This article is written by Syed Owais Khadri. This article attempts to explain the meaning, role and importance of ‘factum probandum’ and ‘factum probans’ in any legal proceeding. The article also covers the meaning of the maxims with respect to the Indian Evidence Act, 1872. It differentiates between the two and also discusses the relationship between both. The article also discusses the burden of proof and a few case laws on circumstantial evidence.
it has been published by Rachit Garg.
Table of Contents
Introduction
Facts play an important role in any legal proceedings as any given case is decided on the basis of the facts available before the court. There are usually two kinds of facts in a legal proceeding, the disputed facts or the ‘facts in issue’ and evidential or ‘relevant facts’. The two Latin maxims “factum probandum” and “factum probans” are of great significance while adjudicating a case. These two maxims refer to the aforementioned two kinds of facts. The maxim “factum probandum” refers to the facts in issue or the disputed facts while the maxim “factum probans” refers to the relevant or evidential facts. Both these facts are generally interconnected with each other but the facts in issue are given primary consideration while the relevant facts play a secondary role. It is essential to understand the similarities, differences and interconnection between the two to have a better understanding of any legal proceeding.
What is factum probandum
Factum probandum refers to the facts in issue or the disputed facts that are contested or raised in a legal dispute, whether civil or criminal proceedings. Factum probandum is a legal maxim derived from Latin which can be defined as any principal or main fact that needs to be proven by a counsel in a legal proceeding before the Court. It can be any principal fact that possesses the burden of proof in a suit or trial and needs to be proved. It refers to the core facts of a case or a legal dispute.
The burden of proof to establish the principal facts or the factum probandum is generally upon the party initiating the legal dispute or the party that would fail in a suit if it fails to provide appropriate evidence. But it may be the opposite in certain cases, such as the Protection of Children from Sexual Offences (POCSO) cases which is called the reverse burden of proof.
The concept of factum probandum also rules out allowing to produce the irrelevant facts as the maxim refers only to the facts in issue which limits the proceedings to relevant evidence preventing the case from becoming complicated or affected due to the non-relevant evidence. It will also result in never-ending judicial proceedings as takes too much of the courts’ time once it starts allowing to hear irrelevant facts.
What is factum probans
Factum probans is another legal maxim derived from Latin which refers to the evidential or the relevant facts which are connected to the facts in issue or factum probandum. These are the facts which are not principal in nature but are subordinate to the original facts. The relevant or evidential facts are usually used to support or prove the facts in issue. These facts are in the nature of material supporting the disputed facts.
Difference between factum probandum and factum probans
The maxims factum probandum and factum probans are of great significance in the legal proceedings. The main difference between both is the nature of facts. While the former refers to the principal facts, the latter refers to the facts that are subsidiary facts.
Factum probandum refers to the main facts that are contested in a legal proceeding and factum probans refers to the facts that are evidential in nature and which are essential to prove or establish the main facts.
For example, A and B are two rivals. A and B fight on a particular day and A threatens to kill B. B is found dead the next day. Here, whether A has killed B is the principal fact or the fact in issue and whether A had threatened B the previous day and whether A and B were rivals are the evidential facts.
Factum probandum and factum probans under the Indian Evidence Act, 1872
The concepts of factum probandum and factum probans are embodied in the provisions of the Indian Evidence Act, 1872 (hereinafter mentioned as “Evidence Act”), which is going to be replaced with the Bharatiya Sakshaya Adhinyam, 2023 (hereinafter mentioned as “BSA”). The Ministry of Home Affairs, on 24th February 2024, through the gazette notification, notified that the new criminal laws are going to come into effect from 1st July 2024.
Section 2(1)(g) of the BSA (Section 3 of the Indian Evidence Act, 1872) interprets the expression ‘Facts in issue’ (factum probandum) as “any fact from which, either by itself or in connection with other facts, the existence, non-existence, nature or extent of any right, liability, or disability, asserted or denied in any suit or proceeding, necessarily follows.” In simple terms, factum probandum means any fact that is asserted or denied or simply contested in any legal proceeding.
Section 2 of the BSA (Section 3 of the Evidence Act) interprets the term ‘relevant’ as “one fact is said to be relevant to another when the one is connected with the other in any of the ways referred to in the provisions of this Act relating to the relevancy of facts.” Therefore, relevant fact refers to any fact that is connected to any other fact in any of the ways mentioned in Chapter II of the Evidence Act with regard to the relevancy of facts.
Section 3 of the BSA (Section 5 of the Evidence Act) provides for the production of evidence with respect to the facts in issue or the relevant facts. The provision states that any evidence may be given in a legal proceeding to prove either the existence or non-existence of every fact in issue or any other fact that is considered relevant as declared in the provisions of the Act.
The other provisions from Sections 4 to 14 of the BSA (Sections 6 to 16 of the Evidence Act) provide various instances of the relevancy of certain facts according to different facts and circumstances.
Relationship between factum probandum and factum probans
Both factum probandum and factum probans form a significant part of legal proceedings. They are like the two sides of the same coin. Both can be said to be interconnected to each other and interdependent too to some extent. The former requires the assistance of the latter to support or challenge itself while the latter is limited only to the preposition laid down as the former.
For example, the fact in issue is whether A has committed theft. And the relevant fact is that A has criminal antecedents of committing theft or robbery. In such a case the fact in issue is dependent upon the relevant fact, which is of great value to prove the possibility of theft having been committed by A. Similarly, the relevant fact is of no value in the absence of the aforementioned fact in issue. Therefore, both factum probandum and factum probans are interrelated with each other.
Onus probandi
Onus probandi is another legal maxim that refers to the “burden of proof”. The burden of proof refers to the obligation to prove a fact before the court in any legal proceedings. The burden of proof and the factum probandum and factum probans are closely related to each other. The concept of onus probandi is of great significance since it helps in understanding the need to prove the facts, either relevant or the facts in issue. The understanding of the concept of burden of proof provides clarity in dealing with the facts in issue or factum probandum and the relevant facts or factum probans appropriately at the right instance.
The burden of proof under the Indian Evidence Act, 1872
Chapter VII, Part IV of the Bharatiya Sakshaya Adhiniyam, 2023 (BSA) deals with the concept of burden of proof. It consists of 17 Sections i.e., Section 104 to Section 120 (Chapter VII under Part III of the Indian Evidence Act, 1872, consisting of 17 Sections i.e., Section 101 to Section 114A.)
Section 104 of the BSA (Section 101 of the Evidence Act) gives a basic explanation of the burden of proof. According to the provision, any person who desires to get a ruling by any Court in his/her favour with regard to any legal right or liability on the basis of certain facts must prove the facts he/she is asserting and the obligation to prove the existence of the asserted facts is called as the burden of proof.
Section 105 of the BSA (Section 102 of the Evidence Act) provides for the person on whom the burden of proof rests. It states that the burden of proof lies upon such a person who would fail if no evidence is produced or fact is asserted by either of the parties to a legal proceeding. In simple words, the illustrations under the provision reflect that the burden of proof would lie upon the party instituting a suit or any legal proceeding.
Section 106 of the BSA provides (Section 103 of the Evidence Act) that the burden of proof with respect to a particular fact rests upon the person asserting that fact.
Section 107 of the BSA (Section 104 of the Evidence Act) deals with the burden of proof to prove a fact in order to make certain evidence admissible. According to this provision, any person wanting to make any evidence admissible before the court to prove any particular fact should prove certain facts with regard to the evidence.
For example, if A wants to prove that B has committed a robbery in A’s house, then A must in the first place prove that his house has been robbed. In this case,
Factum probandum – Whether B has committed the robbery in A’s house?
Factum probans – B has prior criminal antecedents of committing robbery.
Onus probandi – The burden of proof lies upon A and to prove that B has committed robbery in A’s house, A must first prove that his house has been robbed.
The terms relevant and admissible with regard to evidence are often treated as of similar meaning but the Supreme Court of India in a notable judgement pointed out the difference between ‘relevancy’ and ‘admissibility’ of evidence. The Hon’ble Supreme Court in Ram Bihari Yadav v. State of Bihar (1998) observed that, although the terms admissibility and relevancy are presumed to be or used as synonyms, the legal implications of both terms are different. It further observed that facts which are relevant may not be admissible and facts which are not relevant may be admissible in the court. For example, communication between the spouses during marriage may be relevant but may not be admissible and, on the other hand, certain questions that may be asked during the cross-examination may not be relevant but are admissible.
Similarly, the confession made before a police officer, though relevant, is not admissible in the court, according to Section 23 of the BSA (Section 25 of the Indian Evidence Act, 1872).
Section 109 of the BSA (Section 106 of the Evidence Act) provides the burden of proof to prove a fact that is within the knowledge of a person. This provision is similar to Section 103 and the burden of proof rests upon the person asserting the fact.
Likewise, Sections 110, 111, 112, 113 and 116 of the BSA (Sections 107, 108, 109, 110 and 112 of the Evidence Act respectively) provide the burden of proof in various instances. Sections 113 and 114 of the Evidence Act respectively deal with the proof of cessation of territory and presumption of certain facts by the Court. [Section 119 of BSA replaced Section 114 of IEA. The provision corresponding to Section 113 of IEA i.e., the proof of cessation of territory is not available in the new law, BSA]
Reverse burden of proof
The general rule with regard to Onus probandi or burden of proof is that the obligation to prove a certain fact lies upon the person asserting or claiming it or the person instituting the criminal proceedings but this general rule of burden of proof has certain exceptions where the obligation to disprove an asserted fact lies upon the opposite party. Such a burden to disprove the facts asserted or claimed in any legal proceedings is known as the reverse burden of proof.
The exceptions to the burden of proof or the instances of reverse burden of the proof may be as follows.
Section 108 of the BSA (Section 105 of the Evidence Act) provides for the first exception to the general rule of burden of proof or rather it can be stated as the instance of reverse burden of proof under the Indian Evidence Act, 1872. According to this provision, whenever any person accused of any offence claims defence or tries to bring the case within the general exceptions provided under the Indian Penal Code, 1873 (hereinafter mentioned as “IPC”) or any other exception or proviso of the same legislation, the burden of proof would lie upon the person asserting the defence or bringing the case under such exceptions.
The Supreme Court of India, in K.M. Nanavati v. State of Maharashtra (1962), upheld the conviction of the accused for the offence of murder under Section 300 of the Indian Penal Code, 1872 (Section 99 of BNS). In this case, the accused failed to prove the asserted defence of sudden and grave provocation under Exception 1 of Section 301 of the IPC.
According to Section 114 of the BSA (Section 111 of the Indian Evidence Act, 1872) the burden to prove good faith in any transaction in question lies upon the person in a position of active confidence or the person generally referred to as the defendant or the respondent.
