after delivering the draft to the directors but it depends on the urgency and necessity of the decision so the company permits time as per that requirement.
Important guidelines for circular of a members resolution
Any company cannot take advantage of this resolution by conducting a secret minimum number of board meetings.
Business-related decisions and resolutions cannot be passed by a member’s circular resolution; according to this act, they can only be passed after a properly conducted board meeting.
The committee or board of the company can only pass this member’s circular resolution. This resolution is only considered valid after the majority of directors of the company have accepted and passed it. This draft resolution is mandatory to be sent along with the necessary papers to all the members of the board, even if they do not have the power to vote.
Serial numbers must be mentioned for every circular resolution in the future to provide convenience for searching for related things.
More than 1/3 of the directors can finalise this member’s circular resolution. If there are not more than this number of directors, the company chairperson will send this resolution to the annual general meeting of the company.
Instances when a member’s resolution is passed under Companies Act, 2013
Appointment of director
In the Companies Act 2013, Section 152 provides provisions for the appointment of directors. Company members pass an ordinary resolution for the appointment of directors, primarily occurring in general meetings of the company, such as the annual general meeting or extraordinary general meetings. Sections 149, 161, and 164 of the Companies Act 2013 provide provisions for the tenure of directors, qualifications, and disqualifications for the appointment of directors. It also provides requirements for passing resolutions for the appointment of directors to ensure transparency in this appointment process.
In the case ofRajahmundry Electric Supply Corporation Ltd. v. Nageswara Rao (1955), the Madras High Court stated that the appointments of directors need to be in accordance with the provisions mentioned in the Companies Act. Shareholders must approve the decision to appoint directors through a resolution.
Alteration of MoA and AoA
In the Companies Act 2013, Section 13 provides provisions for the alteration of the MOA, which includes changing the company’s name, the object clause, and the registered address. For an alteration of the company’s MOA, shareholders of the company must pass a special resolution. Section 14 of the same Act deals with the alteration of the AOA of the company. This alteration includes the conversion of the company type, changing the rights and duties of members, amending the rules and regulations of the company, and amending the rules and regulations of the share capital of the company. This alteration is only approved after completing legal requirements and passing a special resolution by shareholders.
In 2021, Maruti Suzuki India made alterations to its MOA. In the object clause of the MOA, they made changes. These changes include modifications in sub-clause 9 in clause III(a) of the MOA. Changes include operating and maintaining Web platforms for selling, charging fees for providing these platforms for selling and offering space to third parties for advertising on web portals.
Voluntary winding up
Under the Companies Act 2013, Sections 304–323 provide provisions for the voluntary winding up of the company. But these provisions are now omitted; this process comes under the Insolvency and Bankruptcy Code 2016. For this process, the company leadership decided to conduct an annual general meeting. In that meeting, company members and shareholders passed a special resolution. As per the terms of the special resolution, it requires the consent of a minimum of 75% of shareholders or members of the company to pass this resolution for the voluntary winding up of the company. The Companies Act 2013 and the Insolvency and Bankruptcy Code 2016 govern the process of winding up the company.
Voluntary winding up is a legal process through which a company decides to cease its operation and close its business activities voluntarily. When company members and shareholders determine that the company is no longer viable or profitable, they start the process of voluntary winding up. Once the decision to wind up is made, the company sells all its assets and converts them into cash. There are two types of winding up: company winding up (voluntary winding up) and court winding up (compulsory winding up). In the first type of winding up, which means company winding up, there are two sub-types: members voluntary liquidation and creditors voluntary liquidation. In members’ voluntary liquidation, the company is solvent, and members decide to wind up. In contrast, in creditors’ voluntary liquidation, the company faces financial distress. In that situation, company members and shareholders decide to wind up for the company.
The second type is Court winding up (compulsory winding up) occurs when the company is insolvent, unable to pay debts, or violates statutory compliance. In that case, a third party decides to wind up the company, either the court or creditors of the company, who decide to close the operation of the company by winding it up. In the case of IL & FS Engineering and Construction Company Ltd. v. Government of Karnataka (2019), the petitioner, IL & FS Engineering and Construction Company Ltd., entered into a contract with the Bangalore Development Authority. However, they had disputes over the project and ended up in an arbitration process, where the arbitrator gave his decision in favor of the construction company. However, the Bangalore Development Authority did not follow this decision and failed to pay according to an arbitrary decision.
The company filed a petition in the High Court of Karnataka for the winding up of the BDA because it failed to follow the arbitration award. In court, the petitioner argued that BDA must go for compulsory winding up as they failed to implement arbitration agreements and also failed to pay the money to the construction company. But BDA says in court that the petitioner’s argument was not maintainable and that the petitioner has other remedies available. After that, the court examined whether the BDA came under the Companies Act 1956 or was registered under the Companies Act, and the court came to the conclusion that the BDA was not a registered company; it is a local authority. Therefore, the court dismissed the writ petition for winding up BDA that was filed by the petitioner.
In the case of M/S Kaledonia Jute and Fibres Pvt. Ltd. v. M/S Axis Nirman and Industries Ltd. & Ors. (2020), the second respondent filed a petition against the first respondent for winding up the company because they failed to pay the debts. The court granted results in favour of the second respondent and also appointed a liquidator. But after that, the first respondent filed an application for a recall order of the winding-up process and was ready to pay the amount to creditors but the official liquidator opposed this, saying that many creditors owed it. Meanwhile, creditors filed an application for transfer of this case in NCLT under the Insolvency and Bankruptcy Code 2016 under Section 7. The application was rejected by Allahabad High Court on the grounds that the results of winding up had already passed. Creditors filed an appeal in the Supreme Court, which held that in the process of winding up, all creditors are involved as a collective party, even if this process of winding up was started by one or more creditors. Under the Companies Act 2013, Section 434(1)(c) provides the term ‘party’. All the creditors come under this term and the official liquidator acts on behalf of the entire body of the creditors.
In this case, the Supreme Court says that the petitioner had the right to request the transfer of the winding-up process against the first respondent to NCLT. The preceding orders of the High Court of Allahabad, which rejected the transfer petition based on Rule 26 of the Companies (Court) Rule 1956, were deemed incorrect. The previous order was set aside and the process of winding-up that was being conducted in the company court (Allahabad High Court) had been ordered to be moved to the NCLT against the first respondent. This came together with the applicant’s application under Section 7 of the IBC.
Rectification of the name of the company
As per the Companies Act 2013, Section 16, the rectification process ensures that the company name conforms to the legal and statutory requirements of this law. There are several grounds for rectifying the company name, such as if the company name is similar to that of any registered company, if the company name is misleading or offensive, or if the company name does not comply with the naming rules specified.
When, for any reason, a company needs to rectify its name, the first step is to pass a board resolution. In that resolution, the company must mention a new name and the reason for changing the name of the company. After that, the company must check the availability of the new name and also ensure that the new name of the company is as per the rules and regulations mentioned in the Companies Act 2013. The company must also check that the new name is not similar to any existing registered company or registered trademark. When the company finalises its new name, it must file an application with the registrar of the company. They must fill out an application along with this information – including the old name of the company, the new name of the company, the reason for changing the name of the company, the board resolution, and the consent of the members of the company. Along with this, the company must pay appropriate fees as per the Companies Rule 2014.
Once the application is filed by the company, the registrar of companies checks the application and the information provided with the application. The Registrar of Companies also checks that the company’s new name is not similar to any company name that is already registered. If the Registrar of Companies is satisfied with the application and documents provided by companies, then the Registrar of Companies issues a certificate of incorporation with a new name, and if the Registrar of Companies is not satisfied with the application, they decline the application of companies.
Once the registrar of the company gives an incorporation certificate, the company must publish notice of the name change in newspapers that are published in the district where the registered office is situated, as well as in the official gazette. After that, the company must change its name on all official documents, including the MOA, AOA, business cards, and websites.
Types of resolution in Company Law
A resolution is a decision taken by the members of a company that includes shareholders, directors of the company, or any other members who are eligible to vote for any resolution. When members make decisions on various aspects of the company, like operations or finances, they make decisions that are important for the economic progress of the company. The process of passing a resolution starts with creating proposals for resolution that show why a specific resolution is needed for any specific company decision.
Resolutions are of several types:
Ordinary resolutions, which are used for regular matters of the company, and passing this resolution with a simple majority vote.
Special resolutions are used for taking any crucial decision of the company, and for this resolution, a high number of votes for passing it are required. Board resolution is when the board of directors decides in the board meeting of the company, This resolution covers various types of topics, like decisions on financial statements of the company or appointments of any directors, etc.
Ordinary resolution in Company Law
As per the provisions of Section 114(1) of the Companies Act, 2013, an Ordinary Resolution is one way for any decision-making process. In which a proposal is passed when the number of voters in favour of passing any resolution exceeds those against it. Voters include directors, shareholders, and eligible members of the company who are present at a meeting either in person, by proxy, or in any electronic mode that is acceptable to the company. Voters can cast their votes in different ways, such as by showing hands, using an electronic poll, or using ballot paper. However, positive votes must be more than 50% of the total number of votes.
As per the Companies Law 2013, Section 114(1) provides provisions for passing any ordinary resolution passed in the general meeting of the company. For passing this resolution, more than 50% of the members who are present in the meeting must vote for the resolution, or in the case of the passing resolution, the ordinary resolution is passed and it is binding on the company to follow the decision that is passed by any ordinary resolution. An ordinary resolution is passed for making general decisions in the company, like decisions that need to be taken in the day-to-day activities of the company.
How to pass an ordinary resolution
The first step to passing any ordinary resolution is creating proposals for resolution. Directors of a company create proposals for resolution. In those proposals, they mentioned the purpose and details of that resolution.
When a company wants to pass any ordinary resolution, it must conduct a general meeting or an annual general meeting. The company must create a notice of the meeting as per Section 101 of this Act. The company must mention the purpose of the general meeting and mention that in the meeting, the ordinary resolution process is being conducted. This notice goes to every shareholder who is eligible to present at the meeting.
The company conducts a general meeting to pass an ordinary resolution and the meeting must maintain the quorum that is decided by the company for the meeting as per Section 103 of the Companies Act 2013. In this meeting, company shareholders cast their votes, they can cast one vote for each share they hold, or as per the guidelines mentioned in the company AOA. More than 50% of votes are required to pass any ordinary resolution. Members can vote in a meeting by person, by proxy, by ballot paper, or by any electronic means that is permissible by the company or as per the articles of association of the company. However, they must ensure the voting process in the meeting maintains transparency and fairness.
As per the Companies Act 2013, Section 118, the company records minutes of the meeting. In these minutes, the company records all details of the meeting, like the quorum of the meeting, the voting process of the meeting, as well as the outcome of the voting process in meeting any appointments or reappointments that were conducted by passing an ordinary resolution. Minutes must be recorded and signed by an official authority of the company. The company must preserve these minutes for the records of the company. If a resolution is passed, it is applicable in accordance with the decisions made by the shareholders of the company. Companies must disclose the results of the ordinary resolution in their annual reports to maintain transparency in this process.
The last step in passing any ordinary resolution is documentation and filling out under Section 117 of the Companies Act 2013 for specific changes in the company, like alterations in the AoA of the company. As per this section, this copy of the resolution and the necessary documents must be submitted to the Registrar of Companies within 30 days after passing an ordinary resolution. Otherwise, the company will receive a penalty for not submitting it. The company must maintain records like proposals of resolutions, copies of resolutions, notices of meetings, and minutes of meetings to complete legal compliance as well as maintain records for future reference.
Matters requiring sanctions by ordinary resolutions
As per Section 123 of the Companies Act 2013, when a company receives profit, it provides dividends to shareholders of the company. So in that case, the company passes any ordinary resolution for taking approval from shareholders for the recommended rate of dividends that was decided by the board. This resolution finalises the rate of dividend and rate of per share dividend as per the paid-up share capital and the total amount of dividends. Section 123 provides rules and regulations for the payment of dividends and a company can only pay dividends when it makes a profit in the financial year.
Section 152 of the Companies Act 2013 provides procedures for the appointment of directors. This includes the tenure of directors, the eligibility of directors, and the cases or reasons where the company can disqualify any director before completing the time period that was decided by the company. No person can appoint a director if they do not have a Director Identification Number (DIN) as per Section 154 or any other number that is indicated in Section 153 of this act. Directors must provide their concerns to the registrar’s office within 30 days of their appointment as directors.
Directors of companies play a very important role in the decision-making process of the company as well as handling the day-to-day operations of the company. The company appoints new directors or reappoints existing directors by passing an ordinary resolution. This resolution includes the names of the newly appointed directors, the time period for directors, the remuneration of directors, and the duties that directors perform after their appointment.
Section 139 provides provisions for the appointment of an auditor for the company’s financial year. This is an important decision to ensure transparency and accuracy in the financial statements and activities of the company. Company financial statements include the profit and loss account, cash flow statements, and balance sheet of the company. The company passes an ordinary resolution for appointing any auditor. They can appoint any auditor for a particular time period. This ordinary resolution includes the area of work and provides compensation for auditors. Section 141 provides rules and regulations for the qualification of auditors and the duties of auditors, along with the process of appointing auditors.
Provisions requiring sanctions via ordinary resolution under Companies Act, 2013
When any company inadvertently provides the wrong information to the registrar of companies regarding its approval for the name of the company. In that case, the registrar of companies gives direction to the company to change these mistakes and the name of the company within a period of three months by passing any ordinary resolution.
Any company name that is similar to any previously existing company or close to the name of the company, or if the trademark of the company is similar to that of any previously existing company. In that case, the company is directed to change its name within a 3 to 6-month time period by passing an ordinary resolution.
Under Sections 73 and 76 of the Companies Act 2013, a company can pass an ordinary resolution to decide, subject to prescribed rules in consultation with RBI regulations, on accepting deposits from its members along with specific terms and conditions. These rules and regulations encompass conditions for repayment of the deposited amount, interest rates, and the provision of security deposits, all of which are determined through ordinary resolution.
The company can pass an ordinary resolution, and, at the time of winding up, decide on an official liquidator for the company and finalise payment to that liquidator.
If any company wants to be registered as a limited company, this company needs to pass any ordinary resolution with the approval of members of the company.
Special resolution in Company Law
As per Section 114(2) of the Companies Act 2013, for passing any special resolution, notice must be provided for calling the general meeting along with other important information regarding the special resolution to eligible voting members. Notice is mandatory and must be duly given to members. Voters cast their votes in the meeting by showing their hands, using postal ballots, or by any electronic means that is acceptable to the company. Only those members who are eligible and present in the meeting, either by person or by proxy, can cast their votes. However, the vote in favour of the resolution must not be less than three times the total number of votes.
Special resolution plays a very important role when making any crucial decision for the well-being of the company. When the company decides to take any decision by passing a special resolution, it means that the decision is important and can have direct consequences for the company, so the approval of shareholders for these decisions with a majority is mandatory. To pass a special resolution, three-fourths, i.e., 75% of the total members of the company, must be present and vote in a meeting. Members can give their vote either in person, by proxy, or by any electronic means as per the AOA of the company. Major numbers of votes are required to pass any special resolution because the decision taken will have a huge impact on company affairs.
A special resolution is distinct from an ordinary resolution because the decision taken by a special resolution has a major impact on the company’s structure and legal status. This decision includes a change in the MOA of the company, a reduction or increase in the share capital of the company, a decision for mergers and acquisitions with other companies, and a decision for any voluntary winding up of the company. This is a very crucial decision for the company to maintain transparency and loyalty. Section 114(2) provides the process of passing special resolutions and requirements for this process, which helps to maintain a systematic way of making any corporate decision.
Requirements for passing any special resolution under the Companies Act 2013
Notice for General Meeting
The company first creates a notice for the general meeting of shareholders. In that notice, the company mentions the purpose of the resolution proposed and why this proposal requires approval by a special resolution.
This notice is sent to all eligible members of the company at least 21 to 28 days before the conducting meeting, in accordance with Section 101 of the Companies Act 2013. This Notice contains a detailed explanation of resolution proposals and clarifies why the company wants to pass a special resolution for taking any particular decision in the company. Because they mentioned all this information to understand the member’s importance of this notice and proposals when they received the notice.
Quorum and voting
A special resolution requires major numbers of votes, so there must be at least three-fourth, i.e., more than 75% of the total number of members of the company, present in the general meeting and vote for this resolution.
Shareholders can vote either in person or by proxy, by postal ballot, or in any electronic mode that is acceptable to the company as per the AOA of the company as mentioned in Section 108 of this Act.
They can use methods for voting, such as raising their hands, using ballot paper, or by other means that apply to the company. A special resolution is necessary if more than 75% of the members are voting. Only a special resolution is passed as per Section 114 of the Companies Act 2013.
Rules and regulations
The company must follow strict rules and regulations for special resolutions that are mentioned in the Companies Act 2013 as well as in the Articles of Association of the company to ensure the legitimacy and applicability of the special resolution. Rules and regulations ensure that the decision-making process is maintained within a legal framework, taking care not to hamper the interests or rights of shareholders and to maintain fairness in the decision-making process of corporate governments.
Minutes of the meeting
The company must maintain minutes of the meeting and record the proceedings of the general meeting in which a special resolution is proposed and passed. Minutes must be noted for the discussion, decision, and voting results of this meeting for the legal records of the company as per Section 118 of the Companies Act 2013.
Filing with ROC
As per Section 117 of the Companies Act 2013, a company is required to file special resolutions and related documents with registered companies within the appropriate timelines, This ensures the transparency of important company decisions and makes those decisions accessible to stakeholders and regulatory authorities, which increases the validity and legality of the decision.
Provisions requiring sanctions via special resolution in the Companies Act 2013
As per Section 71, if a company wants to issue debentures that can be converted into shares, it needs to pass a special resolution and obtain approval from shareholders.
A special resolution helps to appoint a manager and managing director of the company, and if the company wants to appoint someone over 70 years old, it needs to get approval by passing a special resolution.
When a company wants to invest in any company, it must provide information regarding that company to the central government. For this, the company needs to pass a special resolution.
When any company is winding up its operations and they need to destroy the books of accounts and documents of the company, they need to get approval from shareholders by passing a special resolution.
Matters requiring sanctions by special resolutions
Section 12(5) of the Companies Act 2013 provides provisions for procedures for changing the registered address of the company. This process requires approvals from regulatory bodies and also requires the filing of some documents, as mentioned in Section 12(5).
The company passed a special resolution for these because this decision can directly affect company compliance, so in that case, a special resolution is required to be more than 75% of the total number of members who vote for this proposal and pass this resolution. A company can change its registered address from one district to another district or from one state to another state with the same jurisdiction as the registrar of companies.
Section 180 of the Companies Act 2013 states that borrowing powers exceeding paid-up capital and free reserves include which company sets aside for any specific purpose those reserves of the company. It is mandatory to pass a special resolution. Passing a resolution by a huge vote, like more than 75% of the members voting, ensures the safety and importance of financial decisions taken by the board and shareholders. This decision can directly affect the financial stability of the company so there is a need for a higher number of voters to approve it. The reason behind this is that laws and regulations aim to prevent unlimited borrowings and enhance the quality of corporate governance so that it does not create any harm to shareholder protection and also maintains the integrity of the company.