According to Section 115 of the BSA (Section 111A of the Indian Evidence Act, 1872) if any person is accused of committing, abetting or conspiring to commit any offence under provided Sections 121, 121A, 122 or 123 of the Indian Penal Code, 1872, (Sections 145, 146, 147, 148 of BNS respectively) then the burden to disprove such an allegation lies upon the accused.
Likewise, according to Sections 117 and 118 of the BSA (Sections 113A and 113B, of the Evidence Act) the burden to disprove the allegation in cases where any person is accused of committing an offence of abetment to suicide of a married woman or the offence of causing dowry death lies upon the person accused of committing such offence once the essentials of the said offences are proved by the prosecution beyond all reasonable doubt.
According to Section 120 of BSA (Section 114A of the Indian Evidence Act, 1872) when a person is accused of committing the offence of rape under Section 376 of the Indian Penal Code, 1873 (Section 64 of BNS) and where sexual intercourse by the accused is established in such case, then the burden to prove the presence of consent by the woman for such act of sexual intercourse lies upon the accused.
Case laws surrounding factum probandum and factum probans
The Indian judiciary, especially the Hon’ble Supreme Court of India has made various observations from time to time with regard to factum probandum (fact in issue)and factum probans (relevant fact). The Supreme Court, in various judgments, has noted the role of circumstantial evidence in proving the facts in issue. The following are some of the significant rulings of the Hon’ble Supreme Court.
Vilas Pandurang Patil v. State of Maharashtra (2004)
The accused in the instant case was arrested for committing offences under Sections 302 and 404 of the Indian Penal Code, 1873 (Sections 101 and 313 of BNS) and was subsequently acquitted by the Trial Court. The order of the Trial Court was reversed by the High Court of Bombay which convicted the accused and sentenced him to life imprisonment and imprisonment for two years for the aforementioned offences respectively. The accused has, therefore, challenged the judgement passed by the High Court of Bombay before the Hon’ble Supreme Court.
The Apex Court, in this case, noted that in order to prove that any crime is committed, it is not necessary for that offence to be seen while it is being committed or to be proved by direct evidence. The Court noted that the commission of the offence can also be proved by circumstantial evidence. It was observed that the principal fact or factum probandum can be proved indirectly by drawing inferences from the relevant facts or the factum probans. The Court clarified that circumstantial evidence is not direct evidence but it consists of other facts that may be related to the fact in issue or the principal fact that helps in drawing legal conclusions from the chain of circumstances formed by the evidentiary facts.
Gambhir v. State of Maharashtra (1982)
The instant case is a criminal appeal filed before the Hon’ble Supreme Court against the judgement of the Bombay High Court where it had convicted the appellant for committing an offence under Section 302 of the Indian Penal Code, 1873 and sentenced him to life imprisonment.
The Apex Court, in this case, noted that the case completely had to be decided upon the circumstantial evidence (factum probans) as there was no direct evidence in the case. The Court observed that the law with regard to circumstantial evidence is well-settled and noted that, if a case rests upon circumstantial evidence, the evidence must qualify following tests.
The circumstances pointing towards the guilt of the accused must be convincingly and firmly established.
The circumstances must be of a definite nature and must certainly point towards the guilt of the accused.
The circumstances must collectively form a chain which provides no scope to escape from the conclusion that the crime has been committed by the accused but no other person.
The circumstances must be incapable of any other hypothesis other than the guilt of the accused and must not only prove the guilt of the accused but also be inconsistent in proving the accused’s innocence in order to sustain the conviction.
In addition to the aforementioned cases, the Apex Court, through various cases, has noted that the law with regard to circumstantial evidence is well settled for the cases where there is no direct evidence and the case rests upon the circumstantial evidence. The Hon’ble Supreme Court has observed that the inference of guilt from circumstantial evidence can be justified only when all the facts and circumstances are inconsistent with the innocence of the accused. This observation has been noted and affirmed by the Supreme Court in various judgements which include Hukam Singh v. State of Rajasthan (1977), Eradu v State of Hyderabad (1955), Eerabhadrappa v. State of Karnataka (1983), Balwinder Singh v. State of Punjab (1995), etc.
The Supreme Court of India in State of U.P v. Ashok Kumar Srivastav (1992) observed that the evaluation of the circumstantial evidence must be carried out with great care and, if the circumstantial evidence leads to two inferences, then the one favourable to the accused must be accepted.
The Hon’ble Supreme Court has made observations on a similar note in many other cases where circumstantial evidence is of primary importance due to the absence of direct evidence.
Conclusion
The facts in issue and the relevant facts play a vital role in legal matters as they both help in establishing the facts of a case by the party which owes the burden of proof. It is extremely necessary to understand the difference and the relationship between factum probandum and factum probans in order to ensure clarity in arguments and judgements of the case. The concept highlights the importance of understanding and evaluating the relationship between the evidence and the issues in the case. The relevant facts are of great significance in cases as they provide a direction to the legal practitioner to connect the evidence and establish the case depending upon the facts and circumstances.
Frequently Asked Questions (FAQs)
How does factum probans assist factum probandum?
Factum probans or relevant facts help in establishing the facts in issue. They act as supporting material to prove the disputed fact.
What role does factum probans play in the absence of clear evidence?
In case of absence of clear and cogent evidence, the court generally resorts to the circumstantial evidence which was established by the parties to the case through producing or submitting the relevant facts. The Court draws or infers from such relevant facts signifying the circumstantial evidence and then takes a definite conclusion as to the fact in issue. Therefore, factum probans indicating circumstantial evidence can also be relied upon to establish a case in which there is no direct evidence to prove the allegation or facts as held in the ruling of Gambhir v. State of Maharashtra (1982) provided that it qualifies the test laid down in the said ruling.
Whether the concepts of factum probandum and factum probans exist both in civil and criminal matters?
Yes, they are applicable to both civil and criminal matters. The evidence needs to be proved beyond the reasonable doubt in criminal matters whereas it depends upon the rule of preponderance in civil cases.
How are onus probandi and factum probans and factum probandum inter-related?
All of the aforementioned concepts are closely related. Factum probandum and factum probans refer to the facts asserted in a case and onus probandi refers to the obligation to prove the asserted facts.
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This article is written by Ananya Gargand further updated by Priyanka Jain. This article analyses the objectives fulfilled by Model Law on E-commerce. It gives a brief history of how MLEC came to be and discusses all the key provisions of the Model Law. Lastly, it talks about the implementation of Model Laws with the help of various judicial interpretations.
Table of Contents
Introduction
Over the last two decades, there has been a huge shift in the nature of commercial transactions. Now, transactions have been carried out using computers, commonly known as “electronic commerce”. It includes the transactions without paper, i.e, paperless transactions. Even storage of information by the use of memory cards or database management systems in place of heavy paper-files. This also removes data redundancy and enhances accuracy, efficiency, credibility. The United Nations Commission on International Trade Law (UNCITRAL), through the Model Law on Electronic Commerce (MLEC), sought to provide rules that are acceptable among the international community to eradicate hindrances both mercantile and legal and enhance smoothness for e-commerce. It has paved the way for both paperless and paper bound transactions, thereby removing any discrimination of more validity and acceptance of paper bound transactions over paperless transactions which arose due to non-acceptance of electronic documents. It has enhanced the trustworthiness of international trade by ease of choosing between paper-based or electronic information, thus enabling the use of paperless communication.
The international community has given fruitful consideration to the Model law while enacting or revising their domestic laws so that consonance of the law can be met by giving equal protection to electronic transactions. This article throws light on the history and adoption and implementation of the Model Law of E-commerce to understand the objectives of Model Law of Electronic Commerce and how they are achieved.
History and evolution of UNCITRAL Model Law on electronic commerce
With the advent of globalisation and the rapid increase in the digitization of work, a major change in the mode and method of communication between businesses was witnessed. This was the commencement of the electronic culture of information exchange and information storage. UNCITRAL decided to prepare the Model law in response to such change, thus, giving the nations an internationally acceptable set of rules for the interpretation and adaptation of their domestic laws and practices in the realm of businesses involving the use of computers as a mode of communication.
It also helped in the establishment of relevant legislation where none existed and the promotion of harmonisation and unification of international trade laws. Thus, the UNCITRAL Model Law of E-commerce was adopted by the United Nations Commission on International Trade Law on June 12, 1996. The Additional Article 5 Bis was adopted in 1998.
Events which paved way for the creation of the Model Law
In 1984, “The Commission on International Trade Law” at its seventeenth session took into its notice a report of the Secretary-General regarding legal aspects of data processing.
The report of year 1984 entitled “Legal Value of Electronic Records” identified several legal issues related to the legal value of computer records and the requirement of written authentication, general conditions, liability, bills of lading, etc. A need was felt to assess the legal challenges in international trade transactions. All the challenges were found in international trade legal compliances. So, research on legal repercussions regarding data processing on international trade set into motion.
In 1985, a report by the Secretariat noted that the legal obstacles to the use of computers in international trade arose due to the requirement of written and signed documents. After this, the Commission adopted a recommendation to review the legal requirements of written form of trade documents and transactions, handwritten signature and authentication requirements, written form of the documents being submitted to the government, and the requirement of such provisions relating to the written form of documents as a condition for enforceability, etc.
Yet, little progress was made in the removal of provisions in national legislation requiring the use of written documents and authentication. In 1988, the Commission proposed to delve deep into the concern to provide for legal principles necessary for the formation of international commercial agreements by way of electronic means.
Structure of the UNCITRAL Model Law for electronic commerce
There are two parts to the UNCITRAL Model law. Part I discusses the general provisions relating to e-commerce, by legislating the principles of “non-discrimination”, “technological neutrality”, and “functional equivalence”. Following are the principles of Model law on e-commerce:
The principle of non-discrimination– It ensures that any document would not be denied its legal validity, effect, and enforceability solely on the basis that it is in electronic form.
The principle of technological neutrality– It mandates the adoption of such provisions that are neutral with respect to the technology used. This will further enhance the pace up of international monetary transactions with the advancement in technology.
The functional equivalence principle- Functional equivalence, as the name suggests, is equal treatment to all on the service front. It means both the transactions, traditional as well as technological, that means, paper bound and electronic cannot be challenged on their validity or effectiveness.
Besides establishing uniformity in the laws regarding e-commerce and legal relevance for data communicated through electronic mode, Model Law for Electronic Commerce also establishes rules for the formation and validity of e-contracts, for data message attribution, for receipt acknowledgment, and for determining receipt of data messages, etc.
The Part II of the Model law relates to contracts of carriage of goods. These actions may include furnishing the marks, number, quantity, or weight of goods. Part II of the Model law deal with stating or declaring the nature or value of goods, issuing a receipt for goods, confirmation that the goods have been loaded, notifying a party of terms and conditions of the contract, providing instructions to a carrier, claiming delivery of goods, authorising the release of goods, giving notice of loss of goods, giving notice about the damage to goods, giving any other notice or statement in connection with the performance of the contract, undertaking to convey goods to a named person or a person authorised to claim shipment, granting, acquiring, renouncing, surrendering, transferring or negotiating any of the rights in goods, obtaining or giving rights and obligations under the Contract.
Objectives of UNCITRAL Model law on electronic commerce
Following are the objectives of UNCITRAL Model Law:
To enable and provide help in popularity of commercial transactions using electronic means;
To provide different countries with a set of rules which are accepted internationally to remove all hurdles in its execution;
To enhance legal predictability for commerce using electronic means;
To overcome any obstacle in domestic laws regarding commercial transactions to provide equal treatment to both paper bound and paperless transactions. This will enhance efficiency in international trade.
Key provisions of UNCITRAL Model Law for electronic commerce
There are two parts in UNCITRAL Model law, part 1 and part 2. Part 1 deals with e-commerce in general and Part 1 deals with e-commerce in specific areas. Part 1 has three chapters and fifteen articles and Part 2 has one chapter on carriage of goods consisting of two articles; articles 15 and 16.
Applicability and interpretation of Model law
The sphere of application that Article 1 talks about, is for the information in the form of data messages, in the context of commercial activities. A data message is information generated, sent, received, or stored by electronic, optical, or similar means. This definition has been attributed after taking into consideration the future technological developments as well, which is the reason for inclusion of the term similar means.
The Model Laws give the interpretational tools (Article 3) that call for a standard of international origin and uniformity in the application of general principles of law. While formulating the domestic laws, international uniformity needs to be kept in mind. E-commerce transactions are global in nature, and domestic laws require conformity with international usage and behaviour for its acceptance on global platforms.
Anything; issue or a dispute should be settled as per the general principles of non-discrimination, technological neutrality, and functional equivalence.
Important definitions
Article 2 of the UNCITRAL Model Law of E-commerce prescribes important definitions for the interpretation of the law.
“Data message” refers to any information that is generated, transmitted, received, or stored by any mode of electronic or optical communication or any mode of communication similar to electronic or optical communication. Which includes email, electronic data interchange, telecopy, telex, etc.
“Electronic Data Interchange” as the name suggests is any exchange among computer devices under an agreed standard for information exchange.
“Originator” means who transmits data for the first time. It cannot be any intermediary. It can be any person who has generated or sent the information prior to storage.
“Addressee” means who has been sent the message or information or data packet. It is that person who will receive the information to store. Again, it cannot be any intermediary.
“Intermediary” is any person on behalf of either the originator or the addressee who sends, stores, and receives data for further use. Or he may provide other data services concerning that data message.
“Information System” is any system to generate, transmit/send, store, receive or process the data message.
Legal requirements for validity of data messages
All the electronic transactions take place through electronic devices; which includes, transfer of electronic messages, i.e, “exchange of data messages”. As per article 5 of the Model law on electronic commerce, data messages should be legally validated or recognized as per the principle of non-discrimination against the use of electronic means. These popular electronic means are email, electronic data interchange, short message service, fax, microblogging apps etc. Following are the legal requirements for the validity of data messages:
Legal recognition of digital information
The principle of non-discrimination has been enforced by the means of Article 5 which specifies that the information communicated via electronic mode, i.e., in the form of data messages, cannot be denied legal validity and effect. Article 5 of the model law talks about the legal validity of the information communicated. Just because the information is in the form of a “data message” it should not be denied of its validity, enforceability, and effect in legal sense.
Information by the way of reference has also been given legal validity (Article 5 bis) and thus, the application of this law has been considerably widened. Article 5 bis was adopted by the Commission on its thirty-first session in June 1998. It says that the information stays valid, enforceable, and effective even if it is not contained in a data message, just referred to in that data message.
Recognition to digital document and digital signature
Generally, law requires the documents to be in writing, and validation was only given to the handwritten signature as a form of authentication. Article 6 says that information is required to be in writing as per the law. It can be any photocopy of the document or scanned image. If the law says that the information must be in writing than it can be satisfied by using digital message, so long it is accessible and secured for future reference.
Article 7 says same thing for the signatures that their scanned image is acceptable so long they can be verified by the concerned person or anyone who has authority to verify as per the law time being in force. By the means of provisions in Articles 6 & 7, the Model has done away with both of the above obstacles. Accessibility of data messages does not require the document to be in writing, and recognition of digital signature marks the approval of the full structure of the contract. This provision is termed relevant for every circumstance, including a relevant agreement.
When a data message if recognized as original
The notion of originality is defined in Article 8 which provides that data messages can fulfill the legal requirement of presentation and retention of information in its original form subject to the assurance of integrity and presentability of data messages. Presentability meaning the ability to display the information where required.
Evidentiary values of data message
Article 9 specifies that the data messages cannot be denied admissibility in the court of law solely on the basis that the information is in the form of a data message. Thus, evidentiary value, that means, which can be adduced as evidence to rebut or support the fact or transaction in question, has been granted to data messages. Article 9 throws light on the admissibility and evidentiary value of data messages during legal proceedings. It says that data messages have admissibility, and it cannot be denied just because they are not in paper form. Evidentiary value is based on the process of generation, storage and transfer of data message, that means, reliability of server.
If it is established that there was some alteration or change with the data message, then its evidentiary value, or in simple terms, its credibility goes down. For the credibility , identification and authentication of the originator is important.
Retention of information
Retention means to hold back. Retention of information means holding back or keeping the information for further use for any purpose. Article 10 discusses retention of information. If any document, photo ID, any paper that is in digital form, scanned copy, camera picture, need to be retained then this is permitted under the Model law when the said digital message satisfies these conditions:
This information is accessible so that it can be used after some time or anytime;
The format of its retention should be accurate and there should not be any tempering;
The retained information enables to identify its source and destination, along with date and time of both;
The requirement of retention of information is also met by retention of information in the form of data messages subject to the accessibility, accuracy, and originality of format and identity of origin.
Communication of data messages
Communication of data messages means transfer of digital information or any information in digital form from one electronic device to another. This information can be structured, unstructured, audio file, video, scanned copies of documents, electronic signatures or documents, text messages etc. It is done through communication protocols like TCP/IP, HTTP etc. It involves data sharing among various devices on a network.
Formation and validity of electronic contract
A contract is formed when one person signifies his willingness to do or abstain from doing anything to the other person to receive his assent, and is said to make a proposal. When that other receives it, and signifies his assent, it is acceptance. Then there is the element of consideration, which is the price for a promise. Then it became an agreement. A legally enforceable agreement is a contract.
Article 11 says that the offer, when manifested in the form of a data message, stays effective, valid and enforceable even if it is not in writing. It cannot be denied because it is in data form. The same principle applies to communication of the acceptance also that if the acceptance is put into transmission in the form of a data message it is legally valid, enforceable, and effective. In India, validity to offer and acceptance in the form other than written form was upheld a log ago even before formulation of UNCITRAL Model law on e-commerce. In the case of Bhagwandas Goverdhandas Kedia v. M/S. Girdharilal Purushottamdas and Co.(1965) Supreme Court validated the agreement using telephone. Telephone predecessor of today’s world mobile phones, cell phones and other digital means.
A contract starts with an offer, i.e., a willingness to receive the assent of the other to do or not to do something. Here, formation of a contract was made easy by way of data packets. Under Section 10-A of the Information Technology Act, 2000, e-contracts have legal recognition.
Types of e-contracts
E- Contracts are of three types:
Shrink wrap agreement: Under this type of electronic agreements, users or visitors can read “terms and conditions” of the site after logging in to the website. It is helpful as user read all the terms and conditions regarding his liability, platform’s liability, benefits or services offered by the platform. However, one cannot negotiate on the terms of agreement.
Click wrap agreement: The user or the other signifies his acceptance by clicking on the “I agree” button. It is done by clicking on the “I agree” button. It is like when a user opens a package they agree to terms and services even if they haven’t gone through a single word. These terms include terms regarding use of software, liability of platform, users. But user initially is unaware of these terms. Like in, shrink wrap agreement, click wrap agreement also does not allow negotiation.
Browse wrap agreement: In these agreements visiting the web page, mere browsing signifies the consent of the visitor. Browsing means logging in to the website or visiting the homepage of the website. If a user has visited any commercial web-page by clicking on any link, so he has given his consent only by clicking the page. Downloading of any such app is also akin to giving valid consent.
Data message in electronic contract will be valid
Electronic contracts are those which are entered in digital form, not in paper pen mode. These include exchange of digital information. Electronic contracts are more convenient and easy to enter. Electronic contracts can be made by the exchange of emails, text messages where offer and acceptance was not in oral or paper mode.
So, Article 11 of the UNCITRAL Model law on e-commerce protects such contracts that are entered by way of data messages. E-contracts are the heart of e-commerce. Without the contract, commerce has no existence. Hence, the legal validity and enforceability of the contracts which have been made by the exchange of data messages and in the form of data messages have equal validity and enforceability as traditional paper contracts.
Article 12 of Model law acknowledgment the validity of data message send from the originator to the addressee. It states that the form of receipt of data messages has also been granted legal effect, validity and enforcement under law. Article 12 elaborates on the legal validity of data messages. Data messages may include text messages, emails, WhatsApp chats, etc. Under the purview of this article, they are accepted modes of communication.
Attribution of data message
Under Article 13 attribution of data messages is discussed. Attribution means cause or source, in simple words, where does this message come from? Attribution points towards origin or factor of something. If the message is sent by server A then it belongs to server A. If the originator has authorised someone else to send the data message then it belongs to the originator. It is linked to responsibility and accountability regarding data messages, that determines that whoever sends the data message either directly or under an agency or any authorisation like any agreed system between originator and the addressee, power of attorney, shall be held accountable for such data message.
Acknowledgment of receipt
Under Article 14, parties are free to maintain any terms and conditions regarding electronic communication among themselves. Originator and the addressee can agree upon the terms regarding receipt and acknowledgment of data messages before the electronic transaction. If there is no agreement between the originator and addressee regarding acknowledgment of the data message then it can be done as per the communication by the addressee or conduct of the addressee, so to indicate the originator that data message is received by the addressee.
If the originator has signified that the receipt of the data message is conditional on the acknowledgment of the data message, until the data message is acknowledged, it will not be deemed received till acknowledgment.
If the data message is not subject to the receipt of its acknowledgment, then the originator within the agreed time or reasonable time may give any notice to the addressee to send its acknowledgment. Else it may be taken as not sent by the originator.
When the originator receives the acknowledgement, it is presumed that the addressee has received the data message.
In a nutshell, both the originator and the addressee can create a framework to regulate the receipt of the data messages and the acknowledgement of data messages. This is important for ease among the parties, efficiency, clarity, and speedy transactions.