Section 188 of the Companies Act 2013 deals with related party transactions. Related party transactions, which include transactions between the company and its related party, are mentioned as related party transactions. Doing any sale, purchase, or supply of any materials or goods or taking any services like selling or buying any kind of property or appointing any person as an agent in the company all of these transactions come under related party transactions. Related parties may include business affiliates, shareholder groups, subsidiaries, and minority-owned companies.
As per the rules, the company board approved this transaction and ensured there were no biased decisions. The company also gets approval from shareholders through a special resolution passed at a general meeting. This special resolution ensures fairness, clarity, and approval from shareholders. The company must maintain records of this transaction in its financial statements to keep this process fair. If any company fails to follow these rules, it can receive penalties.
As per Section 13 of the Companies Act 2013, changing the MOA of the company means making changes in fundamental aspects of the company, such as changing the company name, changing the registered office of the company, changing the object clause of the company or changing the share capital clause of the company. If a company wants to alter its MOA, it must get approval from shareholders. By passing a special resolution, they ensure that they are getting consent and approval from shareholders. To change the MOA of the company, they must obtain permission and approval from the registrar of companies. Once the registrar of companies approves the alteration of the MOA, it is legally binding and will govern company activity in the future.
In the case ofReckitt Benckiser (India) Private … v. State of H.P. & Another, on February 29, 2020, Petitioner Reckit Benckiser, a company situated in Himachal Pradesh, applied to change its name in revenue records. The company applied to change its name from a public company to a private limited company under Section 13(2) of the Companies Act 2013. However, the government of Himachal Pradesh charged stamp duty and registration fees on the value of assets transferred due to the name change of the company.
But in this process, there was only a name change, not a transfer of property, so the petitioner challenged this decision in the high court of Himachal Pradesh. The petitioner argued in court that no stamp duty or registration fees were payable on a conversion of the name of the company, as there was no transfer of property in this process. The state government of Himachal Pradesh asserted that the conversion from a public company to a private limited company was applicable for stamp duty under Section 3 of the Indian Stamp Act of 1899.
The High Court of Himachal Pradesh rejected the argument of the State Government of Himachal Pradesh that the name change process was not applicable for any stamp duty or registration fees. This argument was not legally and factually sustainable and was quashed by the High Court and set aside. The respondents were instructed to update the petitioner’s changed name in the revenue records within six weeks. So this allowed the petitioner to get the right authority that he needed under Section 118 of the Himachal Pradesh Tenancy and Land Reforms Act 1972, and the petitioner obtained relief in this case.
Section 62 of the Companies Act 2013 provides provisions for the issue of new shares in companies. A company can issue new shares to increase its capital and gift these shares to employees by using Employee Stock Option Plans (ESOPs). The company passed a special resolution for deciding and getting approval from shareholders for issuing new shares, determining the price of each share, and giving authority for issuing new shares. That resolution ensures that issuing new shares is only used for increasing the share capital of the company or gifting to employees and does not hamper any rights or privileges of existing shareholders of the company.
Differences between ordinary resolution and special resolution
Ordinary resolution in Company Law
Special resolution in Company Law
Ordinary resolutions are passed by a simple majority; there are not more than 50% of the members of the company who are required to vote for passing this resolution.
A special resolution is passed by a higher majority, like 70% to 90% of the members of the company, who must vote for it to be passed.
Ordinary resolutions are passed for the daily activities of the company, like finalising the annual budget of the company or appointing any new board members in the company.
A special resolution is passed for some crucial matters like amalgamation or merger of companies or changes in memoranda of association or articles of association of companies.
Any ordinary resolution does not require advance notice; in the annual general meeting, an ordinary resolution can be passed by the company.
A special resolution needs to give advanced notice to every person who is eligible to vote on this resolution. A specific time is decided, and the person must send notice according to that.
Members can give their vote for an ordinary resolution by hand or by proxy; there is no need for any secret ballot method for voting.
For special resolution, there is the exact opposite method for voting; they use the ballot paper or by proxy but they mostly do not use an open voting process.
Ordinary resolutions do not need to maintain a specific quorum.
For a special resolution, there is a need to maintain a specific number of quorums.
Any ordinary resolution is passed by the board of directors or shareholders of the company.
A special resolution is normally passed by the shareholders of the company.
Passing any ordinary resolution does not require any legal or regulatory approval.
Passing a special resolution required legal and regulatory approvals.
If a company wants to make changes to its AOA or MOA, it cannot do so by passing an ordinary resolution.
The company can make changes to the AOA or MOA by passing a special resolution.
Important provisions for resolution as per the Companies Act, 2013
Section 116 of Companies Act, 2013
Section 116 of Companies Act, 2013 contains provisions for a resolution passed at an adjourned meeting by the board of directors of the company. The passing date of the resolution is considered the date of the passing resolution; it is not any other date or any earlier date. Where any resolutions are passed at any adjourned meeting, the resolution passed on a specific day is considered the passing date of the resolution, not any earlier date. A resolution that is passed in an adjourned meeting is valid and legally binding from the date on which it is passed. If the company takes any decision or action on the basis of a resolution passed in an adjourned meeting, it is valid and applicable from that specific date when the resolution is passed. The company can adjourn any board meeting if a quorum cannot be maintained, as specified in the articles of association of the company. The meeting will be adjourned on the same day in the following week, at the same place and time and if adjourned meeting days have national holidays, the next day meeting will be conducted as per Section 174(4) of the Companies Act 2013.
Section 117 of Companies Act, 2013
The company must file a copy of every resolution or copy of any agreement as mentioned in Section 117(3), along with explanatory documents that are mentioned in Section 102 and a notice of meeting that includes proposals for resolution, before completing thirty days of passing any resolution as per Section 403, which is the time period for this, along with the necessary fees as provided. As per Section 117(2), if a company is not able to file all these requirements or the resolutions that are mentioned in Section 117(1) before thirty days of passing any resolution, they can receive a fine of up to 5 lakh rupees and it can go up to 25 lakh rupees. Every officer of the company, including the liquidator, can get a fine of up to 1 lakh rupees and it can go up to 5 lakh rupees. They can receive a penalty of 50 thousand rupees and if they continue to fail, they get a penalty of 5 hundred rupees daily, which can get up to 3 lakhs.
For example, ABC Pvt Ltd. called any annual general meeting and passed any special resolution in the meeting for relocating the registered office of the company, which means making changes in the AOA of the company. In that case, as per Section 117, the company must fill out this resolution along with some necessary documents, like an explanatory statement, that were annexed to the notice of the meeting and to the register of the company within 30 days of passing this resolution. The company received a fine of up to 5 lakh rupees and it can go up to 25 lakh rupees. Every officer of the company, including the liquidator, can get a fine of up to 1 lakh rupees and it can go up to 5 lakh rupees.
Section 118 of Companies Act, 2013
Every company, as per Section 118 of this Act, must create minutes of each proceeding of the company, like every general meeting, shareholder or creditors meeting, resolution passed by postal ballot, board meeting, or every committee of the board that takes any decisions. All these proceedings must be recorded in the form of minutes and signed by companies, and this must be done before 30 days of the conclusion of every such meeting. There is a need to preserve a postal ballot for this resolution by adding serial numbers to it for the records of the company.
Minutes of meetings shall be maintained in correct and transparent ways because they are legal evidence and records for the company. In these minutes from all these meetings, if the company passed a resolution and appointed directors, and auditors or removed any directors, then that must be recorded in the minutes. In the case of board meetings, they must record the name of the board of directors who are presented in the meeting and each detail of the meeting, like which resolution was passed in the meeting and whether any appointment of any person was conducted in the meeting. Some things need not be added to the minutes, like any defamatory statements regarding any person or any irrelevant or irrelevant things, and proceeding with regulatory seeking.
As per Section 118(6), company directors have the right to decide what can be added to the minutes and what can be avoided in the minutes. Only when minutes of the meeting are properly recorded as per the rules and regulations mentioned in this Act are they considered valid. The minutes must record all the discussions in the meeting as well as every decision and appointment that happens in the meeting, like the appointment of directors, auditors, or the removal of any key managerial person. All these records must be maintained in the minutes of the meeting. For the general meeting and board meeting, the company needs to follow rules and regulations that are set by the Institute of Company Secretaries of India and the central government of India. If any person tampers with the minutes of the meeting, he shall be punishable with imprisonment for two years and get a fine between twenty-five thousand and one lakh rupees.
Conclusion
In this article, we see the importance of company resolution in corporate governance. The company is making progress on the basic decisions taken by the company members. Which means shareholders and directors of the company. Making decisions for a company is a very crucial process because one wrong decision can harm the economic progress of the company. To avoid this, the company must follow the rules and regulations for making decisions. This resolution is a process that helps to make decisions in the right way.
Resolution is a vital concept that requires many factors for deciding whether any specific types are required for a particular decision. By passing a resolution, the company can change its legal statutes, make any alteration in its MOA, or AOA, or make any appointments, or removal or reappointments for any position in the company. The decision taken by resolution ensures that the decision is fair, transparent, legally valid, and binding on the company.
Frequently Asked Questions (FAQs)
How many types of resolutions come under the Companies Act 2013?
Under the Companies Act 2013, there are two types of resolutions one is a member resolution and the other is a director’s resolution. Member resolutions have two sub types- ordinary resolutions under Section 114(1) and special resolutions that come under Section 114(2) of this Act.
What are the differences between ordinary resolution and special resolution?
As per the Companies Act 2013, Section 14(1), it provides provisions for an ordinary resolution that is passed by a simple majority of votes. As per Section 14(2), a special resolution is passed by a large number of votes, like three-fourths or more than 75% of the total members of the company.
What is the role of the board of directors in passing any resolutions?
The board of directors creates a proposal of resolutions and presents resolutions in front of shareholders in a general meeting to take concerns from them. Generally, they are drafting and presenting resolutions as per the company’s strategic objectives and interests.
What is the concept of quorum and why is it important in corporate governance?
As per Section 103 of the Companies Act 2013, quorum means the minimum number of directors that must be present in a meeting to make the meeting valid. They can present as a person, by proxy, or by any electronic form like video or audio call, as permitted by the company. This provision applies to all companies, including public and private companies. Quraum is decided for each meeting by the company; it can depend on the size of the company or what type of business is conducted by the company.
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This article is written by Khimi Thapa, a content writer and former journalist, pursuing a Diploma in Content Marketingfrom Skill Arbitrage. The article highlights the potential of AI in the field of writing and what the future holds for writers in this changing landscape.
There are no two ways that writers form an important part of society. In the world of fiction, they push the boundaries of imagination and create believable as well as unbelievable worlds. In the world of journalism, the written word can influence public perceptions and inspire societal changes. In the world of advertising and digital marketing, writers create compelling narratives and ad campaigns that often make brands unforgettable for decades. In the film industry, writers come up with characters that become so iconic that they become part of the cultural consciousness of people across the world. This is why writers in various industries are often looked at with a lot of reverence. However, in the wake of artificial intelligence (AI) chatbots such as ChatGPT, Bard, Bing and Jasper, there have been debates revolving around the potential of AI to replace writers. Here we take a look at the evolution of AI, how it works, what AI can write and whether it will replace writers.
The use of AI for writing isn’t new
While ChatGPT and other tools became the buzzword in late 2022, it would be naive to think that AI was used for writing for the first time. The history of AI can be traced back to 1971, when an MIT student created an interactive spelling checker programme and by the late 1970s, the spell check feature was made available on all mainframe computers. This is not it. Recently, the author of a prize-winning novel about AI admitted to writing parts of the book using ChatGPT. It is surprising to learn that in 1984, a book was entirely written by a computer programme. The Policeman’s Beard is Half Constructed was a book of prose and poetry that was written using a computer programme and was given credit for authorship.
How does AI work
To understand how AI works, we need to understand what generative AI and large language models are. Generative AI is an umbrella term for all artificial intelligence models that have the capability to generate content. This means text generation is just one aspect of it. Generative AI includes the generation of code, images, video and audio. On the other hand, large language models such as ChatGPT, Bard and Jasper are large language models, a type of generative AI, that are trained to produce text.
Large language models are trained on a huge amount of datasets. These datasets and their quality affect the language model’s performance. AI tools are programmes that are trained on vast datasets to:
Interpret human language
Structure information into patterns
Convert patterns into readable text
What can AI do
When it comes to evaluating the potential of AI in writing, it would not be wrong to say that the field is quite vast. With the help of AI, writers can focus more on the cerebral aspects of writing than the mundane aspects. However, first, we need to understand what AI is capable of doing as far as writing is concerned.
AI can be used for:
Generating blog ideas
Creating content calendar
Editing or improving existing content
Drafting emails
Creating promotional emails
Creating social media posts
Writing online for books
Generating interview questions
Translating documents in multiple languages
Note: The quality and capabilities of AI depend a lot on the software you are using. The reason is that different software is trained on different datasets.
Why writers use AI
In today’s technologically advanced and fast-paced world, it’s important to keep pace with modern working processes. This is why many writers use AI to improve their creative process, improve efficiency, and get done faster so that they can spend more time exploring new opportunities. Here are some reasons why writers use AI:
Not getting stuck with writing: Writers, novice and experienced, struggle to take forward an idea or paragraph. In such a scenario, AI can be of great help. By generating thought-provoking writing prompts, giving writers better words or helping writers understand the basics of a concept, AI can ignite and stimulate imagination. They can provide writers with some groundwork that they can transform into a compelling and full-fledged concept.
Quick research: One of the best things about AI is that it helps writers find relevant information about their topic in one place. This means grasping the basics of a subject on AI platforms can be a real time-saviour.
Outline: By creating an outline for a writing project, AI allows writers to get on with the meatier part of the project, which is writing.
Why writers fear AI
Unemployment: One of the biggest fears that writers have is unemployment. They not only fear that AI will replace them but they also worry that they will be replaced by people who will be valued for their knowledge of AI tools rather than writing skills.
Domain-specific expertise: One of the key things that make writers unique is the specialised knowledge or expertise that they have gained over the years on a specific subject. Writers fear that the specific insights and knowledge that they bring to their work may get sidelined or will be replaced by on-demand insights generated by AI.
Pros and cons of using AI in writing
Before we can discuss whether AI can replace writers, it’s important to understand the benefits that AI brings to writing and when it cannot be relied upon.
Pros
Improved productivity
Writing an outline for a 500-word article may take anywhere from 30 minutes to an hour. However, with AI, the same can be done in a few minutes. This means writers can produce more content that is trending and relevant without losing out on time. With the help of AI, they can reproduce the same content for different platforms while ensuring that its tonality aligns with different audiences.
Better quality of writing
Often, writers and editors work in cohorts to produce high-quality write-ups. However, AI tools can proofread the text, detect errors and even suggest better sentences, depending on the prompt. This real-time feedback turns writers into editors and thereby ensures that the final output meets certain standards of quality. This can be a real game-changer for non-native speakers.
Optimise for SEO
It’s a no-brainer that in today’s digital landscape, optimising the article for SEO can help improve its visibility and reach a larger audience. Producing high-quality content is the key to doing that. As per Google, their focus is on the quality of content, rather than how content is produced. AI can not only help writers develop content ideas based on trending topics, keywords and audience preferences; it can also write SEO-friendly meta descriptions. It also improves the readability of content by aligning with the Flesch-Kincaid Readability Test and the Flesch Reading Ease scores. AI tools can also offer deep insights into what kind of content is resonating with the audience and thus, writers or the writing team have data-driven feedback as to what approach to take.
Cons
Lack of human touch
It is the randomness of human creativity and thought that makes it so unique. For instance, many of Shakespeare’s phrases that we still use today — “wear my heart on my sleeve” and “break the ice”— have nothing to do with their literal meaning. Rather, these and many other phrases are products of human minds’ ability to draw connections between unrelated things. As the AI is trained on certain data sets, expecting a human level of creativity is not possible. Jokes, sarcasm and humour are still inimitable human traits, as they are drawn from cultural references and linguistic nuances, which in themselves are quite unique.
AI hallucinations
Many AI tools are in their nascent stages and this means that everything they come up with needs to be fact-checked. The reason is that AI tools often come up with answers to the prompt. They may read like facts, but they are not. For example, according to a news report, a young lawyer lost his job after he used an AI tool in legal documents. The tool created fake scenarios to support a legal motion. This makes fact-checking an important step in the writing process.
AI cannot produce anything new
While AI has a huge potential to do a lot of tasks, generating something absolutely new is not one of them. AI can mimic writers, but it cannot entirely produce something that is novel. While AI works on patterns that are fed into its system, human creativity remains unshackled by such limitations.
Will AI replace human writers
In the manufacturing industry, often AI-powered robots work along with human workers. They act as an extra set of hands. This can be true for the writing industry, where AI will not replace writers entirely but facilitate them to write better. AI tools will act like co-writers that play a supportive role. Here are some ways writers can leverage AI to get the most out of AI tools:
Learn how to write a good prompt: Ingredients and steps followed to cook play an important role in deciding how a dish will turn out. Similarly, AI-generated text is as good as the prompts writers provide the AI tools. Simple and uncomplicated instruction, along with adequate context, can help AI give writers the answers that they are looking for.
Do not overwhelm AI: Humans are quite adept at multitasking. For instance, writers can write an article, draft an email or promote their work on social media without losing their train of thought. However, AI is not designed to multitask. With too many prompts, AI can get confused and produce content that may not be of any use.
This duality raises questions about the nature of creativity, the boundaries of human understanding, and the role of machines in our lives. Can an algorithm ever truly replicate the unique touch of a human hand, the spark of an original idea, or the beauty of a work of art? Can a pen compete with the speed, accuracy, and scale of a computer programme?
The answer is not a simple one. The pen and the algorithm each have their own strengths and limitations. The pen excels at capturing the intangible, the personal, and the ephemeral. It allows for freedom of expression, experimentation, and the exploration of new possibilities. The algorithm, on the other hand, excels at processing large quantities of data, identifying patterns, and making predictions. It can automate tasks, provide insights, and assist with problem-solving.
The real challenge is not to pit the pen against the algorithm, but to explore the potential of their coexistence. By combining the strengths of human creativity with the capabilities of artificial intelligence, we can create something truly extraordinary. The pen can serve as a guide, providing the initial spark of inspiration, while the algorithm can refine, enhance, and amplify the creative process.
Together, the pen and the algorithm can challenge our assumptions about what is possible, break down creative barriers, and open up new avenues for self-expression and problem-solving. As we move forward, it is important to embrace the unique contributions of both the human mind and the machine, fostering a harmonious partnership that leverages the best of both worlds.
Conclusion
Instead of looking at AI as a competition, writers must see it as a collaboration between humans and AI, where the latter enables humans to focus on higher-level tasks. AI is a tool that can enhance productivity, but in itself, it is not adequate to function on its own or completely replace human involvement.
AI is generally defined as the wisdom of making computers do things that bear intelligence when done by humans. AI is usually defined as the science of making computers do things that require intelligence, when done by humans. Hence, it refers to a broad set of algorithms deduced from computer science, computer graphics, robotics, and control propositions in general. Hence, AI in gaming could just mean “automated calculation” or a destined and limited set of responses to a destined and limited set of inputs.
What’s AI in gaming
AI refers to the integration of artificial intelligence into the videotape game. This primarily refers to the control of non-playing characters ( NPCs). These characters interact with players more realistically and actively, adding to the absorption of the game. This enhances the gameplay.