If transactions are cross-border and involve hefty payments, then terms can be made stringent enough to make it fully compliant with all the governing laws.
Time and place of dispatch of receipt
Article 15 determines where these transactions commence and where they conclude. A transaction begins when it goes beyond the control of the sender or transmitter of a data message. Place of dispatch is the physical location of where the computer is kept. This can be determined by the IP address of the device from which the message was dispatched. This transaction is complete when the intended device receives the acceptance. It can be the original sender or someone else on his behalf as per the agreed terms under Article 14.
Electronic commerce in specific area: Carriage of goods
Articles 16 & 17 talk about the carriage of goods and transport documents. They enforce the ability to achieve carriage of goods by means of data messages and fulfilment of the requirement of transport documents through the same as well. It is mandatory for the furtherance of international trade. This part has been complemented by other legislative texts such as the Rotterdam Rules which provides for liability standards for loss or damage during sea transport of goods.
Implementation and judicial interpretations of UNCITRAL Model Law on electronic commerce across the globe
UNCITRAL Model Law on Electronic Commerce brought into existence the aim of encouraging international trade through various electronic, magnetic, and other technological modes of communication. It opened the door for national legislators to adopt a set of globally acceptable rules regulating E-Commerce. Various jurisdictions promulgated their laws based on the principles of the Model Law.
Khoury v. Tomlinson (2016) is an authority decided by the Court of Appeal, Texas. The issue with the Hon’ble court was whether a name or email address in the “from” field of the email page can be taken to be executed or adopted by the user, here Mr. Tomlinson, with the intent to sign the electronic record. In this case, an agreement was made via email which was not signed, but only the name of the originator appeared in the ‘from’ section of the email page. Referring to the principles in Article 7 of the Model Law, the court agreed that a signature bar in an email page satisfies the requirement of the law in consideration, and hence, it satisfies the requirement of the signature for the purpose of authentication of the record sent via email.
In the matter of Chwee Kin Keong and others the Singapore High Court delved deep into the issue of unilateral mistake as the different price was shown on the seller’s website for a product. The server of the seller by itself sent a confirmation mail regarding the purchase when the buyers placed an order. All the essentials of a valid contract were established except the misquotation of price that eliminated consensus ad idem which means arriving at the same terms and conditions after negotiation and giving valid consent. Referring to the Singapore Electronic Transactions Act, 2010, this Act is based on UNCITRAL Model law, the court held that the contract entered between the parties is not valid because of a pricing mistake. This contract is not binding.
Implementation of Model Law in India
Our country hasn’t fully implemented the Model law on electronic commerce in its entirety, but the Government of India has taken various measures or welcome steps to pave the way for electronic governance.
Statutes protecting the rights of e-commerce customer
E-commerce is a way of doing business by electronic devices rather than physical means. Following is a list of some important laws and regulatory policies that apply to E-Commerce in India:
Information Technology Act, 2000
Information Technology (Intermediaries Guidelines and Digital), media Ethics Code) 2021
The Information Technology Act, 2000 is based on the UNCITRAL Model Law. It commenced on October 17, 2000. It gave a sharp boost to electronic commerce in our country. It defines “digital signature” as authentication of electronic record by a subscriber by affixing his digital signature.
This is the first legislation in the history of India that provides for legal validity for electronic commerce and is based on the UNCITRAL Model Law and gives impetus to Electronic Commerce in the territory of India. Electronic commerce involves the use of electronic, optical, and magnetic alternatives to paper-based methods of communication and storage of information, such as keeping hefty paper files, to facilitate the electronic filing of documents with Government agencies and further to amend the Indian Penal Code,1860, the Indian Evidence Act, 1872, the Banker’s Books Evidence Act, 1891 and the Reserve Bank of India Act, 1934. This Act not only covers electronic commerce but also covers any other matter ancillary regarding the regulation of information technology, data interchange, electronic record, digital signature, data protection, or any other matter that may arise with the passage of time or in the near future or otherwise.
It provides for authentication of electronic records by using an asymmetric crypto system and hash function under chapter two. A subscriber can authenticate electronic records using electronic signature as given under Section 4.
IT (Intermediaries Guidelines and Digital Media Ethics Code) Rule, 2021
The Information Technology (Intermediaries Guidelines and Digital Media Ethics Code) Rules, 2021 was introduced by the Government of India so as to make various intermediaries including social media to act in a manner consistent with the international scenario as contemplated by the UNCITRAL Model law on e-commerce. UNCITRAL Model law has suggested a dispute redressal method. So, it has come up with due diligence by various intermediaries’ viz., social media intermediary, significant social media intermediary, and online gaming intermediary. The intermediary shall publish on its social media platform, the rules and regulations, privacy policy, and user agreement either in English language or any of the languages of the Eighth Schedule of the Constitution of India. The intermediary will ensure due diligence, privacy, and transparency. They will also respect the fundamental rights promised under Articles 14, 19, and 21 of the Constitution of India.
The intermediary shall also provide a link for the Grievance Redressal Mechanism by clearly writing the name of the Grievance Officer and his contact details so that the user or the victim can reach for Grievance Redressal.
This law protects the consumer requirements from store-bought goods to online-ordered goods. Consumer Protection Act, 2019 establishes a Central Consumer Protection Authority (CCPA) in addition to the existing consumer grievance redressal mechanism. Consumer Protection (e-commerce) rules, 2020 govern online electronic interfaces for e-commerce that are referred to as “Platform” which include any website, any fragment or part of the website, or any mobile application or web application.
Foreign Exchange Management Act, 1999
Foreign Exchange Management Act, 1999 provides a legal framework for E-Commerce activities across borders. It governs transactions in international trade that cross national borders. It governs rules regarding currency conversion, and electronic payments gateways that deal with transactions in international scenarios.
Companies Act, 2013
The Companies Act, 2013 provides for a framework for incorporation of companies. E-commerce essentially requires the formation of companies to carry on mercantile transactions. It also provides for punishment for fraud, false statements, false evidence, repeated default, and wrongful withholding of property.
Payment and Settlement Systems Act,2007
The Payment and Settlement Systems Act, 2007 discusses payment systems. It discusses the regulation and supervision of payment systems in India and appoints the Reserve Bank of India as an authority for all payment-related operations, and transactions. Under the Act the “payment system” has been defined as a system that enables payment to be effected between a payer and a beneficiary, involving clearing, payment, or settlement service either any of them or all of them. “Payment System” does not include a stock exchange.
Further, the “payment system” includes the software, apps, and payment gateways that enable credit card, debit card, smart card operations, money transfer operations, or similar operations. It means it governs any platform providing for money transfers.
The Legal Metrology Act, 2009 along with Legal Metrology (Packaged Commodity) Rules 2011 make it mandatory for any e-commerce platform to display information about the product. The product description should provide for its weight and other measurements as per the units of measurement suggested in the Act.
Sale of Goods Act, 1930, and E-commerce Guidelines for Consumer Protection, 2019 lay down comprehensive guidelines and regulations for e-commerce entities operating in India. It mandates that all such entities must be registered legal entities under Indian law and submit a self-declaration of compliance. Key personnel must have clean records, and compliance with the Information Technology rules is obligatory. Payment processes should align with Reserve Bank of India guidelines, and sellers’ details, including identity and product information, must be prominently displayed. E-commerce entities are prohibited from influencing prices, adopting unfair trade practices, or misrepresenting products. They must ensure transparency in contracts, advertisements, and consumer information, including payment methods and data protection. Sellers are required to have written agreements, transparent pricing, and compliance with regulations, while also bearing responsibility for warranties and delivery terms. Grievance redressal mechanisms, including a designated Grievance Officer, are mandatory, ensuring timely resolution of consumer complaints and convergence with the National Consumer Helpline. These regulations foster transparency, fairness, and consumer protection in India’s e-commerce plane.
Foreign Direct Investment Policy is a document that discusses investment by foreign companies in India. A foreign company is any company registered outside the territory of India. Foreign companies have to follow the guidelines of the Reserve Bank of India through its master circular to understand the entry route to India to invest in any Indian company by direct or government route, also Foreign Direct Investment Policy shows the path for foreign investments discussing all possibilities, restrictions, and regulatory mechanisms with legal compliances.
Recommendation and analysis
Many countries have demanded for international convention for uniformity of the legal rules to be followed while drafting their domestic laws regarding e-commerce. However, it is a slow process, but it will yield deep reliance and formal acceptance towards these rules. Convention or model law have a great impact, specially if it is on particular topics like electronic business covering online platforms, or a valid set of norms for electronic signatures to remove doubts and difficulties regarding validity of contracts. However, there are certain loopholes or shortcoming attached to the Model law at hand. These are discussed under this heading.
Firstly, electronic commerce has not been defined anywhere in the law. It is left to the executive or interpreter to give it meaning. This creates confusion as to which transaction qualifies as electronic commerce. The case of Amazon.com, Inc. v. Comm’r (2010), threw light on the development of commercial transactions on an online platform. It stated that not every monetary exchange is commerce. Commerce is also a comprehensive term to understand.
Secondly, electronic commerce has various terms that are scientific, like “electronic data interchange”, “data messages”. These terminologies are meant only for tech-savvy strata. Everyone doesn’t know these technological terms, as these are global terms and commonplace or everyday wisdom is not sufficient for the understanding and comprehension of such terms. So, masses with ordinary education can be taken advantage of by tech-savvy people, preferably fraudsters, to steal away their money by way of identity theft or posing as an expert.
Thirdly, there should be a code of ethics and professionalism appended to UNCITRAL model law to enhance self-regulation and discipline, and ethical behaviour, and it will further facilitate grievance redressal mechanism as it will provide the guidance to all stakeholders to decide right and wrong among a myriad of international transactions.
Conclusion
In a nutshell, the UNCITRAL Model Law on E-commerce was adopted in 1996 and has played a significant role in shaping the legal landscape of electronic commerce globally. This legislative framework, developed in response to the challenges posed by the increasing digitization of business transactions, has provided various nations with a set of internationally acceptable rules for interpreting and adapting their domestic laws in consonance with cross-border transactions to the realm of e-commerce.
The development and execution of the Model Law was necessitated by the recognition of legal issues arising from the use of computers and electronic communication in international trade. Also, challenges such as the requirement of written documentation and authentication put hurdles before the seamless flow of transactions. The Model Law aimed to address these challenges by establishing principles of non-discrimination, technological neutrality, and functional equivalence, thereby promoting harmonization, balance, and unification of international trade laws.
Key provisions of the Model Law include definitions of important terms such as “data message” and “electronic data interchange,” as well as provisions ensuring the legal validity and enforceability of electronic contracts and data messages. Additionally, the Model Law provides for the acknowledgment of receipt of data messages and determines the responsibilities of parties involved in electronic transactions.
The implementation of the Model Law has been widespread, with many jurisdictions incorporating its principles into their national legislation. Judicial interpretations, such as the Khoury v. Tomlinson case in Texas and the Chwee Kin Keong case in Singapore, have provided further clarity on the application of electronic commerce laws in specific contexts.
In India, the Information Technology Act 2000, based on the UNCITRAL Model Law, has been pivotal in providing legal recognition for electronic commerce and facilitating its growth since its execution. Various other laws and regulatory policies complement the Model Law, addressing issues such as consumer protection, foreign exchange management, and payment systems.
However, challenges remain, particularly regarding the definition of electronic commerce and the need for greater awareness and education among the general masses. Clear guidelines and regulations, along with robust enforcement mechanisms, are essential to ensure the integrity and security of electronic transactions.
All in all, the UNCITRAL Model Law on E-commerce has laid a solid foundation for the development of electronic commerce laws globally, facilitating international trade and fostering economic growth in the current digital age.
Frequently Asked Questions (FAQs)
What is the distinction between model law and convention?
A model law as the name suggests is a framework based on the opinion of lawmakers to get it on books as their enacted law, while a convention is an agreement that is to be signed on the table of the United Nations office.
What is the aim of UNCITRAL?
UNCITRAL was established to formulate and honor modern and fair rules for all cross-border commercial transactions.
What are the challenges before the UNCITRAL model law?
Following are the challenges:
UNCITRAL model law has to be implemented in different jurisdictions with variations regarding cultures, development, education, preferences, and crime rates. So, its execution in various geographies is not quick and without impediments.
This model law is technology-based. It is desired by tech-savvy countries over under-developed and developing countries where there is a lack of such robust infrastructure comprising good internet connectivity, use of updated computers, and secure and proper network.
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Good faith, in a general sense, means performing an act with honest and fair intentions without any ulterior motive of defrauding or gaining an unfair advantage. In our everyday lives, in numerous interactions with other people, we do not notice that we enter into agreements without any formal and explicit know-how. For instance, there is an agreement when a taxi driver agrees to take somebody from one place and deliver them elsewhere in exchange for the amount indicated by the taxi’s metre. There is a common understanding between the parties based on a subject matter where both of them act in good faith within their nature and the terms are an agreement. In this sense, it is implied that a party to the contract will take action against other parties without causing harm or loss in the case of good faith and fair dealing with regards to a contract.
Doctrine of good faith
However, ‘The Doctrine of Good Faith’ or “uberrimae fidei” in Latin is a legal mandate that requires all parties operating under an agreement to act reasonably and with good faith towards each other. This doctrine is present in insurance contracts, where trust and true information are taken into account. Under this doctrine, both parties are required to sign the contract of insurance in absolute good faith and shall be legally bound by all material facts. The principle of “good faith” has a long history and there are other laws that provide different interpretations regarding this concept. The concept of good faith is thus only seen to be exercised in contract law; however, it does have a place whereby other laws such as property, inheritance, and family are included. But the lack of definition in other acts makes it difficult to define the scope and determine its limits. Therefore, it is hard to provide any precise definition for the doctrine of good faith. The doctrine of good faith can be illustrated by a life insurance policy. Given his health and family medical history, a life insurance applicant is advised by the insurer on choosing a policy that best suits him or her, as well as what premium he should pay. When seeking an insurance policy, the applicant should not conceal critical details, such as smoking. Any distortion of facts can have repercussions, including rendering the contract invalid. Had the insurer known of this smoking habit, then a risk assessment would have been done accordingly and a higher premium rate would have been suggested.
Good faith according to Indian laws
The General Clauses Act of 1897 defines the term “good faith” under Section 3(22). Good faith can be defined as “a thing shall be deemed to be done in ‘good faith’ where it is in fact done honestly, whether it is done negligently or not”. Good faith would mean anything done honestly, whether done negligently or not. The word “bona fide” means genuine or honest. Apart from the General Clauses Act, the Indian Penal Code has also defined this concept. Section 52 of the Indian Penal Code of 1860 defines “good faith.” Good faith is defined as, no action being said to be done in good faith unless it is done with care and intention. The definition of ‘good faith’ in the Indian Penal Code of 1860 only points out that if an act is not performed with due care and intention, the act done would not be said to be done in good faith. The Indian Penal Code’s definition of ‘good faith’ is negative in nature and it does not outline positive characteristics. The definition of good faith as defined in the General Clauses Act is different from the definition given in the Penal Code. The Penal Code’s definition emphasises mainly honesty along with care and intention, whereas the General Clauses Act views good faith as solely dependent on honesty.
The Indian Contract Act of 1872 does not have any specific definition for good faith but there are cases where the judiciary has interpreted the meaning of the concept. An important observation was made in the case of Association of Unified Telecom Service vs. Union of India and Ors. (2010) by the Delhi High Court that good faith is an essential element of all contracts and requires that parties act honestly, fairly, and in accordance with the reasonable expectations of the other party. The court further explained that good faith is not limited to the performance of contractual obligations but extends to all aspects of the contractual relationship, including negotiations, formation, and termination.
The court’s observation in this case reflects the general understanding of good faith in contract law. Good faith is a legal principle that imposes a duty on parties to a contract to act in a fair and honest manner. It requires parties to avoid deception, misrepresentation, and other forms of misconduct that could harm the other party.
Good faith is important in contract law because it helps to ensure that contracts are performed in a fair and equitable manner. It also promotes trust and cooperation between parties, which can lead to more successful and lasting business relationships.
Here are some additional points about good faith in contract law:
Good faith is not the same as subjective belief or intent. A party cannot claim to have acted in good faith if they knew or should have known that their actions were dishonest or unfair.
Good faith is not absolute. There may be situations where a party’s actions are objectively reasonable, even if they do not meet the highest standards of good faith.
Good faith is a flexible concept that can be applied to a wide range of contractual situations. Courts will consider the specific facts and circumstances of each case when determining whether a party has acted in good faith.
Breach of good faith can give rise to legal consequences. A party who breaches their duty of good faith may be liable for damages or other remedies.
Section 166, Section 178, Section 178-A and Section 223 have certain elements that deal with the concept of good faith and fair dealing. Section 14 of the Indian Contract Act defines the concept of ‘free consent’. Consent is when it does not result from coercion (Section 15), undue influence (Section 16), fraud (Section 17), misrepresentation (Section 18), or mistake (Sections 20-22). In the definition given in the Indian Contract Act, it can be seen that an ingredient of dishonesty is involved. The definition given in the Indian Contract Act is restrictive and exhaustive, which means it is to be followed in a strict sense, due to which there is no space left for interpretation. The Judiciary could insert the meaning of ‘good faith’ which could help in better interpretation of certain aspects and would be helpful for the parties whose rights were infringed. There is no express provision in the Indian Contract Act that makes it mandatory to enter into a contract in good faith and with fair dealing. The Judiciary mainly has to rely on the facts of the case and decide whether the parties to the contract acted in good faith or not. InKailas Sizing Works vs, Municipality of Bhivandi and Nizampur (1969), the Hon’ble High Court of Bombay explained that when acting in good faith, the person must act honestly. A person cannot be said to act honestly unless he acts with fairness. In another case, Union of India vs. D. M. Revri & Co. (1976), the Supreme Court held that a contract must be formed and based on common sense and not a narrow and legalistic approach.
Good faith according to Australian laws
The doctrine of good faith is not fully established in Australian laws and does not have any specific definition. The concept has been around since the 1800s or earlier but it got recognition in 1992 in the case of Renard Construction (ME) Pty Ltd vs. Minister of Public Works. Most contracts do not “expressly” include the duty of good faith, except for insurance contracts and franchise agreement contracts. Insurance contracts under the Insurance Contracts Act lay down the most important factor in the insurance contract, which is that both parties entering into the contract should act in good faith. Failure to act in good faith gives the non-breaching party a right to seek damages and compensation and such a breach is considered any other breach of a clause in a contract. Section 6 of the Franchise Code of Conduct lays down that parties entering into a franchise agreement are obligated to act in good faith in relation to the agreement and the Code. Any breach of obligation under the Franchise Code of Conduct gives rise to a civil penalty for the breaching party.
Good faith according to English laws
The term good faith is not specifically defined under English law. It is only the principle of good faith that applies to insurance law. The principles of utmost good faith, which are set in Carter vs. Boehm, the landmark case under the English Contract Act, apply to insurance contracts. Lord Mansfield, in his judgement, laid down the principle that, according to him, insurance is based on the utmost good faith and the insured must disclose all such circumstances, whether visible or non-visible, that are vested with insurance. He further stated that the duty does not only lie upon the insured but also attaches itself to the insurer. In the case of Yam Seng Pte Ltd vs. International Trade Corporation Ltd (2013), Justice Legatt concluded that an implied term of good faith was breached and that in relational contracts there is an implied duty of good faith. The Court emphasised that good faith should be implied as a default or presumed term in commercial contracts. The Court held that parties to the contract shall act honestly, fairly, and transparently towards each other. Since this case, the English courts have increasingly recognised the importance of good faith in various contractual contexts.
Good faith in insurance contracts
In insurance contracts, the concept of “good faith” holds significant importance. It embodies the principle that both the insurer and the insured must act with honesty, fairness, and transparency throughout the entire insurance relationship.
Obligations of the insurer
Accurate representation: The insurer has a duty to provide accurate and complete information about the insurance policy, including its terms, conditions, coverage limits, and exclusions. Misrepresentation or concealment of material facts can constitute a breach of good faith.
Fair dealing: The insurer must deal with the insured in a fair and equitable manner, avoiding any deceptive or misleading practices. This includes providing clear and understandable explanations of policy provisions and promptly responding to inquiries or complaints.
Settlement of claims: The insurer has a duty to handle claims fairly and promptly. It must conduct a thorough investigation, evaluate the claim based on the policy terms, and communicate the decision to the insured in a timely fashion. Delaying or denying claims without a valid basis could be considered a breach of good faith.
Obligations of the insured
Accurate disclosure: The insured has a duty to disclose all material facts that could affect the insurer’s assessment of the risk. Concealing or misrepresenting relevant information can result in the policy being void or voidable.
Cooperation: The insured must cooperate with the insurer during the underwriting process and throughout the policy term. This includes providing necessary documentation, responding to inquiries, and facilitating inspections or examinations as required.
Compliance with policy terms: The insured must comply with the terms and conditions of the insurance policy. Failure to do so may result in the loss of coverage or denial of claims.
Repercussions for violations of good faith
The doctrine of good faith is a fundamental principle in contract law that imposes a duty on the parties to act honestly and with reasonable care towards each other. Any violation of this duty can have serious consequences, depending on the nature of the transaction.
One of the most common consequences of a breach of good faith is that the contract may become voidable. This means that the innocent party has the option to cancel the contract and seek legal remedies, such as damages or restitution. For instance, if one party intentionally provides false or misleading information during the negotiation process, and the other party reasonably relies on that information, the contract may be voidable at the option of the innocent party.