AI is also being used in game design to produce more dynamic and intriguing situations and content. This can help inventors produce more varied and absorbing games with less trouble. For illustration, AI might be used to design game situations that are procedurally generated, meaning that they’re created on the cover as the player progresses through the game. This can help keep the game fresh and intriguing for players, as they aren’t simply playing through the same situations over and over again. This makes the game more gruelling and satisfying for players, as they feel they are playing against a good opponent.
Types of AI in gaming
There are two main approaches to game playing in AI
Rule-based systems
Machine learning-based systems.
Rule-grounded systems use a set of fixed rules to play the game, while machine learning-based systems use algorithms to learn from experience and form opinions grounded on that experience. They induce models grounded in algorithmic literacy, which can continue to learn as the data increases. Hence, these become more accurate models with time and experience.
BOTS or non-playable characters( NPCs): These characters are set up in colourful games. They can completely interact with the player and make the game more realistic to play. Some of these characters can also make it difficult to pass a certain position as they work based on their programming so if they’re programmed to make a position feel hard to pass, it gets difficult for the player.
Visual effects & realism: AI is also used to make existing games look even better with new-age graphics, natural animations, lighting, reflections, etc. for providing more realistic textures and visual effects, thereby giving a more immersive experience. Game inventors use AI to enhance the graphic designs of games that existed in earlier forms and make them look more natural and closer to real life.
Voice & speech recognition: AI uses Natural Language Processing( NLP) to make the game feel more realistic. You, as a player, can talk to the other players in the game, and they can reply to you each time by using this system by the AI. SIRI and CORTANA are a few exemplifications of this nature.
Music: Now, with advanced AI, numerous game inventors are also using AI to make the music for their games. Making music is a task that isn’t easy, so by using AI, we can make the process much quicker and more efficient in the long run.
Benefits of AI in gaming
Realistic non-player characteristics: NPCs or non-player characters, are the characters in the game who act intelligently as if they were controlled by human players. These characters’ behaviour is determined by AI algorithms and that adds depth & complexity to the game, making it more immersive for the players.
Enhanced player experience: NPCs can completely interact with the player and make the game more real to play. Some of these characters can also make it delicate to pass a certain level as they work on their programming so if they are programmed to make a level feel hard to pass, it gets difficult for the player.
Intelligent game balancing & testing :
AI can be used to balance multiplayer games, ensuring fair & enjoyable experiences for all players. AI-powered testing can simulate hundreds of gameplay scenarios, uncovering hidden bugs & optimising game mechanics more efficiently. AI algorithms can be employed for matchmaking to create balanced teams or opponents based on players’ skill levels and preferences.
Game AI can figure out the ability and emotional state of the player, and then tailor the game according to that. This could even involve dynamic game difficulty balancing, in which the difficulty of the game is adjusted in real-time, depending on the player’s ability. AI in gaming could even assist in figuring out the player’s next move intent.
Innovative and creative ideas: AI can also be used to get some out of the box ideas for games. It is a great tool to find fresh ideas, as the games can quickly get repetitive. The companies need to have newer ideas for the games to flourish.
Game stage design: AI can also be used to make better levels designed for the game to be more playable and more enjoyable for the players. The stages can be designed with increasing challenging levels to make them more enthralling. It has to be challenging yet not frustrating. It is truly a great tool for designers who have to constantly think of game design.
Player monitoring and well-being:
Behaviour analytics: AI algorithms can analyse player behaviour to identify patterns, preferences, and areas for improvement. This information can be used to personalise gaming experiences.
Health monitoring: Wearable devices or in-game sensors can be used to monitor players’ physical health indicators. AI analyses this data to detect signs of fatigue or stress.
Alerts and breaks: AI can generate alerts or recommend breaks for players based on their health data. This helps prevent extended gaming sessions that may negatively impact well-being.
Cheating prevention: AI is used at large to help with infidelity, especially in multiplayer games. These games are played by millions of players at the same time and numerous of these players also resort to the practice of infidelity. AI is used to find those players by assaying their gaming patterns and also giving them warnings, either guarding or blocking them straight to make the terrain better for the genuine players.
Quality assurance: Numerous gaming companies also use AI to test their games. numerous times, newer games that don’t have numerous brigades and games that are generally independent use AI to find bugs in their games and also to fix them so that the gaming can be better by those independent gaming companies.
Data mining & analytics: AI can be used to understand the number of players. It’s used to check how many players are playing the game and how many are playing a certain kidney of the game. This helps gaming companies concentrate on what’s in demand and enhance their gaming experience.
Most popular AI games
AI dungeon: AI Dungeon is a single-player/multiplayer text adventure game which uses artificial intelligence to generate content and allows players to create and share adventures and custom prompts
GTA series: Grand Theft Auto games have been revolutionary for various reasons. It allowed a player to do many things that they wanted to do in an open-world game. There are a large number of NPAs in GTA that allow the player to interact with different characters in the game more realistically.
Black & White : Black & White, a God video game, combines elements of artificial life and strategy. The player acts as a god whose goal is to defeat Nemesis, another god who wants to take over the world. A primary theme is the concept of good and evil, with the atmosphere being affected by the player’s moral choices.
Fortnite: A popular game, this game also uses AI to make gaming more dynamic. It uses AI to make the environment change, bring various new events into the games, and change the whole gaming element.
Civilisation Series: In this game, you can design various ancient civilizations. In this game, AI is used to make the objectives of the game more and more unique and interactive.
Legal framework for gaming in India
The gaming industry in India is one of the fastest-growing industries in the country. The industry is estimated to be worth over $2 billion and is expected to grow to over $5 billion by 2025. The growth of the industry has been driven by a number of factors, including the increasing popularity of mobile gaming, the rising disposable income of Indians, and the growing internet penetration rate.
The gaming industry in India is governed by a number of laws and regulations. The most important of these laws is the Information Technology Act of 2000. This law provides a legal framework for the regulation of online gaming in India. The law prohibits online gambling and betting, and it also regulates the content of online games.
The Cinematograph Act, 1952, regulates the production, distribution, and exhibition of films, including video games, in India. The Copyright Act, 1957, protects the rights of creators of original works, including video games, and the Trade Marks Act, 1999, protects the rights of owners of trademarks, including those used in video games.
The gaming industry in India is also subject to a number of self-regulatory codes. For example, the All India Gaming Federation (AIGF) has developed a code of conduct for its members, which includes a commitment to responsible gaming and the protection of minors.
The legal and regulatory landscape for the gaming industry in India is complex and evolving. Companies operating in this industry need to be aware of the relevant laws and regulations and ensure that they are in compliance.
Here are some of the key challenges facing the gaming industry in India:
The fragmented regulatory landscape can make it difficult for companies to operate in multiple states.
The lack of a clear definition of “gaming” can lead to uncertainty about which laws and regulations apply.
The high cost of compliance can be a burden for small and medium-sized enterprises (SMEs).
The limited availability of skilled labour can make it difficult for companies to grow.
The gaming industry in India is facing a number of challenges. These challenges include the lack of a clear regulatory framework, the high cost of game development, and the piracy of games. Despite these challenges, the gaming industry in India is expected to continue to grow in the coming years.
AI in gaming and India’s stance
AI in games and India’s stand Artificial intelligence (AI) is rapidly transforming the gaming industry, and India is at the forefront of this revolution. Indian game developers are utilising AI to create immersive and engaging gaming experiences that are captivating players worldwide.
AI is also being leveraged to enhance the overall gameplay experience. AI-driven algorithms can dynamically adjust the difficulty level of the game based on the player’s skill level, ensuring a challenging yet fair experience. Additionally, AI can be used to generate dynamic content, such as procedurally generated levels and quests, providing players with a sense of endless exploration and discovery.
In India, there is a thriving community of game developers who are actively exploring and implementing AI in their games. Several Indian game development companies, such as Dhruva Interactive, have gained international recognition for their cutting-edge use of AI in their games.
The Indian government is also recognising the potential of AI in the gaming industry. In recent years, the government has taken steps to promote the growth of the gaming sector in India. One of the key initiatives is the Digital India initiative, which aims to transform India into a digitally empowered society. The government is also providing financial support and incentives to game developers to encourage the development of innovative games in India.
As a result of these efforts, India is rapidly emerging as a global hub for AI in games. Indian game developers are creating world-class games that are pushing the boundaries of what is possible with AI. With the continued growth of AI in games, India is poised to become a major player in the global gaming industry.
Future of AI in gaming
The global video game market size is projected to hit around USD 610.6 billion by 2032, growing at a CAGR of 10.5% during the forecast period of 2023–2032.
AI will be a critical contributor to redefining the future of the gaming industry. AI in gaming is going to be transformed with more technological advancements. In the future, with AI, the whole game can be developed within a few hours with highly detailed levels. Newer developments, such as personalised gaming experiences, will come out of the content to give an experience that is different for each player. Enhanced natural language processing will make your gaming more and more real.
This language processing will make it real to interact with the characters of the game, such as a person does with a human. The graphical rendering powered by the AI will make the whole gaming experience look more and more real and closer to the real world. AI is also a great option for sound design, making it better for different levels.
Limitations
There are many limitations to AI and they will apply to the gaming industry too. With more time invested in the development of AI, we will see whether it will be able to overcome them or not.
AI, although quite powerful, still has certain limitations. You can not give commands to the AI in the middle of the game and change the whole mechanics of how the game works.
You can not develop a whole game just by commanding the AI. Also, there’s a bias that can come into the AI.
There’s also an ethical issue with AI. If not given proper instructions, AI can add problematic stuff to the game.
Conclusion
AI is a game changer for the gaming industry. The global video game market size is projected to hit around USD 610.6 billion by 2032, growing at a CAGR of 10.5% during the forecast period of 2023–2032. AI has revolutionised what was considered a casual gaming industry. AI games are becoming more personalised, engaging and complex, providing the players with an excellent experience. Hence, this will push the boundaries of unlimited interactive entertainment. With the fusion of AI and gaming, the possibilities are limited only by our imagination.
This article is written by Sakshi Kuthari. It discusses all the details one should learn about while reading about the landmark judgement of Nishi Kant Jha v. State of Bihar, given by the Hon’ble Supreme Court in 1968. This judgement held that if the exculpatory part of the statement or admission conflicts with the circumstantial evidence, it will be disregarded and the remaining incriminatory statement will be regarded as confession for the purpose of determining the guilt of the accused.
This article has been written by Rachit Garg.
Table of Contents
Introduction
At the time of a criminal trial, the prosecution tries to the fullest extent to establish the guilt of the accused by presenting incriminating evidence, which aims to secure a conviction beyond reasonable doubt. Any such type of evidence which substantiates the accused’s guilt is known as “inculpatory evidence”. On the contrary, the role of the defence is to instil doubt in the judge’s mind regarding the guilt of the accused. It is a fundamental rule of criminal jurisprudence that an accused is presumed innocent until proven guilty. Therefore, the burden of proving the innocence rests not on the accused but on exemplifying a preponderance of probability in their favour by casting doubt on their guilt.
Since, the result of a criminal trial rests on proving the guilt of the accused, the prosecution emphasises on inculpatory evidence. However, within the realm of criminal trials, there exists another type of evidence with the probability of absolving the accused from guilt. This evidence, known as ‘exculpatory evidence’, assists the defence by fostering doubt in the mind of the court or even proving the innocence of the accused, though such proof of innocence is not mandatory. In the case of Nishi Kant Jha v. State of Bihar (1968), the Apex Court had ruled that if the confession or admission which is exculpatory in nature contradicts the available circumstantial evidence, the exculpatory part of the evidence will not be taken into account. The remaining inculpatory part of the evidence will be deemed to be a confession, thereby corroborating the accused’s guilt.
In this article, we will be delving into the landmark case of Nishi Kant Jha v. State of Bihar (1968), which relates to significant aspects of the law of evidence and other relevant issues pertinent to the criminal procedure involving criminal trials. Additionally, the article explains in detail the laws involved in the Nishi Kant Jha case.
Details of the case
Case name:Nishi Kant Jha vs. State of Bihar
Case no.: Criminal Appeal No. 190 (N) of 1966
Type of case: Criminal Case
Name of the court: Supreme Court
Bench: M. Hidayatullah (Chief Justice), G.K. Mitter, J.C. Shah, V. Ramaswami, A.N. Grover
Date of the judgement: 02 December 1968
Equivalent citations: 1969 AIR 422, 1969 SCR (1) 1033
Name of the parties: Nishi Kant Jha (Appellant) and State of Bihar (Respondent)
In this case, the appellant in the city of Jhajha was a school student. He was charged under Section 201 and 302 of the Indian Penal Code, 1860 on 12th October, 1961 for the murder of his friend who studied with him in the same school. The accused and the deceased were travelling together in the Barauni Sealdah passenger train. When the train had reached the Madhupur Station, the deceased’s body was recovered from the lavatory of the first class compartment. There was a lot of blood on the floor of the lavatory and the dead body was found with a deep neck cut besmeared with blood. One Ram Kishore Pandey found the appellant washing blood-stained clothes with soap one hour before sunset on the same day when the incident took place. He noticed that the appellant had a cut on his left hand. When Kishore asked the appellant about his injury, he answered that the news spread like fire in a nearby village that a murder had taken place in the Barauni Sealdah passenger train and the murderer was missing. The appellant, Nishi Kant, was under the suspicion of murder. He was chased, arrested, and brought before the Mukhiya of the village. He gave a contradictory statement to what he had given to Ram Kishore. He stated that when boarded the first-class compartment of the Barauni Sealdah passenger train at Jhajha, he saw an unknown person sitting in it. Lal Mohan Sharma entered into the compartment when the train had reached somewhere near Simultala. When the train stopped at Jasedeeh station and the appellant was about to get down at this station, Lal Mohan Sharma did not let him go. However, when the train had started to move ahead, Lal Mohan Sharma took the unknown person into the lavatory and began to beat him. The appellant when standing for the unknown person’s rescue, Lal Mohan Sharma caught hold of his hand and injured his left forefinger with a knife. He claimed Lal Mohan Sharma asked him not to open the window and door, due to which he got afraid and sat quietly in that compartment. At the same time, he killed the unknown person. Lal Mohan Sharma jumped down from the running train and fled away when the train was about to reach Mathurapur. The appellant also jumped down on the other side of Patro River near Madhupur and fled away because of the fear of apprehension of arrest for the murder of the deceased. However, a peculiar thing to be noted was that the blood stains on the clothes of the accused matched with the blood sample of the deceased.
The Hon’ble Patna High Court accepted only the inculpatory part of the statements of the appellants and rejected the exculpatory statements. These statements were made by him before his arrest in front of the village Mukhiya along with other evidence, found him guilty of murder and sentenced him to imprisonment for life. The appellant then filed an appeal to the Hon’ble Supreme Court challenging the decision of the Hon’ble High Court.
Issues raised in the case
The following issues were raised by the appellant in this case:
Whether the statement was given by the accused and taken by the Mukhiya of the village before the arrest was admissible as evidence or not?
Whether the court can dismiss the exculpatory part of the statement and consider the inculpatory part for the purpose of convicting the accused?
Arguments of the parties
Appellant
The appellant contended that:
The statements given by the appellant under Section 313 of the Code of Criminal Procedure,1973 were rebutted by him as to the involvement in the crime of murder of the victim. He claimed to have gotten injuries at another place due to a fight with a cowboy which had resulted in bloodstains on his clothes and books.
He admitted that he was taken to the village Mukhias’s house, where he alleged that he was coerced into signing a blank paper after being assaulted and threatened.
He also argued that the statements recorded by the Mukhiya of the village before handing him over to the police were not admissible as evidence; and if admissible, the statements must be considered in its entirety, with no selective acceptance of one part while disregarding another.
Respondent
The respondent averred that:
Based on the incriminating part of the evidence, the appellant accepted his statement that Lal Mohan Sharma had threatened to kill him in case he tried to open the door or window of the compartment and that he had travelled along with an unknown person, who was subsequently identified as the victim. The victim was also in the same compartment as that of the appellant highlights this as conclusive evidence to prove his guilt and the further statement of Lal Mohan Sharma’s threat to kill him should be rejected.
After the appellant had jumped off the train, he became apprehensive about being arrested for the murder of the said deceased person. The respondent also averred that the incident occurred near the Patro river and that there was a chance to consider that if Lal Mohan Sharma intended to commit the murder of the deceased, he would have surely prevented the appellant from getting off the train at Jasedeeh station because the appellant could have been a witness who could identify him and testify to his involvement in the crime.
Lal Mohan Sharma was not present on the train at Jhajha. There was no information provided regarding any quarrel between him and the deceased that could have prompted him to attack the deceased. There did not seem any motive for Lal Mohan Sharma to attack the victim. Also, it was difficult to believe that Lal Mohan Sharma would not have attempted to harm the appellant as well.
The appellant’s statement of sustaining the injuries on his left forefinger in the railway compartment deemed implausible. Similarly, his narrative of a confrontation with a cowboy resulting in an injury on his left forefinger lacked credibility. The cause for the cowboy’s verbal abuse towards the appellant, followed by an attack on his person, seems to be fictitious.
The only injury sustained by the appellant on his left forefinger was superficial, casting doubt on the claim that the injury was severe enough to require washing his clothes in the river. Moreover, this injury does not explain the presence of blood stains on other items such as his belt, shoes and books, which were apparently attempted to be removed by washing.
Judgement of Patna High Court
The Hon’ble Patna High Court found the appellant guilty of the charge of murder and sentenced him to imprisonment for life. On the basis of the following mentioned incriminating circumstantial evidence against the appellant, the conviction was done:
Just two hours after the murder, the appellant was found washing his blood-soaked clothes at the edge of the Patro river;
During his apprehension of getting caught by Ram Kishore and others, he was found in possession of blood-stained books;
He had a 9-inches knife in his possession;
Medical injuries suggested that the injuries sustained by the victim could have been inflicted by the knife which was found in the possession of the appellant;
Apart from the injury on the forefinger of the appellant, the other injuries on the appellant’s body were consistent with a struggle with the victim inside the compartment of the train;
The explanation given by the appellant regarding the presence of the blood-stained clothes and other items, as well as the injuries on his body, was deemed unacceptable.
Issue wise judgement in appeal to the Supreme Court
Whether the statement was given by the accused and taken by the Mukhiya of the village before the arrest was admissible as evidence or not?
The Hon’ble Supreme Court held that the argument asserted by the appellant that the statement was not given voluntarily and therefore should not be admitted as evidence is groundless. None of the individuals who accompanied the appellant to the Mukhiya were suggested to have assaulted him, nor was it implied that the appellant was coerced or threatened into making the statement. Furthermore, the appellant’s claim that he was forced to sign a blank piece of paper undermines his assertion that the statement was made under duress or coercion, as obtaining his signature would have sufficed in that scenario.
Whether the court can dismiss the exculpatory part of the statement and consider the inculpatory part for the purpose of convicting the accused?
The Hon’ble Supreme Court held that the two contradictory statements given by the appellant were not capable of admission. In one statement, the appellant claimed that the injury occurred on his left forefinger was due to a scuffle that took place between him and the cowboy. In another statement, he said that the injury was while protecting himself from the attack by Mohan Lal in the compartment of the train. When the court completely took the context of the case, the bench was of the opinion that the exculpatory part of the statement made to the Mukhiya of the village was not only inherently improbable but also contradicted by other evidence. Therefore, it was appropriately dismissed, while the incriminating part of the statement was rightly acknowledged by the court.
Section 313 of the Code of Criminal Procedure, 1973 gives power to the court to examine the accused. For the purpose of fulfilling the principle of natural justice (audi alteram partem, i.e., no one should be left unheard), this provision is used by the court to question the accused. It entails that the accused may be requested to provide an explanation relating to the incriminating circumstances attributed to the court, and it must duly consider such explanations given by the accused. In cases which involve the presence of circumstantial evidence at the time of determining the guilt of the accused, it is essential to determine whether the chain of circumstances is complete or not.
In the present case, Nishi Kant Jha v. State of Bihar, the appellant did not confess before the Hon’ble Patna High Court that he had told anyone about being attacked by a cowboy and injuring his left forefinger with glass while passing through Gangamarni. Instead, the appellant stated that he had a confrontation with a cowboy when asked about directions, during which the cowboy attempted to assault him with a sharp knife, leading to the injury. His account of Lal Mohan Sharma threatening him against opening the train’s compartment door or window and subsequently murdering the victim, as well as how he sustained his injury varied from the statement he made earlier. The Hon’ble High Court also rejected the appellant’s explanation that he had lost his way to his sister’s village in Roshan and suffered an injury as he claimed in his statement. Despite the serious incriminating circumstances outlined by the High Court, it was insufficient to establish the appellant’s guilt unless a part of Lal Mohan Sharma’s threat statement was considered alongside them. Only this statement acknowledged that he was travelling on the Barauni passenger train in a compartment where he witnessed a murder and subsequently jumped out near the river Patro before reaching Madhupur. Excluding the inadmissible portion of Lal Mohan Sharma’s threat statement, the entirety of the evidence leads to the unavoidable conclusion of the appellant’s guilt.
Section 201 of the Indian Penal Code, 1860 provides for the offence of disappearance of evidence for the offence committed by the accused. If the said act is done to cause any evidence of the commission of that offence to disappear, so as to screen the accused from punishment provided by the law for the wrong done, or or with that intention gives any information respecting the offence which he knows or believes to be false then the following would be the consequences:
If the accused is aware that the committed offence is punishable with death, they shall face imprisonment for up to seven years and may also be fined;
If the offence carries a punishment of life imprisonment, or imprisonment of up to ten years, the accused shall be imprisoned for up to three years and may also be fined.
For offences punishable by less than ten years of imprisonment, the accused shall be imprisoned for a term that is one-fourth of the maximum term provided for the offence, or fined, or both
In this case, the appellant was charged under this section because Ram Kishore Pandey, found the appellant washing blood-stained clothes with soap one hour before sunset on the same day when the incident took place.
Section 302 of the Indian Penal Code, 1860 provides punishment for murder. Any person commits murder shall be punished with death sentence, or imprisonment for life, and shall also be liable to pay fine.
The Hon’ble Patna High Court and Supreme Court in this case held the appellant guilty under Section 302 of the Act because all the evidence accused in the Court turned out to be against him.
InBachan Singh vs. State of Punjab (1980), Bachan Singh was tried and convicted for the murders he had committed. He was sentenced to death under Section 302 of the Indian Penal Code by the Sessions Judge. The question regarding the constitutional validity of the death penalty for murder under Section 302 was raised in this case. A five-bench judge of the Supreme Court upheld the constitutional validity of the death penalty as an alternative punishment for murder under Section 302 IPC as not unreasonable and, hence, not violative of Articles 14, 19, and 21 of the Constitution. The doctrine of the rarest of rare cases was established in this case. The Supreme Court observed that it was essential to take into consideration not only the circumstances of the case but also the circumstances of the offender. Similar situations in different cases should be taken into account at the time of trial. The judgement is to be given only after referring to all those similar cases.
Judgements related to the case
Emperor vs. Balmukund (1930)
In Emperor vs. Balmukund (1930)the Hon’ble Full Bench of the Allahabad High Court observed while determining the guilt of the accused and the confession made, it comprised two elements. Firstly, an account of how the accused killed the women and secondly, an account of the accused’s reasons for doing so. The former elements are inculpatory and the letter is exculpatory.
The question referred to the Full Bench was that whether the court if it is of the opinion that the inculpatory part of the statement commends itself, and the exculpatory part of the statement is inherently incredible, act upon the former and refuse to act upon the latter? The answer to which the Hon’ble Court gave that where there is no other evidence to show affirmatively that any part of the exculpatory statement in the confession is false, the court must accept or reject the confession as a whole and cannot accept only the incriminatory statement while rejecting the exculpatory statement as inherently incredible.
Hanumant Govind Nargundkar & Anr. vs. State of Madhya Pradesh (1952)
The Hon’ble Supreme Court in Hanumant Govind Nargundkar & Anr. vs. State of Madhya Pradesh (1952) observed that the circumstances from which the conclusion of guilt is to be drawn, it should be fully established. Then all the facts to be established should be consistent only with the hypothesis of the guilt of the accused. It is necessary the circumstances should be of a conclusive nature and they should be such as to exclude every hypothesis but the one proposed to be proved. In other words, it can be said that there must always be a complete chain of evidence as not to leave any reasonable ground for a conclusion consistent with the accused’s innocence and it must be such as to show within all human probability the act must have been done by the accused only.
Palvinder Kaur vs. State of Punjab (1952)
InPalvinder Kaur vs. State of Punjab (1952), the Hon’ble Supreme Court held that confession and admission must either be wholly accepted or rejected and the court is not in any way competent to accept only the inculpatory part while rejecting the exculpatory part as inherently incredible. The confession must either admit in terms the offence or at any rate, substantially all the facts should constitute the offence. The admission of gravely incriminating fact, even conclusively incriminating fact is not by itself a confession. The statement that contains self-exculpatory or other matter cannot amount to confession, if the exculpatory statement is of the same facts which, if true, would negate the offence alleged to the confessed. The statement which when read as a whole is of an exculpatory character and in which the prisoner denies his guilt is not confession, and cannot be used in the evidence to prove the guilt.
Bhagwan Singh vs. State of Haryana (1976)
In Bhagwan Singh vs. State of Haryana (1976), the inculpatory part of the statement of the appellant was corroborated by other satisfactory evidence on the record in the material particulars. Consequently, the Court admitted the inculpatory part of the statement and the exculpatory part was rejected. This case constituted an exception to the rule that confession should be taken as a whole.
Conclusion
From the very beginning of criminal jurisprudence, the burden of proving the guilt of the accused has lied upon the prosecution. The accused is always presumed innocent until proven guilty. There is a requirement of a higher standard of proof which could demonstrate the guilt of the accused beyond reasonable doubt. Consequently, this places the prosecution at a disadvantage, often leading them to emphasise the incriminating evidence while disregarding the exculpatory evidence. Acquiring and substantiating exculpatory evidence poses a considerable challenge, as it poses the burden of proof onto the accused and necessitates impeccable quality of evidence. Nonetheless, it is significant to understand these principles, as the suppression of exculpatory evidence can cause the miscarriage of justice, and when presented, it serves as the most formidable evidence for the accused.
It can thus be concluded from this case that both the High Court and Supreme Court did no wrong in relying on a part of the statement and rejecting the rest. The Court did not mean to overrule Palvinder, Hanumant or Balmukund’s judgement but distinguished the present case from them. Here both the Courts had sufficient evidence to reject the exculpatory part of the statement of the appellant. It is completely the discretion of the court to absolve the exculpatory statement and consider only the incriminatory statement for the purpose of determining the guilt of the accused. However, the court must always weigh both the aspects of the inculpatory and exculpatory statements presented by the prosecution to decide on the conviction of the accused, just as done in this case.
Frequently Asked Questions (FAQs)
What do you mean by the term “confession”?
The term “confession” has not been defined in the Indian Evidence Act, 1872 (now the Bharatiya Sakshya Adhiniyam, 2023. James Stephen made an attempt to define ‘confession’ in terms of which ‘admission’ is defined in Section 17 of the Indian Evidence Act, 1872 (now Section 15 of the Bharatiya Sakshya Adhiniyam, 2023) stating that “a confession is an admission made at any time by a person charged with a crime suggesting the inference that a person has committed a crime.”
Thus, according to the definition of Stephen, an admission amounts to a confession, if the accused:
States that a crime has been committed by him; or
Makes a statement by which he does not clearly admit guilt, yet from the statement some inference may be drawn that he might have committed the crime.
What do you mean by Inculpatory and Exculpatory Statements?
The provisions related to confessions are provided from Sections 24-30 of the Indian Evidence Act,1872 (now Section 22-24 of the Bharatiya Sakshya Adhiniyam, 2023). Specific guidelines controlling the admissibility of statements and confessions in court are outlined in the Indian Evidence Act, 1872.
A statement made by a person admitting to having committed a crime is known as an ‘Inculpatory Statement.’ In criminal proceedings, inculpatory statements play a vital role in determining the guilt of the accused. The statements given by the accused are of such a nature that clear evidence is present to punish the accused for the offence committed. The rules for admissibility of such statements given under the Evidence Act, 1872 should be strictly adhered to. It must be made sure that at the time of recording the inculpatory statements, the accused must not be under provocation, coercion, or inducement. Such statements should be made voluntarily. When the defendant confesses to the wrongdoing, inculpatory statements act as strong proof of guilt. Despite having the potential to strongly get away with criminal proceedings, the Evidence Act, 1872 places stringent limitations on their admissibility.
‘Exculpatory Statements’ are those statements in which an accused person asserts his or her innocence of the charges against him or her. At the time of criminal trial, these kinds of statements help the defence to present the case. These statements are also subject to the principles of admissibility under the Evidence Act, 1872. Whatever statements are made by the accused and provide the accused with defence can be utilised in the court. Such statements should be made willingly, comprehensively, and self-explanatory to be accepted at the time of trial of the accused. Confessions to crimes gained under duress, provocation, or intimidation are inadmissible in court.
These two types of statements do not clearly offer a clear admission of guilt or innocence, admissions related to acquittals can be regarded as indirect proof of innocence. However, in a criminal trial, such statements could be highly convincing evidence as they can bolster the defence’s stance or substantiate a proof of alibi.
Is there any exception to the rule that confessions should be always taken as whole?
There are at present two exceptions to the general rule that confessions should be always taken as a whole. They are as follows:
In Bhagwan Singh vs. State of Haryana (1976), the Hon’ble Apex Court had held that it is permissible to believe one part of the confessional statement which is an inculpatory statement and if there is any other evidence to prove its correctness; and
In the present case of Nishi Kant Jha vs. the State of Bihar (1968), the Hon’ble Supreme Court has held that if the exculpatory part of the statement is inherently improbable and incredible it may be completely rejected and the inculpatory part of the statement may be admitted to prove the guilt of the accused.
What necessary strategies could be used by a defence lawyer for handling inculpatory statements ?’
A strategic and methodological approach should be adopted by a defence lawyer to deal with the inculpatory statements made against the accused. Various tactics should be used by the lawyers so that the credibility, integrity, or understanding of evidence against the accused comes into question. Some of the tactics which could be deployed are as follows:
Cross-examination: From the beginning of the trial till the end of the trial, the defence lawyer can scrutinise the witnesses who furnish inculpatory statements or evidence culminating the differences or potential prejudices.
Testimony of the expert: Involving expert witnesses at the time of trial of the case can aid in disputing the scientific validity or interpretation of the inculpatory evidence, such as forensic analysis or DNA testing.
Suppression Motions: If the defence advocate is of the opinion and under suspicion that the inculpatory evidence adduced against the accused are obtained unlawfully or infringes upon the rights of the accused, the advocate can submit a suppression motion to rule out that part of the evidence from the criminal trial.
Alternative Explanations: The defence lawyer can offer alternative hypotheses or narratives that cast doubt on the understanding or importance of the inculpatory evidence.
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This article is written by Prashant Prasad. It deals with the facts, issues, contention of the parties, the various legal aspects involved, and the judgement that was delivered by the Apex Court in the case of Mohanlal vs State of Punjab (2018), along with the impact of the same on the present legal scenario. It deals with the concerned legal provisions of the NDPS Act, 1985, other relevant legal concepts, as well as an understanding of the scope of Article 21 of the Constitution of India.
Table of Contents
Introduction
Article 21 of the Indian Constitution, a fundamental right, provides protection to our life and personal liberty. Free and fair investigation is covered under the ambit of Article 21 and hence no person shall be deprived of this right. The principles of natural justice must be adhered to while dealing with a case of any nature and the principles of natural justice predominantly revolve around the two maxims namely – Audi Alteram Partem and Nemo Judex in Causa Sua.
The first maxim translates to the principle that the court must give all parties an opportunity to be heard. The second maxim lays down the principles regarding the adjudication of matter. It holds that no one can be the judge in his own case. This maxim ensures that the person adjudicating the matter shall not have any interest or bias in the case that is going to be decided by him.
The present case revolves around the second maxim, which states that nobody can be the judge in his own case. The vitality of this case primarily revolves around the Narcotic Drugs and Psychotropic Substances Act, 1985 (hereinafter referred as NDPS Act). This case presents a significant verdict of the Apex Court, in which it was held that in case the informant and the investigator are the same person, the accused is entitled to acquittal.
Background of Mohanlal vs. State of Punjab (2018)
The NDPS Act is an important piece of legislation that was passed with the purpose of regulating the distribution and consumption of drugs. This Act has established stringent provisions aimed at reducing the misuse of drugs, whether it is illegal possession, sale, consumption, or other activities relating to drugs and psychotropic substances. The provisions of this Act establish a mechanism that would enable forfeiture of drugs, as well as the property that is obtained with the use of drugs and other psychotropic substances. The offences that are committed under this Act attract imprisonment which can go up to 20 years, depending upon the seriousness of the offence committed, along with a possible fine.
However, the duties of the police officials and other authorities for achieving the purpose of this Act, must be performed in a reasonable and judicial manner. Every accused possesses rights, as a constitutional mandate under Article 21 of the Indian Constitution, to have the case investigated in a free and fair manner. In case the investigation is performed in a way that would raise a serious question regarding the truthfulness of the result of investigation, the court possesses the power to intervene in the results of the same and can order further investigation or re-investigation, as the case may be.
Against the backdrop of the present case, i.e. Mohanlal vs. State of Punjab (2018), there exists a legal battle between the individual’s liberty and the role played by the state authority amidst the complex provisions of the NDPS Act. The court in the present case, examined the tussle between both the situations and finally arrived at the decision, taking into consideration that the right to life and personal liberty to be of paramount importance, which must be safeguarded.
Details of the case
Bench of Judges – Navin Sinha, R. Banumathi, Ranjan Gogoi
Date of judgement – 16th August 2018
Citation – 2019 CRI LJ 420
Case type – Criminal Appeal
Name of the court – The Supreme Court of India
Facts of Mohanlal vs. State of Punjab (2018)
Sub-Inspector of Balianwali Police Station, Chand Singh was accompanied by Darshan Singh, the Sarpanch, and Assistant Sub-Inspector Balwinder Singh, during the patrol duty. Upon seeing the appellant i.e. Mohan Lal, some amount of reasonable suspicion and doubts arose in the mind of the witness present over there, and therefore, Shri Rajinder N. Dhoke, who was an IPS (a gazetted officer) called the appellant and searched him. The search led to the discovery of 4 kg of opium in a bag, which was carried by the appellant. Upon recovery of the opium, a consent memo was signed by Darshan Singh, who was a private person in a police vehicle, and Chand Singh (Sub-Inspector).
The opium seized was separated into two samples, of which one was of 20 grams, while the others were of 3 kilograms and 980 grams. A specimen of the seal was prepared by Sub-Inspector Chand Singh and after attaching it, the seized material was handed over to ASI Balwinder Singh. Thereafter, a separate recovery memo was prepared by Chand Singh and was sent to Balianwali Police Station. As a result the Assistant Sub-Inspector named Darshan Singh, registered a formal FIR. After the FIR was filed, the entire investigation was handed over to Chand Singh. The property related to the case was retained by Sub-Inspector Chand Singh and was not deposited to a warehouse which is used to store the items that are seized and are suspected to be connected with a crime. Apart from this, no entry was made in the police diary. The item that was seized was kept under the private custody of Sub-Inspector Chand Singh, in a rented accommodation.
After the conclusion of the entire investigation process, the accused was charge-sheeted, put on trial, and was eventually convicted under Section 18 of the NDPS Act, which sentenced him to a rigorous imprisonment of 10 years and a fine of rupees 1,00,000/- (rupees one lakh).
Issues raised
The main issue before the court of law was that, since Section 35 of the NDPS Act, 1985 carries a reverse burden of proof, does an informant of the case become an investigative officer, and if so, would it be in consonance with the principle of justice, fair play and fair investigation?
Legal aspects involved in this case
Burden of proof
During the trial of the case, the parties may make a claim under the impression that it is a well established fact. However, the validity and truthfulness of these claims must be proved. This concept is known as burden of proof. The provisions regarding burden of proof can be found under the Indian Evidence Act, 1872 from Section 101 to Section 114. As a general rule, the burden of proof lies on the prosecution, wherein they are required to prove that injury has been suffered by them beyond reasonable doubt. Apart from this, if the case pertains to a heinous crime, the burden of proof shifts to the accused, and the accused must prove that he/she is innocent.
In the present criminal case under the NDPS Act, the burden of proof lies on the prosecution, and they must prove to the court beyond reasonable doubt that the accused has actually committed the crime.
KM Nanavati vs. State of Maharashtra (1962)
In this case, Nanavati was accused of murder and the defence taken by him relied on the ground that he committed that act due to a sudden and grave provocation. Initially, the burden of proof lay on the prosecution, but with the help of Section 105 of the Indian Evidence Act, it was later shifted to the accused. Finally, the defence taken by the accused did not sustain, and he was convicted of murder.
To read case analysis of KM Nanavati vs. State of Maharashtra,click here.
Reverse burden of proof
Once the prosecution has successfully submitted and proved all the facts and any other relevant aspects, the burden of proof shifts to the accused to present his side and this is regarded as a reverse burden of proof.
Reverse burden of proof can be defined as a legal doctrine in which the burden of proof shifts from the prosecution to the defence. Hence, the defendant under this doctrine, is required to prove innocence on his part, rather than the prosecution proving his guilt.
Rebutting of presumption – reverse burden of proof
There is a general presumption in criminal jurisprudence which states that an accused is innocent until proven guilty. This provision as a general rule is applicable to all the general and special statutes, unless excluded. There also exist exceptions for instance, an exception to the general rule is available under the Indian Penal Code, 1860 by virtue of Sections 111A (Presumption as to certain offences), 113A (Presumption as to abetment of suicide by a married woman), 113B (Presumption as to dowry death), and 114A (Presumption regarding lack of consent in specific rape prosecutions) etc. of the Indian Evidence Act.
On a similar note, Section 35 of the NDPS Act, provides an exception. This Section elucidates that the court shall presume the existence of a culpable mental state of the accused. However, the accused must prove that there was no such mental element. Therefore, it can be said that the accused is required to rebut the presumption against him and hence, the burden of proof lies on him.