In some cases, a breach of good faith can also lead to the imposition of punitive damages. Punitive damages are designed to punish the wrongdoer and deter future misconduct. They are typically awarded in cases where the breach of good faith was particularly egregious or malicious.
In addition to contractual remedies, a breach of good faith can also lead to criminal prosecution. For example, if one party fraudulently induces the other party to enter into a contract, the wrongdoer may be charged with fraud.
The consequences of a breach of good faith can be significant, which is why it is important for parties to act in good faith throughout the contracting process. By doing so, they can help to avoid disputes and ensure that the contract is fair and equitable for both parties.
Here are some additional examples of consequences that may result from a breach of good faith:
Loss of trust and reputation: Breaching good faith can damage the trust and reputation of the wrongdoer. This can make it more difficult to enter into future contracts or business relationships.
Increased costs: A breach of good faith can lead to increased costs for both parties, such as the costs of litigation or arbitration.
Delayed or disrupted projects: A breach of good faith can delay or disrupt projects, which can lead to lost time, money, and resources.
Harm to consumers or the public: In some cases, a breach of good faith can harm consumers or the public, such as in the case of fraudulent advertising or deceptive sales practices.
Conclusion
In conclusion, it can be stated that the good faith principle is a complicated and vast concept that different legal systems have interpreted differently and even within countries. Even though the exact nature of ‘good faith and fair dealing’ has not been pinned down yet, the quick realisation of its value in various types of contracts cannot be denied. It is, therefore, not just a theoretical concept but an important instrument for promoting trust and collaboration between parties involved in any such kind of agreement. Good faith protects the interests of all parties by encouraging transparency along with truthfulness and appropriate conduct, through which it ensures responsible performance under a contract. Adding good faith to the bargaining and implementation can avoid misinterpretation and lessen conflicts and disruptive potentials that, in turn, lead to it.’ A more precise definition and use uniformly across legal systems, together with open sources for litigants to comprehend their responsibilities, would bring clarity in addition to guidance. However, as we pursue the creation of a more inclusive and effective agreement-based system, adhering to fairness both in form and content holds real promise.
Rapid development in science and technology has transformed almost every human activity into an electronic or digital mode. The early 1990s saw the introduction of banking sector reforms. Up until 1980, banks allowed consumers to conduct banking transactions through a single channel that is done in person at the bank, and because of the reforms, customers can now conduct financial transactions through a variety of channels, which is quicker than the manual banking process. Financial transactions are possible with just a single click. Due to rapid technological development, the banking industry has seen a significant transformation. E-banking means providing banking services via electronic channels. Initially, banks were not fully computerised. Full computerization started taking place as soon as the new private sector and foreign banks introduced their services, which were fully computerised from the moment of inception.
When the internet is used to perform financial transactions and banking activities (paying bills, transferring funds, etc.) using a web browser without physically visiting a bank, it is called online or internet banking.
In India, the demonetization move saw a huge spike in the usage of mobile banking. Even though cash is still the most preferred medium for any transaction, mobile banking has managed to leave its mark in the market, and people depend on it to transfer money, pay utility bills, etc. However, just like every boon has a curse, mobile and online banking have their flaws too. Mobile and online banking offer convenience and accessibility to users worldwide. However, the increasing dependence on digital financial services has also given rise to numerous cyber threats and crimes. Money is the most common motive behind all crimes. Financial crimes include hacking into online banking of an individual, a corporation, or bank server itself, computer manipulation, etc.
Mobile and online banking crimes refer to illegal activities that target individuals or institutions and exploit vulnerabilities in the digital financial system. With the increasing popularity of mobile and online banking services, crimes have also become more prevalent, and there has been a corresponding rise in cyber threats and criminal activities targeting users’ financial information.
Common types of mobile banking and online banking crimes
Mobile banking crimes
E-banking or electronic banking, where financial transactions are handled by computer systems, can be broadly divided into two parts – Mobile banking and online banking. When a smartphone or other mobile device is used to perform financial transactions and banking activities (paying bills, transferring funds, etc.) using an application or mobile site, this is called mobile banking.
Mobile banking crimes are increasing day by day and pose a significant threat due to the increasing use of smartphones for financial transactions. Here are some common types of mobile banking crimes:
Phishing attacks
Phishing is the most common type of attack, where an attacker attempts to trick users into doing the wrong thing. An attacker sends fraudulent text messages, distributes bank look-a-like websites via SMS, email and other methods, and asks users to share sensitive information such as password, pins, OTPs, etc.
Malware and mobile banking trojans
According to RBI, attackers circulate certain app links, masked to appear like the existing apps of authorised entities through SMS, email, social media, Instant Messenger, etc. Attackers trick the users to click on such links, which results in the downloading of unverified apps containing malware or banking Trojans, which can give the attacker complete access to the user’s device. An attacker can then capture sensitive information such as login credentials and transfer/withdraw money.
SIM card swapping
SIM cards are the most essential part of mobile as they provide the ability to make & receive calls, send & receive text messages, and access the internet. By SIM swap, I simply mean changing SIM cards. In this type of crime, an attacker is able to gain control of your mobile SIM account & transfer ownership to another mobile SIM card that is under their control. Your phone will no longer connect to your mobile operator, and you won’t be able to use your phone for calls and texts. It is common that a victim of a SIM swap attack will be subject to financial fraud, which includes bank & credit card accounts, email, social media, bitcoin transactions, etc. With control of the number, an attacker can intercept two-factor (2FA) codes, OR One Time Password (OTP), and other alerts required to carry out financial transactions through your bank account.
Man-in-the-middle attacks
A man-in-the-middle (MiTM) attack is a type of cyber-attack in which an attacker secretly relays and possibly alters the communications between two parties who believe that they are directly communicating with each other. This kind of attack is a type of eavesdropping attack, where attackers interrupt an existing conversation or data transfer and gain the ability to capture and manipulate sensitive personal information — such as login credentials, account details, or credit card numbers, in real time.
ATM skimming via mobile banking
ATM skimming is a type of payment card fraud in which an attacker uses a device to steal debit or credit card information from ATM users. It allows an attacker to electronically steal the data from an ATM card to imitate it completely, thus making unauthorised transactions from the victim’s account. An attacker may use this information in conjunction with mobile banking apps to conduct unauthorised transactions.
Credential stuffing
Credential stuffing is a cyber attack in which credentials obtained from a data breach on one service are used to attempt to log in to another unrelated service. It is a subset of the brute force attack category. Brute forcing will attempt to try multiple passwords against one or multiple accounts; guessing a password, in other words, relies on the fact that users often reuse passwords across multiple platforms.
Social engineering
Social engineering is the psychological manipulation used to trick people into making security mistakes or giving away sensitive information. An attacker uses various social engineering techniques, such as posing as bank representatives, to manipulate users into disclosing sensitive information or performing unauthorised transactions.
Malicious QR codes
A malicious QR code scan may lead you to a spoofed website designed to drop different malware types or steal your sensitive data, like your login credentials, credit card information, or money.
Online banking crimes
Online banking crimes refer to the criminal activities conducted through digital channels exploiting vulnerabilities in the online banking system with the aim of obtaining unauthorised access to financial information or committing other financial crimes. This type of criminal activity can have severe consequences for individuals, businesses, and financial institutions.
Preventive measures
It is a well known fact, and we often say that “prevention is better than cure.” The same is true for mobile banking and online banking crimes. Preventing mobile banking and online banking crimes is not a single click solution, considering ever evolving technologies and attack surfaces. Preventing mobile banking and online banking crimes requires a combination of technological measures, user education, and proactive security practices. Below are some of the preventive measures:
Use strong authentication
Always use multi-factor authentication (MFA) whenever possible. This typically involves combining your password with a one-time mobile code.
Secure devices
Keep your mobile device and computer operating systems, browsers, and security software up to date. Regularly update antivirus software, avoid downloading from untrusted sources, and back up data to mitigate the impact of ransomware attacks. Set up a strong password or PIN to unlock your mobile device.
Secure Wi-Fi connections
Always use encrypted Wi-Fi connections. Avoid accessing online banking services over public Wi-Fi. Consider using a virtual private network (VPN) for an extra layer of security.
Be cautious with emails and messages
Avoid clicking on links or downloading attachments from unknown or suspicious emails and messages. Always verify the authenticity of communications with your bank.
Password management
Use strong passwords (follow the strong password guidelines mentioned here) and unique passwords for each online account. Avoid using the same passwords for all the accounts; instead, use a different password every time.
Secure banking apps
Download mobile banking apps from the official app stores only. Never use an unverified source to download the app. Always keep your banking apps updated to benefit from security patches and improvements.
Biometric authentication
Utilise biometric authentication methods such as fingerprint or facial recognition for an added layer of security.
Educate yourself
Stay informed about social engineering tactics, common online scams, and phishing techniques. Educate yourself about safe online banking practices through reputable sources or financial literacy programmes. Be sceptical of unsolicited communications, even if they appear to be from your bank.
Secure development practices
Banks and financial institutions should follow secure coding practices to develop and maintain their mobile and online banking applications.
Mobile banking and online banking laws
Mobile banking and online banking have become increasingly popular in India, offering convenience, accessibility, and a wide range of financial services to customers. However, these digital banking channels also come with inherent risks, such as cyber fraud, data breaches, and identity theft. To address these concerns and ensure the safety and security of customers, the Reserve Bank of India (RBI) has implemented various laws and regulations.
Banking Regulation Act, 1949:
This Act provides the legal framework for banking operations in India, including online and mobile banking.
It empowers the RBI to regulate and supervise banks and their activities, including digital banking channels.
The Act also includes provisions related to customer protection, such as the requirement for banks to maintain adequate security measures and to compensate customers for any losses incurred due to unauthorised electronic transactions.
Payment and Settlement Systems Act, 2007:
This Act provides the legal framework for payment and settlement systems in India, including electronic and mobile payments.
It establishes the National Payments Corporation of India (NPCI) as the central infrastructure for retail payments in the country.
The Act also includes provisions related to customer protection, such as the requirement for payment service providers to obtain customer consent for electronic debits and to provide secure payment mechanisms.
Information Technology Act, 2000:
This Act provides the legal framework for electronic transactions and cyber security in India.
It includes provisions related to digital signatures, electronic records, and cyber crimes.
The Act also includes provisions related to customer protection, such as the requirement for businesses to protect the privacy of customer data and to provide customers with access to their personal information.
Master Directions on Digital Banking – Security and Controls:
This RBI directive provides specific guidelines and requirements for banks offering digital banking services.
It includes measures to enhance customer authentication, secure data transmission, and prevent unauthorised access to customer accounts.
The directive also requires banks to establish robust risk management frameworks and to regularly review and update their security measures.