Naresh Kumar v. State of Himachal Pradesh (2017)
In the case of Naresh Kumar v. State of Himachal Pradesh (2017), the Apex Court set aside the conviction which was imposed by the High Court on the accused, who was charged under the NDPS Act. The allegation against the accused stated that 2 kg of charas was recovered from the bag, which was in his possession. The Apex Court observed that the presumption of culpability against the accused under Section 35 and Section 54 is rebuttable. Apart from this, the prosecution must prove beyond a reasonable doubt that the accused was under the possession of such material.
Article 21
Article 21 of the Indian Constitution provides an individual with the right to life and personal liberty as a fundamental right. The rights provided under this article are the most vital and basic. Article 21 of the Indian Constitution states that “No person shall be deprived of his life or personal liberty except according to the procedure established by the law”. The interpretation of this provision by the Indian Judiciary includes various aspects of human life and liberty that go beyond mere physical existence. The Supreme Court of India in its catena of judgments has held that the right to life includes the rights to livelihood, right to privacy, right to a clean environment, right to a free and fair trial, right to live with dignity, right to shelter, right to nutritional food, right against illegal detention, right to health and medical assistance, right to sleep, right to education, etc.
The landmark case of Maneka Gandhi v. Union of India (1978) played a crucial role in expanding the scope of Article 21. The Supreme Court of India, in this case, held that the right to life and personal liberty does not merely refer to animal existence, but it also extends to the right to lead a meaningful life. The court further observed that the right to life also includes the right to travel abroad, and the government cannot curtail this right without specifying a reasonable reason for the same. This judgment is one of the vital decisions that expanded the overall scope of Article 21 of the Indian Constitution.
Fair Investigation as fundamental right
Peace and harmony among the people are one of the essential components of a democratic society. Every person is entitled to certain rights, which would ensure a basic, just and dignified way of life. Article 20 of the Indian Constitution safeguards the rights of the accused. This, along with Article 21, calls for a fair trial as well as a fair investigation. It is not always the crime that deters the peace and harmony of the society, but along with that, flawed investigation can also eventually contribute to the same. Therefore, for the rule of law to exist, investigation must be carried out in a fair and transparent manner, which would not strip the concerned parties of their fundamental rights.
Ajay Kumar & Ors. vs. State of U.P. & Ors (2020)
In the case of Ajay Kumar & Ors. vs. State of U.P. & Ors (2020), it was held that the primary duty of the investigative officer is to investigate the case in a fair manner and in accordance with the law. The court further stated that in every civilised society, the police force has been vested with the power to investigate the crime and in the interest of society the investigative office should act in an honest and fair manner and must not create any false or fabricated evidence. It was further observed by the court, that a fair trial includes a fair investigation as it can be well inferred through Article 20 and Article 21 of the Indian Constitution, and if the investigation is neither effective nor fair, then in that situation, the court may, if considered necessary, order for further investigation or re-investigation, to prevent injustice.
Provisions under the NDPS Act, 1985
Section 35
This Section deals with the presumption of culpable mental state. It states that in any prosecution of a criminal offence under this Act, which requires the culpable mental state (includes intention motive, knowledge of fact and belief in, or reason to believe, a fact) of the accused, the court would presume the existence of such mental element. However, as a defence the accused must prove that there existed no such mental element on the basis of which the accused has been charged.
For the purpose of this Section, a fact is said to be proved when the court believes that the fact has been proved beyond any reasonable doubt and does not exist merely on the preponderance or balance of probability. Therefore, it can clearly be inferred that any person who has been charged with any offence under the NDPS Act, would be required to rebut the presumption against him.
In the case of Naresh Kumar alias Nitu vs. State of Himachal Pradesh (2017), it was held by the Supreme Court of India that the presumption of culpability against the accused under Section 35 and Section 54 of the NDPS Act is rebuttable on the part of the accused. However, this does not take away the right of the prosecution to prove the allegations that were imposed on them, beyond reasonable doubt. Furthermore, in Abdul Rasid Ibrahim Mansuri vs. State of Gujarat (2000), wherein the accused had admitted that the narcotic substances had been recovered from the bag which was in his possession, the court held that, with respect to Section 35 it can be said that the burden of proof is on the accused to prove that he has no knowledge of the bag under his possession contained such narcotic substances.
Section 37
This Section delves into the nature of an offence. It is laid down that every offence under the NDPS Act shall be considered as a cognizable offence (offences in which the police officer may arrest without warrant) and non-bailable. It further states that if the accused is punishable for an offence under Section 19 (embezzlement of opium by cultivator) or Section 24 (external dealing in narcotic drugs and psychotropic substances) or Section 27A (financing illicit traffic and harbouring offenders) and also for an offence dealing with a commercial quantity, he shall not be released on bail or on his own bond unless-
An opportunity has been given to the Public Prosecutor to oppose the application for release.
In a situation where the Public Prosecutor has opposed the application, the court believes that there exists reasonable ground based on which it could be ascertained that the accused is not guilty of the offence concerned and is not likely to commit an offence while on bail.
The limitations under this Section, for granting bail, are in addition to the limitations that are given under the Code of Criminal Procedure, 1973 (CrPC) or any other laws presently in force.
In Narcotics Control Bureau vs. Mohit Agarwal (2022), it was observed by the Supreme Court of India that the word “reasonable grounds” used under Section 37 of the NDPS Act refers to a credible ground, which would enable the court to believe that the accused has not committed the offence for which he has been charged. It was further stated by the court that under Section 37, bail cannot be granted merely on the fact that nothing was found under the possession of the accused. It was added that, to arrive at the decision of bail under this Section, there exist such circumstances and facts, which could persuade the court into believing that the accused has not committed any offence and hence, is not guilty.
Further, in the case of Satpal Singh vs. State of Punjab (2018), it was held by the Supreme Court of India that in a case related to drugs, before passing any order, Section 37 of the NDPS Act must be taken into consideration.
The Apex Court, in Union of India vs. Thamisharasi and Ors. (1995), held that there was no conflict between Section 167 of the CrPC and Section 37 of the NDPS Act, stating that limitations of Section 37 of the NDPS Act are not attracted when statutory bail is granted under Section 167 of the CrPC. Notably, Section 167 of CrPC deals with the provision of bail on expiry of the remand period.
Section 54
This Section concerns itself with the presumption from possession of legally forbidden objects. It is stated that at the stage of trial under the NDPS Act, it may be presumed, unless the contrary is proved, that an offence has been committed relating to –
Any kind of narcotic drug or psychotropic substance or controlled substance.
Any opium poppy, cannabis plant, or coca plant growing on land which was cultivated by the person concerned.
Any apparatus or utensil particularly formulated for the manufacturing of any narcotic drugs or psychotropic substance or controlled substance.
Any substance that is used or processed to make narcotic drugs or psychotropic substances or controlled substance or any residue of the same.
For the possession of which he fails to justify properly, the accused may rebut the presumption by producing material evidence which proves his innocence.
In the case of Anav Jain v. State of Haryana (2022), it was held by the High Court of Punjab and Haryana, that the presumption that is outlined under Section 54 of the NDPS Act can only be invoked if the procedure that is outlined under the Act is followed, i.e., if the concerned material was found to be in the possession of the accused.
Section 55
This Section covers the power of the police to take control of objects seized and delivered. It has been mentioned that while awaiting the orders of the Magistrate regarding the seized object. All material seized under this Act, shall be taken over by an officer-in-charge of the police station of the local area within which the articles are seized. Additionally, any officer who accompanies the articles concerned, to the police station or is deputed for the same, shall attach his seal to the article or take samples of it, which shall be marked with a seal of the concerned officer-in-charge.
In the case of Vinayak S/0. Dnyanoba Gaikwad & Ors. vs State of Maharashtra (2004) it was reiterated by the Bombay High Court that a straightforward interpretation of Section 55 designates the superior police officer to handle the seized items, store them securely and also permit anyone accompanying the seized items to the police station, to seal them. However, the seal of the officer-in-charge of the police station is essential.
Arguments of the parties in Mohanlal vs. State of Punjab (2018)
Contentions raised by the appellants
Learned counsel for the appellant, Sh. Chanchal Kumar Ganguli submitted the following –
That being a stringent law, the NDPS Act carries the concept of reverse burden of proof and the provisions relating to it must be adhered to strictly. The investigation must not only be fair and judicial, but must also appear to be done in a fair and judicial manner.
It was further submitted by the counsel that the investigation must not be done in a manner in which the result leaves an apprehension in the mind of the accused that the investigation was not carried out in a fair and bonafide way.
It was argued by the counsel that no reason was given by the prosecution with respect to why Darshan Singh, who was accompanied in a police vehicle as a private person and ASI Balwinder, have not been examined. Furthermore, either proper examination must be carried out, or the reasons must be stated. Neither was done.
The counsel questioned the reason behind why the seized item was not deposited to a warehouse which is used to store the items that are seized and are suspected to be connected with a crimeand was kept in the private custody of Sub-Inspector Chand Singh, along with no explanation being furnished regarding the same.
Another fact that remained unexplainable was that there was a delay of 9 days in sending the sample for chemical analysis, and this must be taken into consideration, since there was no explanation provided for the same.
Learned counsel for the respondent, Ms. Jaspreet Gogai contended that following –
That the accused was examined in the presence of Shri Rajinder N. Dhoke who is an IPS, a gazetted officer and it was further submitted that the failure to examine Darshan Singh or ASI Balwinder Singh was not of significance, since the whole instance of search and recovery of opium was duly proved by Sub-Inspector Chand Singh and Shri Rajinder N. Dhoke.
It was further contended that the evidence given by the police officer must not impair its legal validity. There shall be a presumption that the official duties performed by the police officer must be regularly performed.
In view of statutory presumption under Section 35 and Section 54 of the NDPS Act, the burden of proof for innocence shall lie on the accused.
The court allowed the appeal primarily on the ground of constitutional guarantee of a fair investigation. The various considerations of the Supreme Court on this matter are as follows-
Instances that form the matter of further investigation
The court was of the opinion that Darshan Singh was an illiterate person who was accompanying Sub-Inspector Chand Singh in the police vehicle, along with ASI Balwinder Singh which implied that Darshan Singh’s signature on the consent memo could not have been possible and hence, raises suspicion. It was further stated by the court that the substance related to the case was kept by Sub-Inspector Chand Singh in the private custody of his rented accommodation and went on to question why despite the availability of an authorized warehouse which is used to store the items that are seized, the property was kept in private accommodation.
Moreover, there was no entry made in the police diary by Sub-Inspector Chand Singh, and no explanation was provided for the same. Apart from this, the signatures of ASI Balwinder Singh and Shri Rajinder N. Dhoke was not obtained on the consent memo. Additionally, there was a delay of 9 days in sending the sample for chemical analysis. The court further held that if the informant and the investigator of the case had been different, the matter of consideration would have differed as well. The appellant had taken the defence under Section 313 of the CrPC, that he had been falsely implicated by Sub-Inspector Chand Singh on account of the prior dispute with regards to the purchase of a tractor.
Court’s view on reverse burden of proof
The court, while reiterating the general principle of criminal jurisprudence, that the accused is innocent until proven guilty, went on to express that Section 35 and Section 54 of the NDPS Act carries a reverse burden of proof. The burden of proof shifts to the accused right from the beginning, without requiring the prosecution to establish anything further. However, this presumption is rebuttable under Section 35(2) of the NDPS Act, which provides that the facts can be said to be proved when they have been established completely, without leaving any scope for doubts and in such situations, probability must be excluded entirely. Therefore, the case of the prosecution cannot be allowed merely on the basis of preponderance or balance of probability.
Reference to standing order 1 of 88 issued by the Narcotics Control Bureau
The court referred to Standing Order 1 of 88 issued by the Narcotics Control Bureau under clause 1.13, the opening line of which reads as “Mode and time limit for dispatch of sample to laboratory”. This states that the sample of the seized item must be sent, either by insured post or through any special messenger duly authorised for this purpose. The sample must be dispatched within 72 hours from the time of seizure, in order to avoid any kind of legal objection. In the present case, there was a delay that went beyond the period prescribed under the Standing Order.
Fair trial under Article 21
The court held that the accused is entitled to a fair trial, as guaranteed under Article 21 of the Indian Constitution. It was observed that this guarantee would become a hollow promise if the investigation under the cases relating to the NDPS Act is not done in a fair and transparent manner or if any kind of objection is raised prima facie regarding the fairness of the investigation. The prosecution, under that condition, is required to prove that the investigation had taken place in a fair and judicial manner and there was no instance that would lead to questioning of the veracity of the investigation. Therefore, a fair investigation and hence a fair trial, is of paramount importance, particularly in upholding Article 21 of the Indian Constitution.
Cases referred to pronounce the judgement of Mohanlal vs. State of Punjab (2018)
The Supreme Court of India while dealing with the issue regarding whether an informant can be the investigative officer took into consideration various preceding observations.
Noor Aga vs. State of Punjab (2008)
In this case, the Supreme Court of India considered the question of whether prejudice arises against the prosecution, if the informant has investigated the case. It was observed that such flaws have no significant impact on the overall outcome of the investigation. Apart from this, the duty of the prosecution with respect to reverse burden of proof, was noticed, and it was held that the initial burden does lie on the prosecution and once it is resolved, it shifts to the accused.
Babubhai vs. State of Gujarat (2010)
In this case, it was held by the Supreme Court of India, that the investigating officer must conduct the investigation of the offence without engaging into any objectionable conduct. It was observed that investigation of any criminal offence must be free from any kind of infirmities that may cause some grievance to the accused on the ground that the investigation was not fair, or it was conducted with some secret purpose. It was further held by the court that the investigation must be conducted in a manner by the investigative officer so that it must not cause any harassment or mischief to the accused. The investigating officer must be fair and conscious while conducting the investigation so that there should not be any scope for the fabrication of evidence.
State of Bihar vs. P.P. Sharma (1991)
In this case, it was observed by the Supreme Court of India, that before it could be inferred that the investigative officer has any kind of enmity against the accused, it must be proved before the court of law, that such investigating officer has not met the requirement of professionalism that is required for investigation.
Megha Singh vs. State of Haryana (1996)
This case came under the ambit of the Terrorist and Disruptive Activities (Prevention) Act, 1987. The police officer investigating the case was also the complainant. The Supreme Court of India observed that police officers in this case could not carry out further investigations of the case. This was because it would bring out certain disputes with respect to the accused as well as the suspect. The investigation might be challenged on the ground that the investigation is biased and unfair, because the complainant himself was the investigative officer.
State rep. by Inspector of Police, Vigilance and Anti-Corruption, Tiruchirapalli, Tamil Nadu vs. V. Jayapaul (2004)
In this case, it was observed by the Supreme Court of India, that the head constable was the investigating officer and also the complainant of the case. The question was raised to set aside the investigation on the ground that the investigating officer and the complainant of the case were the same person. The offence, in this case, was committed by the accused under Section 6(1) of the Terrorist and Disruptive Activities (Prevention) Act, 1987 (intent to aid any terrorist or disruptionist) and Section 25 (manufactures, obtains, procures any arms or ammunition) of the Arms Act, 1959. The court in this case confirmed the conviction of the accused and held that such an investigation by the police officer could only be set aside on the grounds of bias or the likelihood of causing bias on the part of the investigating officer. The question relating to bias depends upon the facts and circumstances of each case.
Gannu vs. State of Punjab (2017)
In this case, the Punjab & Haryana High Court encountered the question of whether the complainant could be the investigative officer of the case. The court acquitted the accused and held, in line with the case of State of Himachal Pradesh vs. Atul Sharma (2015), that there would be a sheer violation of the principle of free and fair investigation if the complainant and the investigative officer were the same person.
Kader v. State of Kerala (2001)
In this case, the Kerala High Court was of the view that the police officer carrying out this duty and routine work, along with being the first complainant of crime under the NDPS Act, does not set back the prosecution’s proceeding against the accused. It was observed that apart from the usual cases under the CrPC, in cases dealing with the NDPS Act, the main duty of the investigating officer is to send the samples for chemical analysis and other routine procedures and that there exists no prejudice against the accused under normal circumstances. Therefore, the court was of the opinion that even though the police officer was conducting investigation under the NDPS Act, the investigation would not be held to be vitiated in the absence of proof of specific prejudice against the accused.
Final verdict
The court observed that clarifying the law is necessary in addressing the contradicting views on the constitutional right to a fair investigation under Article 21 of the Indian Constitution. Allowing this issue to be determined as per the circumstances of each case, leaves a potential for uncertainty and abuse of power. Therefore, it is established that a fair investigation, which is vital for a fair trial, requires the investigator and the informant to not be the same person. This would help guarantee impartiality and prevent preconceived determinations, particularly with respect to laws that exhibit a reverse burden of proof. Justice must not merely be carried out, but must appear to be carried out as well.
The court concluded by allowing the appeal. The prosecution’s case was deemed invalid as a result of a violation of the right to a fair investigation, and the appellant was ordered to be released.
Impact of the judgement in Mohanlal vs. State of Punjab (2018)
Post the Mohanlal v. State of Punjab (2018) judgement, several decisions of the Supreme Court and the various High Courts, recognized the principle laid down in the same. Several accused persons availed an acquittal on the basis of this judgement.
In the case of Zandile Luthuli v. Directorate of Revenue Intelligence (2018), the accused was allegedly charged under Section 21(c) of the NDPS Act. The accused was allegedly involved in the possession of psychotropic substances in the commercial quantity, and hence committed the offence punishable under Section 21(c). The main contention of the petitioners in this case was that the investigative officer and the complainant were the same person. The counsel for the respondent contended that the legal proceeding is vitiated or loses its legal validity when the investigative officer is also the informant and not the complainant. However, in the present case, the investigative officer is the complainant. The Delhi High Court finally held that the Mohanlal judgement not only applies in a situation where the investigative officer is the informant, but also when the investigative officer is the complainant. As a result, the accused was acquitted and the proceeding against him was quashed.
Further, in Barega Bage vs. State of Jharkhand (2018), it was decided by the division bench of the Jharkhand High Court, that the accused was charged under Section 302 (murder) read with Section 34 (common intention) of the IPC. The learned counsel for the appellant contended that the investigative officer and the complainant were the same person and therefore, there arises prejudice against the appellant. Finally, after considering these facts, the court set aside the conviction order of the appellants.
There were several accused persons who were acquitted merely on the ground that the investigative officer and the informant/complainant were the same person. However, in some instances, the court took a stand beyond the principle laid down in the Mohanlal judgement.
In the case of Varinder Kumar vs. State of Himachal Pradesh (2019), the accused was charged under Section 20(b)(ii)(C) (punishment for contravention in relation to cannabis plant and cannabis, involved in commercial quantity) of the NDPS Act. The learned counsel for the appellant contended that the conviction of the accused is vitiated because the investigative officer and the informant were the same person. The Supreme Court of India disallowed any benefits of the Mohanlal judgement, stating that that judgement was given in order to remove the uncertainty and confusion which was dependent on the merits of the case. The trend of acquitting the accused merely on the basis of the Mohanlal judgement failed to stand.
Conclusion
In the present case, the court’s decision marks an important step towards securing the constitutional mandate as granted under Article 21 of the Indian Constitution. The court critically interpreted various provisions of the NDPS Act and its application under Article 21. It went on to conclude that the investigation should be fair, transparent, and free from any influence and bias. While analysing the role of informants and their intervention in further investigation, the court tried to strike a balance between the two and ultimately decided that if the informant and the investigator were the same person, there might arise a situation of bias which would lead to injustice.
This case upholds the principle of fairness, equity and constitutionalism in an era of evolving complex legal issues that might intervene with the personal liberty of an individual. Along with solving the complexity of the issue specific to the case, this judgement lays down the significance of investigations, its impact on the proceedings as well as the final decision of the court. Additionally, there exist loopholes in the present NDPS Act, which must be looked into, in order to prevent the complexities that may lead to delays in the litigation process. The judgement has not only impacted cases relating to drugs, etc., under the NDPS Act, but also serves as a vital precedent for the criminal justice system, highlighting the importance of procedural safeguards and the need for an accountable investigative procedure, in order to uphold justice.
Frequently Asked Questions (FAQs)
Which constitutional right was considered under Mohanlal vs. State of Punjab?
The present case emphasised the accused’s right to a free and fair investigation, as guaranteed under Article 21 of the Indian Constitution.
What were the flaws in the investigation which was performed by the investigative officer?
The investigative officer failed to deposit the seized narcotic item in the warehouse which is used to store the items that are seized and are suspected to be connected with a crime, apart from this there was a delay in sending the sample for chemical analysis which was not satisfactorily explained by the investigative officer.
What was the Supreme Court’s interpretation of the law regarding investigation of cases?
The Supreme Court of India held that the investigation must not only be fair, but most importantly, it must also appear to be fair. Further, it was observed that the informant and the investigator must not be the same person.
What is the implication of the present case on future cases pertaining to criminal prosecution?
This case emphasised the importance of free and fair investigation, as it is a constitutional right. Moreover, the case highlighted the separation in the roles of an informant and an investigative officer, to avoid any kind of bias.
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This article is written by Kiranjeet Kaur. This article explores the Tata Mistry case, a significant legal battle in the corporate world. It further explores the relevant provisions of the Companies Act of 2013, shedding light on the evolving landscape of safeguarding minority shareholders’ rights and upholding corporate governance standards within large corporate entities.
Table of Contents
Introduction
The corporate legal battle that took place between Tata Sons Private Limited (Tata Sons), led by Mr. Ratan Tata, and the Shapoorji Pallonji Group (Tata Consultancy Services Ltd. v. Cyrus Investment Pvt. Ltd., 2021) gained worldwide attention and emerged as a significant ruling on issues related to oppression and mismanagement under theCompanies Act, 2013. The feud first came into the limelight when it made its way to the National Company Law Tribunal (NCLT) in Mumbai in November 2017. The Supreme Court passed a comprehensive judgement on the matter, on March 26, 2021. This case attracted a lot of attention globally not only because it involved two major conglomerates but also due to its potential to advance Indian corporate law and legal philosophy. Surprisingly, it turned out to be the first case dealing with shareholder oppression and mismanagement under the Companies Act, 2013, to reach the Apex Court of India. The case also sheds light on various other aspects of the Indian corporate law and specifically the provisions under the Company law, such as the roles and duties of directors, the fiduciary nature of their duties, the allegiance of nominated directors, the nature of affirmative voting rights, and the scope of ‘prejudice’ against specific classes of shareholders.
According to Mr. Mistry, he was deliberately ousted as this would enable Tata Sons in reasserting their authority in the company. This assertion is contingent on the fact that he had always been very open about the low standards of corporate governance maintained within the company. Further smearing Mr. Mistry’s image was a planned move to curtail the Shapoorji Pallonji group’s influence within the company and its prominent subsidiaries. This was done covertly, with the overall aim of weakening the position and the rights of the minority shareholders within the company.
Throughout the legal proceedings, judicial and quasi-judicial bodies, including the NCLT, National Company Law Appellate Tribunal (NCLAT), and the Supreme Court have given their own views on the present matter. The NCLT dismissed all of Mr. Mistry’s allegations of oppression and mismanagement, ruling them baseless. Subsequently, the NCLAT overturned the decision passed by the NCLT, reinstating Mr. Mistry as the Executive Chairman of Tata Sons. However, the Supreme Court ultimately overturned the decision passed by NCLAT, largely supporting the NCLT’s ruling in favour of Tata Sons.
In this article, I’ve delved into the complexities of the Tata-Mistry case, a pivotal legal dispute in the corporate realm. I’ve analysed the case through the lens of corporate governance in India, focusing on the continual pursuit of safeguarding shareholder interests. By examining the relevant provisions of the Companies Act of 2013, I aim to shed light on the evolving landscape of corporate governance standards and the protection of minority shareholders’ rights within prominent corporate entities. Through comprehensive exploration, I seek to provide insight into the challenges and developments surrounding corporate governance practices in India, using the Tata-Mistry case as a compelling example.
Detailed description of the parties
Tata Sons Private Limited: is a private limited company registered under the Companies Act of 1913. It serves as the principal investment holding company as well as the promoter of various Tata Group companies. Mr. Ratan Tata served as the chairman of Tata Sons from 1991 until his retirement on December 28, 2012.
Tata Trusts: The trusts associated with Tata Sons, including the Sir Dorabji Tata Trust established in the year 1932, the Sir Ratan Tata Trust established in the year 1919, and other affiliated trusts such as (Tata Education and Development Trust (2008), Sarvajanik Seva Trust (1975), Lady Tata Memorial Trust (1932), and the JN Endowment for the Higher Education of Indians Trust (1892) and many more, collectively known as the “Tata Trusts”) hold 66% of the equity share capital of the company. Each of these trusts is determined and engaged in delivering philanthropic services to the society such as facilitating education, economic sustenance, and promoting health, well-being, art and culture. The subsidiary companies under Tata Sons operate autonomously, guided solely by the Board of Directors of the respective subsidiary companies under the Tata Sons Private Limited, the holding company.
Mr. Cyrus Pallonji Mistry, the son of the former Non-Executive Director, Shri Pallonji S. Mistry, took charge of the company as the chairman, succeeding Mr. Ratan Tata in the year 2012. However, Mr. Mistry was removed from the position of chairman on October 24, 2016, following a collective decision by the Board of Directors (Board) of the company who had lost confidence in Mistry’s leadership as a chairman of Tata Sons.
Key subsidiaries involved
Tata Consultancy Services Limited (TCS), founded in 1968, is a subsidiary company of Tata Sons dedicated towards fostering mutual collaborations with IT services, digital and enterprise solution providers to enhance and bolster the enterprises owned by their clientele worldwide.
Tata Teleservices Limited (TSL), founded in 1868, is also a subsidiary company of Tata Sons, initiating the company’s engagement in the Telecom industry. The company is involved in providing services like cellular connectivity and related services.
Tata Industries Limited (TIL), another subsidiary company of the Tata Sons founded in 1868, has been established with the motive of expanding the enterprises of Tata Sons into numerous sectors.
Cyrus Investments Private Limited and Sterling Investment Corporation Private Limited are both investment companies held by the Shapoorji Pallonji Group. Both of these companies held a significant number of shares in Tata Sons, as aforementioned. Mr. Cyrus Mistry held a substantial stake in both of these investment companies.
Facts of Tata Consultancy Services Ltd v. Cyrus Investment Pvt. Ltd. (2021)
In the middle of this corporate dispute, the significant event was the removal of Mr. Cyrus Pallonji Mistry, the Executive Chairman of Tata Sons Private Limited, from his position, accompanied by his removal from the position of director roles in other prominent companies within the Tata Group. As minority shareholders holding 18% of the paid up share capital of Tata Sons, the Shapoorji Pallonji Group, represented by Cyrus Investments Private Limited and Sterling Investment Corporation Private Limited, found themselves at odds with the unfolding events. These companies, part of the Shapoorji Pallonji Group, initially owned 48 preference shares and 40 equity shares respectively of Tata Sons, a stake that has since increased substantially, as highlighted above. Mr. Mistry, who was removed from his position, holds a controlling interest in these companies. His removal in 2016 resulted from growing concerns regarding his leadership and management style. Factors contributing towards his removal included his engagement with the Income Tax Authorities and the unauthorised disclosure of confidential emails.
According to Mr. Mistry, he was deliberately ousted as this would enable Tata Sons in reasserting their authority in the company. This assertion is contingent on the fact that he had always been very open about the low standards of corporate governance maintained within the company. Further smearing Mr. Mistry’s image was a planned move to curtail the Shapoorji Pallonji group’s influence within the company and its prominent subsidiaries. This was done covertly, with the overall aim of weakening the position and the rights of the minority shareholders within the company.
On March 16, 2012, Mr. Cyrus Pallonji Mistry was appointed as the Executive Deputy Chairman of Tata Sons for a period of five years, pending shareholder approval. Following the shareholders’ endorsement in a general meeting, Mr. Mistry’s appointment was confirmed. Subsequently, on December 29, 2012, he was repositioned to serve as the Executive Chairman of the company from 2012 to 2016, while Mr. Ratan Tata remained the Chair Emeritus of Tata Sons.
Initially, things went well between the two, with Mr. Ratan Tata strongly supporting the candidature of Mr. Mistry for the position of chairman. However, their relationship soured over time due to differences in management styles. Mr. Mistry was accused of being too autocratic in his approach which eventually led to his removal in the year 2016. Mr. Ratan Tata was subsequently appointed as interim Non-Executive Chairman of Tata Sons.
Specific provisions of the company’s Articles of Association, such as Article 75 (Power of the company to transfer ordinary shares by way of passing a special resolution without serving any prior notice), were subjected to scrutiny. Mistry raised concerns regarding the ethical implications of the Tata Trusts’ influence on the Board, suggesting potential lapses in corporate governance. Various transactions and business dealings, including those involving Air Asia India (P) Ltd. (a deal worth twenty-two crores), and the acquisition of Corus Steel (Corus) at an alleged outsize payment, were also highly criticised by Mistry.
Mistry’s confidential communication to the directors of the company, regarding their inability to exercise their fiduciary duties, and other emails highlighting ethical concerns, became public knowledge after being leaked to the media, sparking considerable sensation.
Following these events, Tata Sons issued a clarificatory press statement, emphasising a drop in returns during Mr. Mistry’s tenure. This statement aimed to shed light on the company’s performance under his leadership.
Shortly thereafter, from December 12 to December 14, 2016, shareholders of TIL, TCS, and TSL voted to remove Mr. Mistry as a director.
On December 19, 2016, Mr. Mistry preemptively resigned as director from the board of Indian Hotels Company Limited, Tata Chemicals Limited, and Tata Power Company Limited. Tata Motors, and Tata Steel Limited, anticipating resolutions for his removal.
The corporate dispute further unfolded as tensions between the two major conglomerates escalated, eventually reaching the courtrooms. Cyrus Mistry’s conflict with Tata Sons became public when he approached the NCLT on December 20, 2016, following his removal as Executive Chairman, for reasons stated above. His petition, filed under Section 241 (the provision encourages filing of the applications to the Tribunal by the members of the company for the purposes of obtaining relief for matters pertaining to oppression and mismanagement) and Section 242 (the provision talks about the suo-motu powers of the Tribunal in matters related to oppression and mismanagement in a company) of the Companies Act, accused majority shareholders, including Rata Tata, Noshir Soonawala (former Vice Chairman at Tata Sons and trustee of the Sir Dorabji Tata Trust and Sir Ratan Tata Trust), and others, of engaging in practices detrimental to the company, its stakeholders and the public. Mistry questioned the circumstances of his removal, contesting the decision’s arbitrariness.
Subsequently, on January 17, 2017, Mr. Chandrasekaran was appointed as Chief Executive Officer and Managing Director of TCS and Chairman of Tata Sons, marking a transition in leadership.
Finally, on February 6, 2017, Mr. Mistry was officially removed as a director from the board of Tata Sons, marking a significant event in the ongoing dispute between Cyrus Mistry and the Tata Group.
Key provisions related to oppression and mismanagement under the Companies Act, 2013
Section 244 of the Companies Act, 2013 empowers a certain class of members of a company with the right to file an application to the NCLT as provided under Section 241 of the Act. This is applicable only when the members of a company are of the view that the business operations of the company are being carried out in a way that is oppressive and prejudicial to the interests of its members, the company itself and the general public at large. One of the most important prerequisites for a member of a company to file an application to the NCLT depends on whether the company, against which such an application is filed has a share capital or not.
For companies having a share capital, the right to file such an application is granted to either at least one hundred members of the company or not less than one tenth of the total number of its members, whichever is less. Alternatively, an application can be filed by any member or member holding not less than one-tenth of the issued share capital of the company, provided that they have paid all calls and other sums due on their shares.
For companies not having a share capital, the right to file an application is granted to not less than one-fifth of the total number of its members.
However, the proviso to Section 244 allows the NCLT to waive off all or any of these requirements upon application. This particular waiver empowers the members to file an application to the NCLT under Section 241, even if they fail to meet any of the criterias outlined in Section 244 of the Companies Act, 2013 for matters related to oppression and mismanagement of minority shareholders in a company. This provision aims to ensure that minority shareholders can seek redressal for oppressive and prejudicial acts committed by the
company’s management, even if they cannot meet the strict quantitative criteria outlined in the provision.
The challenged Articles within the Article of Association of Tata Sons
Article
Provision
Article 75
Allows the transfer of ordinary shares by special resolution without prior notice.
Article 86
Requires the presence of a Tata Trusts representative at general meetings if Tata Trusts collectively hold at least 40% of the company’s paid-up capital
Article 104
Grants Tata Trust the right to nominate three ‘Trustee Nominated Directors.’
Article 118
Establishes a Selection Committee to recommend the appointment of the Chairman if Tata Trusts hold at least 40% of the paid-up equity capital.
Article 121
Mandates that decisions of the Board require affirmative consent from a majority of ‘Trustee Nominated Directors’.
Article 121-A
Requires the decisions to be brought before the Board, where ‘Trustee Nominated Directors’ hold the majority.
Issues
Whether Mr. Mistry’s removal as Executive Chairman and subsequently as director of the company was oppressive or prejudicial to the interests of the company?
Whether the Articles of Association of Tata Sons are in itself repressive as they enable the Tata Trusts especially Sir Ratan Tata Trust and Sir Dorabji Tata Trust to maintain their dominance over the affairs of the company, and if they have been misused by Mr. Ratan Tata?
Whether the constant intervention by Mr. Ratan Tata and Mr. Noshir Soonawala in the affairs of the company, was prejudicial to the interests of the company?
Whether the manufacturing of the Tata Nano, a failed project carried out by Tata Motors at the behest of Mr. Ratan Tata detrimental to the interests of the company?
Whether Tata Steel’s acquisition of Corus Group in 2006, negatively impacted the company or the petitioners’ interests?
Whether the business deals made with Siva Group Companies by Mr. Tata proved detrimental to the interests of Tata Sons and its business operations?
Whether the acts occurring in Air Asia India (P) Ltd constituted a prejudicial conduct against the interests of the company and the public?
Whether the Company’s actions regarding a special resolution for conversion from public to private under Section 14, without altering relevant articles in the Articles of Association, were oppressive or prejudicial to the petitioner’s interests?
Contentions of the petitioner (Cyrus Investments Private Limited)
The ousting of Mr. Mistry from the position of chairman of Tata Sons was challenged on the grounds of being unlawful, posing serious questions on the company’s principles of governance, accountability, fairness, and integrity.
Mr. Mistry contended that certain Articles within the Articles of Association of Tata Sons, (especially Article 75), are inherently oppressive in nature as they confer excessive authority upon the Tata Trusts (Sir Ratan Tata Trust and Sir Dorabji Tata Trust), resulting in the Trusts having substantial control over the company’s affairs and business operations.
Mr. Mistry also alleged that Mr. Ratan Tata and Mr. Noshir Soonawala were extremely intrusive, interfering and dominant in every affair of the company.
The continuation of the failed Nano Car Project, undertaken by Tata Motors at the behest of Mr. Ratan Tata, was strongly criticised by the petitioners. The Petitioners argued that the Nano project, which has incurred losses exceeding 1000 crores, should be terminated. However, emotional ties related to Mr. Tata’s involvement in the project, have prevented the decision to shut it down.
The acquisition of Corus by Tata Steel Limited at an alleged outsize payment was also questioned by the petitioners. Tata Steel Limited acquired Corus for over USD 12 billion, an amount exceeding its original offer price by 33%.
The ultra vires usage of Tata Sons shareholding in certain subsidiary companies of the Tata Group to call for an extraordinary general meeting for the removal of Mr. Cyrus Mistry from the position of Director on the company’s Board was also challenged.
The petitioners argued that the partnership with Air Asia was established before Mr. Mistry assumed the role of Executive Chairman, suggesting it was imposed upon him. They further alleged that Mr. Venkataramanan (former managing trustee of Tata Trusts), influenced by Mr. Tata, engaged in diverting funds from Air Asia. Additionally, the Petitioners claimed that a forensic investigation by Deloitte revealed fraudulent transactions totalling up to Rs. 22 crores through non-existent parties in India and Singapore via hawala transactions. They accused Mr. Tata of indirectly financing terrorism and tarnishing the Tata Group’s image.
Various actions undertaken by Tata Sons significantly impaired the position and status of independent directors across the listed companies of the group, including attempts to remove Mr. Nusli Wadia, the chairperson of Bombay Dyeing, due to his consistent support and endorsement of Mr. Mistry’s decisions, which was also criticised by the petitioner in their pleadings.
The petitioners also blamed Mr. Ratan Tata for having close affiliations with Siva and Sterling group of companies, which they believed was the sole reason behind the company’s confidential Board meeting decisions being frequently exposed to the public.
Lastly, the petitioners blamed Mr. Ratan Tata for bestowing excessive confidence upon Mr. Mistry and entrusting him with major contracts of the company, empowering him while compromising with the interests of the company.
Contentions of the respondent (Tata Sons)
The Company’s response to the allegations was that the petitioner’s pleadings are wholly centric on Mr. Mistry’s removal and the present company petition filed before the NCLT solely depicts Mr. Mistry’s outrage against his removal from the position of chairman of the company hidden under the veil of oppression and mismanagement. Therefore, the company negated all the allegations, stating that the petition merely reflected Mr. Mistry’s dissatisfaction with his removal and that Mr. Mistry was using it as a tool to tarnish the company’s reputation.
Further, the other members of the company and major stakeholders highlighted the unwavering confidence in Mr. Ratan Tata’s leadership during his tenure as Chairman of the company for the past 21 years (1991-2012), which saw a significant increase in the valuation of the company for up to 500 times.
It was also submitted that the Board had already clarified that although Mr. Tata was no longer a board member, he would be invited to board meetings as a special permanent guest, and it was solely left to his discretion to be part of meetings which he felt were necessary to attend. Further, the directors of the company, if needed, could always reach out to him for any kind of assistance and guidance with respect to the conduct of affairs of the company.
Addressing Mr. Mistry’s allegations pertaining to certain articles in the company’s Articles of Association being arbitrary. Tata Sons stated that the shareholders of the company had consensually passed a resolution authorising the Tata Trusts to collectively nominate one-third of the directors on the Board while maintaining the Trust’s 40% shareholding within the company. Further, the resolution thus passed also made it mandatory for matters requiring a majority vote of directors to be supported by the affirmative vote of all the directors appointed under Article 140B of the company’s Articles of Association. However such requirements were altered later making the procedure of varying attendance at the board meetings more flexible, convenient and effective. Such an amendment proposed that instead of seeking the mutual acceptance of all the directors appointed under Article 140B, a decision could be taken if a majority of these directors present at board meetings supported it. Furthermore, the company clarified that during the general meeting, where such amendments were proposed Mr. Mistry was present and had also expressed his support towards such alterations in the disputed article, which he was now claiming to be obliterated.