Other RBI Guidelines and Circulars:
The RBI has issued various other guidelines and circulars related to mobile banking and online banking, such as the guidelines on mobile banking security, guidelines on electronic banking, and circulars on customer protection in digital banking.
These guidelines and circulars provide additional guidance and clarifications to banks on various aspects of digital banking operations, including customer authentication, fraud prevention, and grievance redressal.
These laws and regulations provide a comprehensive framework for mobile banking and online banking in India, ensuring the safety and security of customers while promoting innovation and digital financial inclusion. By adhering to these laws and regulations, banks can offer digital banking services that are both convenient and secure for customers.
How to prevent fraud in mobile apps
Preventing fraud in mobile apps is crucial for safeguarding user data, protecting businesses, and maintaining trust in the app. Here are some strategies to prevent fraud effectively:
Strong user authentication:
Implement multi-factor authentication (MFA) for user login, such as a combination of password and OTP or biometric authentication.
Regularly monitor user login patterns and flag suspicious activities, such as multiple failed login attempts or unusual login locations.
Encourage users to use strong passwords and regularly change them.
Data encryption:
Encrypt sensitive user data, such as personal information, financial details, and transactions, both at rest and in transit.
Use industry-standard encryption algorithms and protocols, such as AES-256 and SSL/TLS.
Secure payments:
Partner with reputable payment gateways and adhere to PCI DSS compliance standards to ensure secure payment processing.
Implement fraud detection mechanisms, such as address verification and CVV checks, during the payment process.
Monitor transaction patterns and investigate suspicious activities, such as large or frequent purchases from new users.
Machine learning and AI:
Utilise machine learning algorithms and artificial intelligence to analyse large volumes of data and identify fraudulent patterns.
Train models to detect anomalies or suspicious activities in real-time, enabling prompt fraud detection and prevention.
User Education:
Educate users about common fraud schemes and provide tips for protecting their accounts and data.
Encourage users to report any suspicious activities or concerns to the app’s support team.
Regular Security Audits:
Conduct regular security audits to assess the effectiveness of fraud prevention measures and identify areas for improvement.
By implementing these strategies and continuously adapting to evolving fraud threats, mobile app developers can create a more secure and trustworthy environment for their users.
Conclusion
By combining these measures, individuals can significantly reduce the risk of falling victim to mobile banking and online banking crimes. To protect against mobile banking crimes, users should follow security best practices such as using strong and unique passwords, enabling two-factor authentication, keeping devices and apps up to date, being cautious of phishing attempts, and using reputable security software. Financial institutions also play a crucial role in implementing robust security measures to safeguard their users’ accounts and data.
In conclusion, preventing online banking crimes requires a combination of user awareness, robust security measures, and continuous adaptation to emerging threats. Financial institutions, regulators, and users all play crucial roles in mitigating the risks associated with online banking. Regular education, updates to security protocols, and collaboration between stakeholders are essential components of a comprehensive strategy to combat online banking crimes.
This article has been written by Suryanshi Bothra. It discusses in depth all aspects of a red herring prospectus including its components, legal requirements, importance, objectives, benefits and disadvantages.
Table of Contents
Introduction
The dynamic nature of financial markets makes the issuance of securities by the company a pivotal moment in determining its future and growth. Investors are eagerly waiting to invest in promising companies seeking to raise capital. This results in a realm where opportunities and risks dance in tandem. Companies amidst fulfilling regulatory requirements and marketing their IPOs release a plethora of documents. These documents are used by the investors to make a qualitative and quantitative analysis of the company. One of the documents that help investors do so is the red herring prospectus. This document preludes the final prospectus and the initial public offer and offers the investors a sneak peek into the financials and potential pitfalls of a company.
Despite its intriguing name, this kind of prospectus proves to be a huge asset for both the investors and the companies. As the financial market evolves, it becomes essential for every investor to understand the nuances of the red herring prospectus. This article aims to unravel each aspect of the red herring prospectus from its history and evolution to the relevant case law regarding the same. In the process, we will also be demystifying the legal jargon and understanding all key aspects of the prospectus.
Prospectus and its importance
Section 2(70) of The Companies Act 2013 talks about a prospectus. It refers to an informational booklet or offer document that provides investors with all the necessary information about the company. The definition of a prospectus provided in the Companies Act clarifies that any notice, circular, advertisement or any other document inviting offers from the public for the subscription or purchase of securities shall be included under a prospectus. According to the SEBI guidelines, it’s mandatory for all companies launching an IPO to issue a prospectus. It must be issued by all companies trying to raise funds from the general public. However, in cases of public companies, if the directors are certain that they can raise the required amount of funding from private sources instead of the public, there is no need for a prospectus.
What is a red herring prospectus
A red herring prospectus contains information about the company’s operations, functions, future prospects and plans. It is a preliminary prospectus, or the first prospectus which has to be filed with SEBI. However, it does not include quantum details of the issue such as its price and the number of shares offered. The name ‘Red Herring’ derives from a disclosure that is made in red letters on the prospectus. It states that the company will not attempt to sell the securities before approval and that the information provided may be incomplete and subject to changes. A red herring prospectus does not include the complete information of the quantum or value of the securities. It consists of a list of particulars relating to the company’s functions and operations. It ultimately enables the potential investors to acquire the information required to assess the goals and health of the company.
Why are there no price details
The red herring prospectus includes only preliminary details. It is issued so that potential investors can assess the company. It allows companies to make a preliminary offering while also providing flexibility in finalising the size of the public offering and its share price. Based on the public’s reaction to the red herring prospectus the company can make these decisions efficiently. Since the details of the price and size of the offering are decided closer to the final offering date, it is convenient for the companies to file a red herring prospectus as mandated by SEBI. After they have finalised the quantum aspects of the IPO they can publish it in the final prospectus.
Why are there no quantum details
By not mentioning the quantum aspects, that is, the exact number of shares offered in the red herring prospectus, issuers and underwriters can navigate the IPO process more effectively. The issue of red herring prospectus helps the company get an idea of the demand for the company’s shares. It helps the company fix the offering price competitively and make sure that it accurately reflects market demand. The regulatory authorities like SEBI often require companies to file amendments to the prospectus. It is done in case there are significant changes to the offering size or terms before the release of the IPO. Therefore, delaying the disclosure of the exact number of shares reduces the need for frequent updates to the prospectus and streamlines the regulatory process.
What is a draft red herring prospectus
Draft red herring prospectus is an initial document. It is a preliminary version which is filed with regulatory bodies like SEBI. It contains all essential aspects of the business’s operations, financials, future prospects, etc. It provides no information that would be required to make investment decisions. It does not mention the offer price or the number of shares. It plays an important role in the release of a red herring prospectus and the launch of an IPO. It helps in garnering information regarding the potential investors. While the final red herring prospectus provides complete and accurate information. The draft red herring prospectus provides a brief idea of the company’s affairs. It allows potential investors to scrutinize the company. It is helpful for risk calculation and understanding growth prospects. According to the guidelines of the Securities Exchange Board of India, it is mandatory for companies to file a draft red herring prospectus. It is filed with regulatory requirements, investor protection guidelines and disclosure forms. The red herring prospectus is an invitation to the offer and the draft red herring prospectus is a prelude to the invitation. The draft red herring prospectus has to be refiled with SEBI in case there is a substantial difference between the draft red herring prospectus and red herring prospectus. SEBI treats the draft red herring prospectus as more than just a prelude to the red herring prospectus.
Laws governing red herring prospectus in India
Companies Act 2013 and SEBI guidelines provide all the laws regarding red herring prospectus in India. According to Section 32, a company may issue a red herring prospectus before the issue of a prospectus when proposing to make an offer of securities. A red herring prospectus has to be filled before the registrar 3 days prior to the list of subscriptions or offers. Moreover, it carries the same obligations as other prospectuses.
Historical evolution of red herring prospectus
The red herring prospectus has a historical evolution which aligned with the growth of India’s capital markets:
In the pre-liberalisation era, before 1991 India had a controlled economy with limited private participation. Hence the concept of a red herring prospectus was not prevalent.
After liberalisation, the SEBI guidelines of 1996 were introduced. In these guidelines, a red herring prospectus emerged as a document filed during the IPO process.
With the advancement of technology, like everything, this document too became easily available to the public. Increased accessibility led to increased transparency.
SEBI’s new initiatives to streamline the IPO process led to the red herring prospectus becoming a crucial document. Periodic amendments enhanced the disclosure requirements to provide a more accurate representation of the fair. Increasing globalisation has led to an increasing significance of red herring prospectus as they help attract foreign investment.
Matter to be set out in red herring prospectus
All essential information about the company must be included in an effective red herring prospectus. Some of these are listed below.
Name, Address and the company structure
The purpose for which the funds were raised through the IPO and how they will be utilised. It should contain a complete breakdown of how the funds will be allocated. For example in expansion or debt repayment or it would be used as working capital.
Financial statements from previous years, including balance sheets, income statements, and cash flow statements must be included. Additionally, management discussion and analysis (MD&A) of financial conditions and results of operations are often a part of a red herring prospectus.
A comprehensive list of risk factors associated with the business, industry, market conditions, potential challenges and uncertainties.
The competitive landscape of the industry in which the company operates and the market trends are mentioned in the red herring prospectus.
Outstanding legal disputes and significant recent material developments need to be disclosed.
The credit rating assigned to the company and an overview of its debt instruments are mentioned wherever applicable.
Details of the agreement with underwriters handling the IPO and escrow arrangements.
Details about the company’s ongoing research and development initiatives as well as future plans are a part of the red herring prospectus.
In case the company holds patents, copyrights, trademarks and other intellectual property rights, it is usually beneficial for the company to disclose such information.
Supply chain details and information on any tax benefits available to investors in the company’s securities.
Information on employee relations and labour unions as well as details of any existing or proposed employee stock option plans are crucial.
An overview of the company’s corporate social responsibility initiatives, including details on social and environmental contributions can be provided.
A company’s involvement in joint ventures, collaborations, or partnerships.
Objectives of issuing red herring prospectus
The primary objective of issuing a red herring prospectus is to inform potential investors about the company, its promoter, financials, business model, growth prospects, and the risks of investing. The company’s objectives for raising funds are also mentioned in the prospectus. Companies try to gauge the interest of potential investors and generate preliminary attention before the formal launch of the IPO.
Additionally, the red herring prospectus is seen as a marketing tool by the companies. It creates anticipation and excitement in the market. It is also issued in compliance with regulatory requirements, as companies are obligated to file it with the Registrar at least three days before opening the subscription list. This first prospectus streamlines the IPO process and helps in securing regulatory approvals.
Procedure for issuing red herring prospectus
Issuing a red herring prospectus is a long process involving multiple discussions, drafts and approvals. The complete process is listed below.