It was further submitted that many of Mr. Mistry’s decisions, such as capital distribution, depicted his little enthusiasm in addressing the issues reported by the company and its management. There was a lack of precision in strategies pertaining to business, along with a deficiency of vigour and vitality needed for developing the business to achieve greater goals. His failure to respect the articles outlined in the Articles of Association of the company further made his leadership questionable to the company and contributed to the Board losing confidence in him and his leadership.
The company blamed Mr. Mistry of strategically decreasing the Tata Son’s representation on the boards of its other prominent subsidiary companies. With the passage of time many of the directors serving on the board of different companies under the Tata Group had retired. According to the company, Mr. Mistry deviated from the traditional practices of the company as he failed to appoint any of the retired directors to the boards of other subsidiary companies under the Tata Group which has been a common practice for the company in the past. The company further contended that the actions undertaken by Mr. Mistry towards strategic reduction resulted in a potential departure from the cohesive organisational culture and strategic alignment that Tata Group historically aimed to maintain. It was further claimed that Mr. Mistry ensured that each and every piece of communication, information, directives and strategies passed through him and such concentration of communication channels really hampered the company’s functioning and coordination with its other subsidiary companies.
The company through its submissions countered Mr. Mistry’s imprudent decision of permitting Tata Power Renewable Energy Limited which is a subsidiary company of Tata Power to acquire Welspun Renewables Energy Ltd. for a consideration exceeding USD 1 billion. The decision was highly criticised by the company as Mr. Mistry neglected the fact that the company was already in huge debt of around 40,000 crores and the tariff issues faced by the company at their Mundra project, still remained unresolved and the major issue lied in the fact that he did not feel that it was necessary to consult any of the directors from the company before permitting such acquisition by Tata Power Renewable Energy Limited.
In response to the petitioners raising concerns about the Articles of Association of the company, the respondents claimed that the Articles of Association were previously endorsed by Mr. Pallonji Mistry, father of Cyrus Mistry and Mr. Mistry himself, and so far as the amendments were concerned such amendments had been made a long time ago which was not an issue to the petitioners and the same were not contested until Mr. Mistry’s removal.
Regarding the acquisition of Corus Group by Tata Steel, the company defended its decision as the largest cross-border acquisition by an Indian conglomerate, positioning Tata Steel as the sixth-largest producer of steel worldwide. The Nano Project undertaken by Tata Motors aimed at transforming the passenger car market in India. Addressing the company’s engagement with Siva Group, the company clarified that the group is a consultant to Tata Teleservices Limited (TTSL), serving as an equity investor. The company also added that its decision of entering into a joint venture with two of Asia’s preeminent airline carriers, targeting both low-cost and premium full-service segments had paved its way for reengaging itself in the aviation market.
Regarding allegations pertaining to Mr. Mehli Mistry, the company also pointed out that nowhere in the petition it had been mentioned that Mr. Mistry served as a director on the Board of Tata Power since 2002. All business deals entered between Tata Power and Mr. Mehli Mistry had been ratified by Mr. Mistry himself. Therefore, the company argued that all the allegations made in the petition were not maintainable due to significant delays in addressing them, as most of the instances had taken place between 1993 and 2008. These matters, the company contended, could not be brought before the NCLT solely because Mr. Mistry was removed as chairman.
The company submitted that the current company petition filed by Mr. Mistry has solely emerged out of his disdain towards Mr. Ratan Tata and Mr. Soonawala, aiming to stain Tata Sons’ image. It is alleged to be a planned move by Mr. Mistry to demonstrate his vengeance towards the company following his removal.
Additionally, the company through its submissions proposed that the accusations in the petition do not qualify as organisational affairs of the company instead the entire petition is inclined towards challenging the operations of Tata and its allied trusts which is not admissible under the law. Moreover, allegations brought against the company pertaining to infringement of insider trading regulations and the Foreign Exchange Management Act, 1999, fall beyond the subject matter jurisdiction of the bench before which the current petition is filed.
The company strictly denied the purported allegations of Tata Trusts operations being prejudicial to the company’s functioning and interest because if that was the scenario it would be the Trusts who would be highly affected as it would directly hamper the investments held by these Trusts within the company.
Further, the respondents contested that the petitioners have primarily highlighted some of the failed business endeavours undertaken by Tata Sons Private Limited at the behest of its ex-chairman Mr. Ratan Tata labelling the decisions to be thoughtless and unwise, however, the respondents highlighted that some of the most successful business dealings made by Mr. Tata during his tenure as the chairman of the company including the acquisition of Tetley and most importantly the acquisition of Jaguar Land Rover and commendable success of TCS which have been cornered by the petitioners in their submissions.
The respondents also countered the petitioners’ argument with respect to the alleged fraudulent acts occurring in Air Asia, asserting that Mr. Mistry’s involvement in the decision-making process of entering into a joint venture was evident from his presence and approval in the board meetings. They highlighted Mr. Mistry’s active participation in key decisions, including the establishment of Vistara Airlines and the allocation of funds to Air Asia. Regarding the alleged fraudulent transactions worth Rs. 22 crores, they emphasised that the forensic investigation implicated the ex-CEO of Air Asia, not the directors. Further, the respondents asserted that the decision to increase investment in Air Asia was made during Mr. Mistry’s tenure as Executive Chairman.
In response to the allegations pertaining to Mr. Noshir Soonawala’s intervention in the company’s affairs, the respondents submitted that Mr. Soonawala has always held prominent positions in the company. He served the company as Finance Director from 1988-89 and later as Vice Chairman and Finance Advisor for a period of eleven years. The Board and key persons in the company, including Mr. Mistry, collectively decided that Mr. Soonawala would serve as an advisor, providing necessary assistance and guidance in the financial matters of the company. The company also mentioned in its submissions that there have been instances where Mr. Mistry himself had consulted Mr. Soonawala for his guidance and advice on various affairs of the company.
Finally, the company denied all allegations made by Mr. Mistry against Tata Sons and submitted that Mr. Mistry’s removal was done in accordance with the law following the provisions of the Companies Act, 2013, and argued that ousting Mistry from the position of chairman is legitimate and intra vires. The company also denied the allegations of oppression and mismanagement within the company.
NCLT’s Order
In November 2017, Mr. Mistry filed a company petition against Tata Sons Private Limited in NCLT, Mumbai regarding the company’s conversion from a Public Limited Company to a Private Limited Company. However on July 9, 2018, the NCLT, Mumbai rejected Mr. Mistry’s contentions, including his removal as chairman of the company, and dismissed his accusations of constant misconduct being meted out at the hands Mr. Tata and the Board. According to NCLT, the present matter was not maintainable as the allegations brought by Mr. Mistry against the company pertaining to mismanagement and oppression were solely unsubstantiated and baseless and the NCLT also clarified that there was nothing wrong on the part of the company going private from a Public limited company. The NCLT made the following observations in the present matter:
The NCLT ruled that Mr. Mistry’s removal was solely made on grounds of a growing trust deficit in his leadership as chairman of the company and rejected his allegations of deliberate action by Mr. Ratan Tata and Mr. Noshir Soonawala who saw it as an opportunity to show their dissatisfaction and disdain towards Mr. Mistry. The NCLT clarified that the approval of the selection committee was not necessary for the purpose of removal of Mr. Mistry as executive chairman.
Further, the NCLT ruled that Mr. Mistry’s removal was attributed to various issues, including his discussions with Income Tax Authorities, failure to maintain secrecy and confidentiality as most of the confidential information was shared and made public by him to the media houses in India, and expressing discontentment with the company and its allied trusts.
According to the NCLT, the removal of Mr. Mistry from the directorship of the company as a subject matter did not fall under Section 241 of the Companies Act, 2013.
The NCLT found no substance in the petitioner’s argument regarding proportionate representation on the board. The contention was that board representation should align with the number of shares held by the petitioners, which was deemed achievable unless the Articles of Association specify otherwise, as per Section 163 of the Companies Act, 2013.
The purported allegations of enriching certain individuals known to be close to Mr. Tata at the cost of the company for instance Mr. Mehli Mistry, and allegations pertaining to the Siva Group, TTSL, Air Asia, Corus acquisition, and the failed Nano Car project were all rendered baseless by the NCLT under Sections 241 and 242 as envisaged under the Companies Act of 2013.
The NCLT also rejected all allegations regarding Mr. Tata and Mr. Noshir Soonawala’s interference in the affairs of the company and that of them being prejudicial further acting as de facto directors of the company always trying to influence the decisions of the company by imposing their wishes. The Tribunal found these claims lacked substantial and evidentiary support.
Furthermore, the Tribunal rejected all the allegations challenging the legitimacy of various articles outlined within the Articles of Association of Tata Sons Private Limited, including Articles such as 75, 104B, 118, and 121, on grounds of being oppressive and detrimental to the interests of the petitioners.
The NCLT ruled that the application under Section 14 of the Companies Act, for the conversion from a public to a private company, does not fall within the scope of Sections 241 and 242. According to the NCLT, there is no provision incompatible with Section 43A (1A) and (2A) of the Companies Act, 1956, and the company retains the right to inform the Registrar of Companies (ROC) to change its status to private. This action cannot be deemed oppressive to the petitioners because the law itself mandates the company to become private under Section 43A(2A) of the 1956 Act. The NCLT noted an interface between the provisions of the Companies Act, 1956, and the Companies Act, 2013, highlighting that the repeal provision under Section 465of the 2013 Act, has been notified concerning Section 43A. It emphasised that the absence of any other definition of a ‘private company’ under the Companies Act, 2013, does not automatically classify the company as public. By examining Tata Sons’ Articles of Association, the NCLT affirmed its classification as a ‘private company’ under the new regime.
Mr. Mistry’s contention related to the majority rule not being valued much in companies and their corporate setting, with the concept of corporate governance introduced in the Companies Act, 2013, was also dismissed by the NCLT. The Tribunal emphasised that “corporate democracy is the genesis, and corporate governance is a species, and both are inseparable and can never be in dispute with each other.”
NCLAT’S Order
Not satisfied with the NCLT’s order, Mr. Mistry decided to approach the NCLAT in his own capacity. The NCLAT accepted Mr. Mistry’s petition along with the main petitions filed by the two investment firms, namely Cyrus Investments Private Limited and Sterling Investment Corporation Private Limited. On August 6, 2018, Tata Sons got approval from the ROC to change its legal status from a Public company to a Private Limited company. On December 18, 2019, the NCLAT passed its order in favour of the petitioners and revoked the order passed by the NCLT. In addition, the Appellate Tribunal reappointed Mr. Mistry as the Executive Chairperson of the Tata Sons for his remaining term and the company’s decision of electing Mr. Natarajan Chandrasekaran as the executive chairman of Tata Sons was held illegal and highly condemned by the Appellate Tribunal. However, the NCLAT did not bring its order into effect immediately, waiting for 4 weeks in order to provide some time for the respondents (Tata Sons) to appeal the order passed by the NCLAT. The NCLAT also went ahead and revoked the order passed by the NCLT, permitting the company’s conversion from a public company to a private company. The NCLAT questioned the ROC and ordered the ROC to provide the tribunal with appropriate reasons behind permitting Tata Son’s conversion from a public company to a private one and also sought in depth details of the procedure for the approval and conversion. After examining the petitioner’s submissions, the NCLAT also addressed two specific issues: the oppressive nature of certain Articles of the company and the removal of Mr. Mistry as executive chairman.
The NCLAT stated that Tata Trusts didn’t control Tata Sons directly. Their power came from specific Articles, giving them certain rights. For instance, a quorum at the company’s general shareholder meetings requires the presence of Tata Trusts’ authorised representatives, given their substantial ownership stake of 40%. Article 121 mandated that for major decisions, the Board needed majority votes, including affirmative votes from Trust-nominated Directors, highlighting their significant influence over the Board. Additionally, Tata Trusts had the authority to transfer the ordinary shares of any shareholder within the company, including those owned by Mr. Mistry, without serving him any prior notice regarding the same. However, certain important prerequisites need to be fulfilled, such as passing a special resolution in the general meeting and ensuring that the nominated directors of the Tata Trusts possessing affirmative voting rights are present if the ordinary shares are to be transferred without serving any prior notice.
The NCLAT further observed that the courts lack a juridical competence and it is beyond their power to declare the Articles of a company to be invalid and whimsical if it had been agreed by the shareholders in the first place. However, the NCLT is empowered to examine the situations where actions undertaken by a company are prejudicial, oppressive, or detrimental to the interests of the company, its members or the general public at large. Even if these actions are in accordance with the law, the NCLT has the authority to scrutinise if such actions are critical enough to warrant shutting down the company.
NCLAT in its decision also mentioned that Mr. Mistry along with other minority shareholders were persistently facing oppression because of instances of maladministration and misgovernance taking place in the company. The Appellate Tribunal questioned the nominated directors who did not exercise their rights by casting affirmative votes over the majority decisions of the Board and letting the company carry out business transactions that ended up in losses. According to the Appellate tribunal such negligence in itself was an unfair abuse of powers on the part of Tata Sons Private Limited and most importantly the entire blame could not be shifted alone on Mr. Mistry.
Addressing Mr. Mistry’s removal, which was made solely on grounds of his track record in the company, was held to be arbitrary by the Appellate Tribunal. The NCLAT clarified that a business operates because of the collective efforts of every individual involved in that business and so far as Tata Sons is considered, failure of some of its ventures is the collective responsibility of Tata Sons, the Tata Trusts and the Board of Directors, mostly when the nominee directors of the Tata Trusts have pre-eminent powers such as that of affirmative voting rights which could be exercised to overturn any majority decision at any time when they feel the same would not prove beneficial for the company. Therefore Mr. Mistry alone cannot be made responsible for the company’s failed businesses and hence his removal is illegal.
The NCLAT examined the minutes of the meeting conducted by the Nomination and Remuneration Committee on June 28, 2016, and observed that this meeting was held a few months prior to Mr. Mistry’s removal. During the meeting, Mr. Mistry’s work and eminent contributions to the company and its significant growth to various Tata Group companies had been acknowledged and applauded by the members of the committee. The committee also appreciated various measures undertaken by him to retain the unified operation of the Tata Group while sticking to the core values and principles of the company.
Further, the NCLAT ruled that the decision to remove Mr. Mistry was premeditated and the subject matter upon which the meeting was about to be held was also not notified to the Board before removing Mr. Mistry and the reasons behind his removal were recorded and minutes were maintained in the meeting when the Board took the decision to remove him.
Finally, the NCLAT, while examining the matter, came to the realisation that out of nine directors present at the Board meeting that called for Mr. Mistry’s removal, three of them who had voted in favour of Mr. Mistry’s removal, were introduced to the Board of Tata Sons only two months prior to the meeting in which the decision to remove Mr. Mistry was enforced. The Appellate Tribunal noted that the other two out of the three directors were inducted just four months before his removal.
Appeal to the Supreme Court
In January 2020, Tata Sons appealed to the Supreme Court to set aside the order passed by the NCLAT, which reinstated Mr. Mistry as the chairman of Tata Sons. According to Tata Sons, the NCLAT’s order undermined the principles of democracy in a corporate setting and was detrimental to the rights of the Board of Directors.
Reasons for Appeal
Reinstating Mr. Mistry to the position of chairman is violative of the principles of democracy in a corporate setting since he was removed only after a majority in the Board had voted against him.
Mr, Mistry never expressed his will for reinstatement after the end of his tenure.
The NCLAT compelled Tata Sons to engage in advisory discussions with its minority shareholders, the Shapoorji Pallonji group, before appointing the executive chairman, which was deemed unnecessary.
Additionally, Tata Sons appealed the NCLAT decision to limit the power of Mr. Ratan Tata and the nominees of Tata and its allied trusts in making decisions, especially those requiring a majority decision of the Board in the Annual General Meeting.
Supreme Court’s judgement
The Supreme Court deliberated on several key questions of law raised in the appeals. These questions centred around whether the NCLAT’s findings aligned with established legal principles, considering that the NCLT’s findings were not explicitly overturned. Additionally, the Court examined whether the relief granted by the NCLAT, such as Mr. Mistry’s reinstatement and other directions issued, were within the scope of the powers under Section 242(2) of the Companies Act, 2013. Furthermore, the Court examined if NCLAT could have limited the rights granted under Article 75 without invalidating the Article and if its ruling of affirmative voting rights under Article 121 as oppressive was reasonable. The Court also looked into whether Tata Sons’ reconversion from a public into a private one needed approval under the Companies Act, 2013.
The Supreme Court of India made the following observations:
After thoroughly examining the legislative background of Section 43A of the Companies Act, 1956, the Supreme Court came to the conclusion that the concept of a ‘deemed public company’ no longer exists under the new Companies Act of 2013. Instead, the definition of a ‘private company’ has been reverted to its position prior to 2000.
The determination of whether a company qualifies as a private company or not shall be guided by the definition provided for a ‘private company’ under Section 2(68) of the Companies Act, 2013. In the current matter, the Articles of Tata Sons have fulfilled all the necessary requisites outlined within Section 2(68) of the Companies Act, 2013.
The Supreme Court made the following observations while addressing the petitioner’s allegations challenging the legality of the conversion of the company from a public entity to a private one:
Tata Sons remained a private company until January 31, 1975;
From February 1st, 1975, until December 12th, 2000, Tata Sons was a deemed public company as envisaged under Section 43A of the Act, 1956;
Tata Sons continued to be a deemed a public company from December 13, 2000- September 11, 2013, by virtue of Section 3(1)(iii) of the Companies Act, 1956, as amended by Act 53 of 2000 with effect from December 13, 2000; and
Tata Sons to date remains to be a private company with effect from September 12, 2013, as envisaged under Section 2(68) of the Companies Act, 2013.
Furthermore, the Supreme Court criticised the NCLAT’s decision, stating that Tata Sons should have acted in accordance with the procedure outlined under Section 14(1)(b) of the Companies Act, 2013. This procedure should be read along with sub-sections (2) and (3) of Section 14 in order to obtain a modified and revised certificate of incorporation when Tata Sons became a public company.
The NCLAT confused Tata Sons’ effort to change the Certificate of Incorporation with its effort to change the Articles. All the requisites outlined under Section 2(68) of the Companies Act, 2013 had been fulfilled by Tata Sons, which had simply demanded the Registrar of Companies to amend the certificate, requesting acknowledgement of the company’s status rather than aiming to create a totally new status for the company.
According to the NCLAT, Tata Sons had been sluggish in their approach, as there was a considerable delay in seeking the Central Government’s permission to convert itself to a private company from a public one under Section 43A (4) of the Companies Act, 1956. The Appellate Tribunal’s decision proposed a speculated time span for the company’s action, between 2000 and 2013. However, the Supreme Court condemned the Appellate Tribunal’s decision stating that Section 43A (11), inserted in the Companies (Amendment) Act, 2000 (Act 53 of 2000), made all the subsections of Section 43(A), except sub-section 2(A), inapplicable after the commencement of the Act. The requirement under Section 43A(4) ceased to exist from December 13, 2000. Therefore, the speculated deadline proposed by the NCLAT for the company to seek approval from the government stands baseless.
The Supreme Court decided the appeal in favour of the Tata Group and upheld that the action of ousting an individual from the position of chairman was not maintainable under Section 241 of the Companies Act, 2013 unless such removal was made in a way which was prejudicial, oppressive and detrimental to the interest of the company, its members or the general public at large. The Supreme Court also clarified that the NCLT or the NCLAT did not have the right to intervene in matters pertaining to the dismissal of a person as a chairman of a company in a petition filed under Section 241 of the Companies Act, 2013. Finally, the Court ruled that Sections 241 and 242 of the Companies Act, 2013, do not empower the tribunals to reappoint individuals.
Important Case Laws
The Indian judiciary, in examining the present matter, explored various cases to get an in-depth knowledge about the concepts of oppression and mismanagement provided in the legislation for companies in 2013. The following cases are essential in understanding the concepts of oppression and mismanagement under the Companies Act of 2013.
In Loch v. John Blackwood, (1924), it was upheld that the winding up of a company shall only be permitted when it is strongly backed and supported by valid reasons based on grounds of growing trust deficit in the company’s operations and management. However, it shall be noted that such lack of confidence shall not emanate from any personal grudges pertaining to instances of being outnumbered in the business affairs of the company and its operating internal policies. Instead, applications for the winding up of the company shall stem from deep rooted concerns related to the lack of transparency and uprightness leading to a trust deficit in the operation and management style of the company. If there are genuine apprehensions regarding the transparency and uprightness maintained by the company and its management leading to a trust deficit in the company’s ability to lead and to carry out the daily business operations, then in such cases, the winding up of such company shall stand valid and justified under the under definition of “lack of confidence”.
In the case of Rajahmundry Electric Supply Corpn. Ltd. v. Nageshwara Rao, (1955). It was held that in order for the “just and equitable clause” as provided under Section 242, to be applicable under the legislation, the reasons alleging the lack of confidence in a director’s leadership must be valid and reasonable. It was further observed in this case that minor disagreements or disputes pertaining to the trust deficit between majority shareholders and minority shareholders of the company are significant for the clause to operate.
In Needle Industries (India) Ltd. and Ors. v. Needle Industries Newey (India) Ltd. and Ors.,(1981) the court elucidated on Section 397 of the Companies Act of 1956. It was upheld in this case that in order to seek redress under section 397 of the Companies Act 1956, allegations based solely on grounds such as ineptness, incompetence, or negligence in a director’s performance are not sufficient as they lack factual and evidentiary support and backing. For the purposes of seeking redress under Section 397, the petitioners have to prove that such allegations have stemmed from consistent acts of injustice, dishonesty, and discrimination meted out by the petitioners, hampering their legal and ownership rights as shareholders. In essence, the petitioners in their submissions need to address the actions of the directors that are ethically dubious and lack fairness, supported by strong evidence, restricting the shareholders from exercising their rights freely. In this scenario only can a complainant seek relief under Section 397 of the Companies Act 1956.
Conclusion
The Tata-Mistry dispute has played a huge role in shaping the landscape of corporate governance in India, shedding light on the issues of shareholder oppression and mismanagement under the Companies Act, 2013. It stands as the first ever case adjudicated by the Apex Court of India addressing oppression and mismanagement in a corporate setting, with special reference to provisions such as Sections 241 and 242 of the Companies Act, 2013. This case also draws the reader’s attention towards the issues faced by big corporations in relation to their ownership composition and power dynamics highlighting how asymmetrical power relationships can limit the rights upheld by the minority shareholders, especially when they do not align with the interests of the promoters. There is a prevailing tendency to prioritise the interests of the promoters of the company, over those of the company, which can be detrimental to the long-term durability of the corporates in the relevant business sectors. Therefore, it is crucial for corporate entities to understand the vitality of structuring their governance policies in a way that safeguards the rights of the shareholders and to restrain themselves from designing policies that work one way or are lopsided, benefitting only the promoters and overlooking the policies that actually benefit each and every stakeholder that is involved and has contributed towards the growth and development of the corporation.
The present matter, which went on for five long years from the Boardroom to the Courtrooms, acts as a cornerstone in the legal sphere, providing insights into previously unexplored areas of the 2013 Companies Act. It marks a significant advancement in corporate dynamics in India, particularly in the interpretation and applicability of Section 241 of the Companies Act, 2013, as determined by the Indian justice system. Moreover, this case provides the corporate enthusiasts and law practitioners with an in depth knowledge about the subject matter jurisdiction of the company law tribunals, clarifying that a company petition filed under Section 241 concerning the removal of an individual as chairman of a company is not triable and maintainable unless such removal is a direct outcome of oppression and mismanagement detrimental to the petitioner, the company, and the public.
Moreover, the present matter is a perfect example of a constant struggle between two strong personalities, escalating to pride issues. In essence, there never existed a case, to begin with, and the only dispute worth gaining attention to was Mr. Mistry’s removal as the chairman of Tata Sons Private Limited, which was rooted in the growing trust deficit in his leadership as a rather than personal grudges held by Mr. Tata.
Frequently Asked Questions (FAQs)
Who is a minority shareholder?
A minority shareholder can be defined as a member or group of members holding less than 50% stake in a company. The minority shareholders in a company do possess voting rights; however, these rights are limited. This limitation is evident from the fact that minority shareholders do not have the power to alter or hinder any decision passed by a majority vote in resolutions, whether they are ordinary or special. Therefore there are chances that their opinions might not get enough attention when important decisions pertaining to the affairs of the company are being made.
What are articles of association of a company?
Articles of Association of a company refers to the internal bylaws of a company. It is like a constitution of a company wherein all the rules, regulations and objectives have been extensively laid out to be followed by each and every one who is associated with the company. The internal bylaws of a company typically address rules and compliance concerning various aspects related to the company’s functioning, including organisational structure, decision-making processes, shareholders’ rights and responsibilities, corporate governance practices, and amendment procedures.
Who can approach the Tribunal against oppression and mismanagement in a company?
Section 244 of the Companies Act, 2013 outlines the criteria and prerequisites that must be fulfilled to file an application to the Tribunal regarding oppression and mismanagement within a company. This provision allows either the company itself or an individual member acting on behalf of other members to submit an application to the Tribunal. The presence or absence of a share capital in the company is a crucial factor in determining eligibility to file such an application. For companies with a share capital, the right to file depends on either the number of shares held or their value. If the criterion is based on the number of shares, the member seeking to file an application must possess at least 100 shares of the company or represent 1/10th of the total membership. Alternatively, if it’s based on the value of shares, the member should hold at least 1/10th of the total share capital value. In the case of companies without a share capital, the requirement is that 1/5th of the total members of the company may apply.
If someone is filing on behalf of other members, they must obtain consent from those members before submitting the application.
The Tribunal may also receive such an application from the Central Government.
What is the meaning of oppression and mismanagement?
The Companies Act of 2013 does not provide an explicit definition for “oppression”. However, the courts have tried reiterating the definition of oppression through a plethora of cases and have interpreted oppression to be a practice that departs from the ethical standards referring to a conduct which deliberately infringes the minority shareholder’s rights in a corporate entity and is violative of principles of fairness which needs to be strictly adhered by all the corporate entities. Similarly, the legislation remains silent on the definition of mismanagement but in common parlance mismanagement refers to dealing with the operations of the company in an unfair and prejudicial manner.
What are the roles and duties of a director under the Companies Act of 2013?
Section 166 of the Companies Act of 2013 broadly discusses the duties and responsibilities of directors in a company. Some common roles and responsibilities of a director include the duty of good faith, due diligence, proficiency, and vigilance. They are required to ensure strict compliance with the provisions of the Companies Act of 2013, attend board meetings, maintain confidentiality, prohibit insider trading, and prevent fraud.
What are the fiduciary duties of directors?
A fiduciary relationship refers to a relationship built on faith, confidence, and certainty between two parties. Examples include relationships such as that between a principal and his agent, business partners and their co-partners, and a trustee and his beneficiary. Similarly, directors have a fiduciary relationship with the companies in which they have been appointed. The ways in which a director can exercise his fiduciary duties towards a corporate entity include performing duties of loyalty, due diligence, and vigilance, as well as the obligation to disclose relevant information all of which are considered vital fiduciary duties of a director in any company.
What do we mean by affirmative voting rights?
Affirmative voting rights refer to the rights delineated in the articles of the shareholders’ contractual agreements. These rights are possessed by specific investors or shareholders to prohibit the company from making decisions pertaining to the affairs of the company that might influence their interests on certain identified matters. Affirmative voting rights empower investors with the right to vote and express their dissatisfaction in matters that they feel might be detrimental to their interests in the company. Matters such as the issuance of new shares and issues related to mergers and acquisitions could fall under such matters.
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Contract law in India is as significant in the day-to-day corporate affairs of the public sector as that of private corporate entities. In order to understand the need for enforcement of contract law in any sector, first there is the need to understand the importance of contract negotiations in day-to-day business affairs, irrespective of sector.
Though there is no dedicated legislation governing the form and model of the contract to be followed by the public sector, a few state governments and public undertakings, like national highway authorities, have laid out legislation, rules, and model codes to impart legal bindings on the contract.
However, since the introduction of the Indian Contract Act 1872, the scenario of enforcement of contract laws in the Indian business sector, both public and private, has been pitiable. The stumbling block in implementing the policy of “Ease of Doing Business” can be attributed to the remarkably slow-paced judicial system.
It used to take years to get remedies against violations of terms of contract in court.
In the present scenario, there are two ways that the aggrieved parties can find remedies.
The first option is through mediation or arbitration and the second option is filing a suit.
The first option is less time-consuming, whereas the cost involved in the process is hefty and sometimes may not lead to the desired solution.
The second option is both a time-consuming and cost-increasing option and the timing of getting a remedy is uncertain. The slow and lengthy judicial system has been an impediment to the policy of “Ease of Doing Business.” The parties are reluctant to abide by the contractual obligations, knowing that the outcome of the remedy against infringement will take a long time due to the slow-paced judicial process.
Recently, the Indian Government has understood the importance of putting focus on this important area, as this factor is becoming a major impediment to garnering the performance of the public sector and pulling foreign direct investment.
For this purpose, the government has initiated ramifications in the civil justice system to weed out the lacunas through various amendments to concerned laws and regulations.
These initiatives are expected to have a positive impact on the enforcement of contract laws in the public sector in India, fostering better public service and performance.
An overview of contract laws in India
The principles of English Common Law are the foundation of the Indian Contract Act, 1872. Mercantile and commercial transactions are mainly governed by the law of contracts.
The Laws of Contract, which came into existence in September 1872, mainly emphasise the aspects of an agreement entered into between two or more parties and its enforcement.
General features of Law of Contract
The contract /Act which was enforced on September 1, 1872, originally had 266 sections divided into 11 chapters. These chapters can be further categorised as follows:
General Principles of Law of Contract, which includes Chapters 1 to 6 and Sections 1 to 75.
Special kinds of contracts, which comprise the following contracts along with their corresponding chapters:
Contract of Indemnity and Guarantee (Chapter 8)
Contract of Bailment and Pledge (Chapter 9)
Contract of Agency (Chapter 10)
Important Provisions of Law of Contract
Let’s start with the discussion on the subject of agreement, which is the foundation stone of the Laws of Contract.
Agreement;- According to Section 2(e) of the Contract Act 1872, every promise and every set of promises form consideration for each other.
A contract is an agreement between two parties who have agreed to abide by certain bindings mutually agreed upon and is legally enforceable.
Hence, the essential elements which constitute the structure of an agreement are as follows:-
Offer – According to Section 2(a) of the Contract Act, an offer refers to a promise where the elements of a certain act, promise or forbearance are involved in exchange for the initial promise.
Acceptance – According to Section 2(b) of the Contract Act, when a person provides his consent to an offer made to him, in the form of goods or services, the offer is said to be accepted.
Consideration – According to Section 2(d) of the Contract Act, a consideration means the benefit that each party to a contract receives. Usually, the consideration involves payment in exchange for goods or services but at other times, it may not involve money but can be anything of value.
Considerations should be valid, and a set of criteria has been defined for a consideration to be valid, which are as follows:
The consideration must be made at the desire or request of the promisor.
Consideration needs to move from the promisee or any other person who has moved consideration on behalf of the promisee.
Consideration must be an act, abstinence, forbearance or a returned promise.
Consideration may be past, present or future.
Consideration must be real, competent and have some value in the eyes of law.
Consideration must involve the promise, which is already not bound by law.
Consideration always does not equal the value of something received.
However, a consideration can be treated as unlawful if the agreement contains any of the following elements:
Consideration of an agreement should not involve any act that is null and void in the eyes of law.
A consideration that involves injury to a person or property of another, is a void consideration.
Consideration has been regarded as immoral in the eyes of law.
Consideration does not challenge any provision of law.
Consideration is fraudulent.
Consideration of an agreement if it involves contradiction to public interest or policy is a void consideration.
Agreements that restrain the exercise of legal rights are null and void.
Promise:- According to Section 2(b) of the Contract Act, when an offer is accepted, it turns out to be a promise.
Void Agreement- According to Section 2(g), an agreement is considered as void agreement if it is not enforceable by law.
Voidable Contract- According to Section 2(i), a voidable contract is one that is enforceable by the option of the parties to the contract, not by law or others.
Void Contract:- According to Section 2(j) of the Contract Act, a contract is said to be a void contract if it is eligible to be enforced by law.
Enforceability of contracts in the public sector
Contracts in the Public Sector:- The Indian Contract Act 1872, though, does not prescribe any form for entering into a contract; however, the position is different with respect to the public sector. As per Article 299(1) of the Indian Constitution, the public sector in India needs to fulfil certain formalities. But the relevance of the Indian Contract Act 1872 had obviously not been superseded in order to comply with the requirements of Article 299(1) of the Constitution of India. The contracts in the public sector need to follow the essential requirements of the Indian Contracts Act 1872, such as offer, acceptance and consideration, that need to be followed for any contract by an individual under the ordinary law of contracts.
Though there is hardly any difference in terms of the interpretation of a contract between private parties as well as that of the public sector, so far as enforceability and interpretation are concerned, some special privileges are accorded to the public sector in the form of special treatment under the statute of limitation.
Provisions of Article 299(1)
All contracts made in the exercise of executive power of the union or a state shall be expressed to be made by the President or by the Governor of the State as the case may be, and all such contracts and all assurances of the property made in the exercise of that power shall be executed on behalf of the President or the Governor by such person and in such manner as he may direct or authorise.
The above provision clearly emphasises that the contract must be in written form. The purpose of enacting Article 299(1) is to provide a safeguard for the public sector against entering into any unauthorised contracts. Usually, a contract in the public sector is made by tender and acceptance. The acceptance must be made by a duly authorised person and should be a valid contract.
Any contract entered into by the public sector without following the provision of Article 299(1), is not ratifiable by law. InK.P.Chowdhary v. State of Madhya Pradesh [ AIR 1967 SC 203], the Supreme Court held that “in view of the provision of Article 299(1), there is no scope for any implied contract. Thus, no contract with the public sector is enforceable by law by any side, if it is made without complying with the provisions of Article 299(1).
A strict adherence to the provisions of Article 299(1) of the Constitution often causes hardship in the smooth execution of the contract, especially when dealing with private parties. This may be the reason why the judiciary sometimes allowed mitigations in compliance with the stringent rigours of the formalities contained in Article 299(1).
As per the provisions of Article 299(1), a contract in the public sector should be in writing, but it is not necessary that the contract always be in a formal legal document. It could be through correspondence or through offer and acceptance, which are the essential components of a valid contract as per provision in the Indian Contracts Act 1872, if it is in compliance with Article 299(1).
An officer of the public sector can be entrusted with the authority to enter into a contract governed by a rule, formal notifications or special orders. This officer has the authority to execute the contract on behalf of the public sector, duly authorised by the President/ Governor, as the case may be.
Challenges to contract law enforcement in the public sector
There are a number of challenges to contract law enforcement in the public sector in India. These challenges include:
The sheer size and complexity of the public sector: The public sector in India is vast and complex, with a wide range of different agencies and entities. This can make it difficult to ensure that all contracts are properly enforced.
A lack of transparency: The public sector in India is often not transparent, and this can make it difficult to hold government agencies accountable for their actions. This lack of transparency can also make it difficult to identify and prosecute cases of contract fraud and corruption.
Inadequate resources: The public sector in India is often underfunded, and this can lead to a lack of resources for contract law enforcement. This lack of resources can make it difficult to investigate and prosecute cases of contract fraud and corruption, and it can also make it difficult to ensure that government agencies comply with their contractual obligations.
Political interference: Political interference can also be a challenge to contract law enforcement in the public sector. This interference can take a number of forms, such as pressure on government agencies to award contracts to certain companies or individuals or interference with the investigation and prosecution of cases of contract fraud and corruption.
Recommendations for improving contract law enforcement in the public sector
There are a number of things that can be done to improve contract law enforcement in the public sector in India. These recommendations include:
Increasing transparency: The public sector in India should be made more transparent, so that government agencies are more accountable for their actions. This can be done by publishing more information about contracts online, and by making it easier for the public to access information about government procurement.
Providing more resources: The public sector in India should be provided with more resources for contract law enforcement. This can be done by increasing funding for government agencies, and by providing them with the necessary staff and training.
Reducing political interference: Political interference in contract law enforcement should be reduced. This can be done by strengthening the independence of government agencies, and by making it more difficult for politicians to interfere with the investigation and prosecution of cases of contract fraud and corruption.
Establishing a specialised contract enforcement agency: A specialised contract enforcement agency could be established to investigate and prosecute cases of contract fraud and corruption in the public sector. This agency could be independent of the government, and it could be given the resources and expertise to effectively investigate and prosecute these cases.
Judicial interference in contractual matters
Judicial interference in contractual matters endorses fairness in contractual obligations and formalities. A public sector undertaking or organisation, while dealing in, cannot arbitrarily use its power of discretion while dealing in through entering into a contract. Rather, it should conform to certain standards or norms that are not arbitrary, irrational, or irrelevant. The application of judicial review lies in adjudging the exercise of contractual powers by public sector organisations in order to prevent arbitrariness or favouritism.
Conclusion
Low-cost and impartial contract enforcement procedures enhance predictability by restraining opportunities among contracting parties. This predictability ensures a reduction in uncertainty, thereby decreasing the cost of exchange and enhancing transactions.
Fair, transparent and low-cost enforcement of contracts can open the door to competition and allow exchange among strangers by reducing the inherent risk of transactions.
In developing countries like India, information asymmetries, opportunism, and transaction costs limit the effectiveness of state-run public sectors. The public sector in India often does not provide for predictable contract enforcement.
However, in recent days, due to ever increasing focus on “Ease of Doing Business” by the Indian Government, India has come up to the rank of 63 from 143 globally, as per the ranking provided by the World Bank. The Indian government nowadays is focusing more on improving the performance of the Indian Legislature and Judiciary in enforcing contracts. In order to inculcate an encouraging business environment, an effective contract system is a must to reduce uncertainties vis-a-vis to promote business. An effective contract enforcing system not only ensures legal and economic protection of all parties involved but also increases the “Ease of Doing Business”.
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