The company appoints intermediaries such as promoters, lead managers, underwriters, solicitors, and other professionals to issue securities.
A thorough due diligence is conducted on the company’s operations, financials, and prospects to ensure an accurate and comprehensive prospectus.
A draft red herring prospectus which is a preliminary document contains detailed information about the company, excluding specific details like the issue price and quantity of securities.
The Board of Directors approves the draft red herring prospectus
The red herring prospectus is then submitted to the Securities and Exchange Board of India (SEBI) for approval and is filed with the Registrar of Companies (RoC) and stock exchanges where the company is seeking to list its securities.
SEBI reviews the red herring prospectus and seeks clarifications or sometimes provides observations. These need to be adequately addressed by the companies.
Once the observations are addressed, the red herring prospectus, along with SEBI’s observations, is made public for investor awareness.
A public notice is published, and the red herring prospectus is made available to the public through various channels, including the company’s website.
SEBI (Issue of Capital and Disclosure Requirement) Regulations, 2009
The red herring prospectus must adhere to the disclosure requirements outlined in Schedule II of the Companies Act, 1956. It must also adhere to the additional disclosures in Part A of Schedule VIII, considering the provisions of Parts B and C. Also, if a company plans to issue capital to the public through the book-building process, the red herring prospectus must fulfil disclosure requirements as per Regulation 57(2)(a).
Common issues in a red herring prospectus
According to the Companies Act as well as SEBI guidelines it is necessary to ensure that the red herring prospectus portrays a true and fair picture of the the company. Providing false information and nondisclosure in the prospectus can have serious consequences. Listed below are the issues, relevant case laws and defences.
Misstatements in red herring prospectus
The Company’s Act 2013 does not clearly describe the term ‘Misstatement’. However, Section 447’s explanation of the Act defines deceit as any act of omission, concealment of facts, abuse of position by a person or in connivance with a person to gain undue advantage from deceiving any party related to the company including shareholders and creditors. The Companies Act places equal criminal liability to both fraud and misrepresentation.
Criminal liability
Section 34 of the Companies Act states that if any prospectus that includes a false statement whether through inclusion or omission is issued and distributed, the person with the authority to issue such prospectus will be held liable. Section 447 of the Companies Act provides the punishment for such misrepresentation to be a minimum of six months and a maximum of 10 years with fines ranging from the amount involved in the fraud to three times the amount. If the suppression of facts in the preliminary public offer violates public interest then the minimum punishment would be 3 years. Section 441 stresses the seriousness of the offence of any misstatement in the prospectus by stating that it shall not be compoundable. A defence for the person held criminally liable for misstatements is provided in the proviso to Section 34 of the Act. This applies in cases where the accused can prove that the misstatement or omission was not significant or that there was some rational ground to the statement at the time of issue of the prospectus.
Civil liability
Directors, promoters, and experts involved in the process of issuing the prospectus can be held liable to pay compensation to any and all persons who have suffered losses acting on misleading statements in the prospectus. If the misstatement is issued to defraud the public or for any unlawful purpose then every person involved in the issue of such prospectus could be held personally liable without any limitation to losses or damages. A director or any person with the authority to issue a prospectus is not held liable if upon learning of the illegal statements in the prospectus withdraws consent to the red herring prospectus. It is essential that he/she issues a reasonable public notice highlighting that the prospectus was issued without their consent.
Non-disclosure of material information in red herring prospectus
Failure to disclose material information undermines the integrity of the securities market and leads to a non-transparent system. Non-disclosure of material information in a red herring prospectus is a serious issue that can have regulatory implications including fines, penalties, or restrictions on the company or its directors. Additionally, investors who suffer losses due to non-disclosure have a right to file lawsuits against the company for misrepresentation or fraud. In cases where non-disclosure is identified, regulatory authorities ask the companies to take corrective actions such as amending the prospectus, providing additional information, or addressing the concerns raised by the regulatory body.
The DLF Limited and Ors v. SEBI(2012) case is one prominent case law where the Tribunal upheld that there was an abuse of the Disclosure and Investor Protection (DIP) guidelines. There was a dispute that arose from discrepancies in DLF’s red herring prospectus. The red herring prospectus stated that Sudipti Estates Pvt. Ltd. (SEPL) was a collaborative venture while the final prospectus contradicted the claim and stated that it wasn’t a co-venture. DLF argued that the non-disclosure of the relationship would not have influenced investor decisions. They contended that there was no evidence suggesting profits by the use of unfair means from the alliance with subsidiaries. Therefore, SEBI’s prohibition order should be set aside but it also claimed that a report of a holding-subsidiary arrangement between the entities would constitute essential material which would have to be contained in the prospectus.
Advantages of issuing a red herring prospectus
A red herring prospectus provides potential investors with an opportunity to familiarise themselves with the company’s operations and prospects. It helps generate an early market interest and spread awareness about the upcoming IPO.
Issuing a red herring prospectus allows the company to test investor interest and assess market demand for its shares. This can help the company make informed decisions about the pricing and allocation of its shares before finalising the offer price.
It helps companies comply with regulatory requirements by providing detailed information about the proposed IPO. This transparency can help build trust among investors and regulatory authorities.
Disadvantages of issuing a red herring prospectus
red herring prospectus es lack some essential information like the offer price and number of issued shares. This compromises the investor’s ability to make an informed decision and hence can act as a deterrent.
The company might experience some market volatility in the period between the issue of the red herring prospectus and the finalisation of the offer price. The market conditions may become unfavourable.
Any discrepancies or variations between the red herring prospectus and the final prospectus need to be carefully addressed or it might lead to regulatory scrutiny and legal issues.
Differences between red herring prospectus for acquisition of a private company and for IPO
Basis
Red Herring Prospectus for Acquisition of a Private Company
Red Herring Prospectus for an IPO
Nature of the company
Private Company
Private company in the process of going public
Purpose
As part of the disclosure process, a company may issue a red herring process when it is in the process of acquiring another private company.
It acts as a preliminary prospectus for a company that intends to go public. This document contains essential information about the company’s business, financial performance, risk factors, management, and other relevant details.
Regulatory requirement
The regulatory requirements are less stringent.
The regulatory requirements are stringent and exclusive disclosure of financials is required.
Investor base
It provides information to the existing shareholders about the upcoming acquisition and what it entails.
It is open to public investors and is used to attract larger scale public investment.,
Relevant case laws on red herring prospectus
Some of the prominent case laws on red herring prospectus have been mentioned below.
Indowind Energy Limited v. Wescare (India) Ltd. & Ors. Subuthi Pvt. Ltd.(2010)
In the case of Indowind Energy Limited v. Wescare (India) Ltd. & Ors. Subuthi Pvt. Ltd.(2010), Subhuti entered into an agreement with Wescare. The agreement included an arbitration clause contingent upon approval from all three companies including Indowind. Indowind did not approve the agreement but the other two parties proceeded to fulfil their obligations. The respondent amid the dispute initiated arbitration proceedings and sought interim relief to prevent Indowind’s IPO.
The case has significant authority in questions regarding the liability of underwriters. Underwriters play a key role in the IPO process by helping to structure the offering, price the securities, and distribute them to investors. If the underwriters have certain significant information which is not present in the red herring prospectus or if they failed to conduct adequate due diligence, they could be held accountable for their actions. The judgment underscores the importance of clarity and precision in red-herring prospectuses. It is especially important in cases concerning agreements entered into by the company.
The judgement held that while companies can refer to agreements in the prospectus, the enforceability of those must be established. Transparency and comprehensive disclosure in red-herring prospectuses is essential to ensure that investors make informed decisions. The court held ambiguities or omissions in the prospectus could undermine investor confidence and potentially lead to legal challenges.
Kimsuk Krishna Sinha v. SEBI (2010)
The Kimsuk Krishna Sinha v. SEBI (2010) case sheds light on SEBI’s responsibilities if there is a misrepresentation in the draft red herring prospectus. The court in its decision acknowledged SEBI’s authority to examine the red herring prospectus thoroughly and to ensure the disclosure of all necessary information truthfully. The court emphasises that even if the public issue has been closed, SEBI’s duty to inquire about the veracity of information continues.
The ruling also clarified that SEBI has the authority to take appropriate enforcement actions. It can be against issuers of the DRHP or even other parties that were involved in the preparation and dissemination of a misleading red herring prospectus. The process of enforcement may include imposing penalties, issuing warnings, etc. It may also go to the extent of barring entities from participating in the securities market.
Conclusion
The significance of a red herring prospectus goes beyond being a mere informational document. The functions of a red herring prospectus range from fulfilling regulatory mandates to Marketing the upcoming IPO through strategically giving information about the company’s goals and objectives. The document provides information to the investors regarding the company and helps the company estimate the reaction of the public after the release of its IPO. It is therefore beneficial for both parties.
The red herring prospectus serves as a legal instrument that has the ability to bind companies to the statements made within the document. Misstatements and non-disclosures in the said document could lead to civil and criminal action. The SEBI regulatory guidelines and the precedents set in landmark cases make transparency and accuracy paramount. Therefore, companies must navigate this legal terrain with precision. On the other hand, the investors must ensure that they exercise due diligence in interpreting the information presented in a red herring prospectus and make an informed decision.
The role played by red herring prospectus in fostering a relationship between companies and their potential investors is becoming quite significant. If used smartly and judicially the red herring prospectus can become a powerful tool that can help shape the narrative of a company’s public offering. It can notably influence the course of a company’s financial future.
Frequently Asked Questions (FAQs)
What role does red herring prospectus play in empowering investors?
The red herring prospectus empowers investors by providing important information about a company before the initial public offer is made. This gives investors an insight into the company’s structure, objectives and plans for expansion. Moreover, it allows the investors to conduct in-depth research into the company’s finances. This allows investors to make well-informed decisions. Investors’ ability to assess risks, and understand the business before the release of a final prospectus fosters transparency in financial markets.
What information is not included in the red herring prospectus?
According to Schedule XI of para 7 of the above ICDR Regulations, the companies don’t have to disclose the price of the shares in a red herring prospectus. In places where the size of the issue is mentioned, it might not include the price and quantity of securities. These details are finalised only after capturing the investor’s attention during the IPO’s book-building process. It ensures flexibility and adaptability to market conditions. This document is released with a warning and is considered an incomplete document. After these details are determined, this document gets amended. A final prospectus is then issued to the investors.
Is the red herring prospectus the final prospectus?
No, a red herring prospectus is not a final prospectus. It is issued before the final prospectus as an initial document. It provides potential investors with key information and ignites an interest in the market. The final prospectus is issued after the offer price, number of shares, closing date and other specifics are determined. However, even though this is just an initial document it holds significant weightage and legal standing.
What is the difference between a red herring prospectus and a shelf prospectus?
A red herring prospectus is issued for a specific public offering. On the other hand, a shelf prospectus is filed for multiple offerings spanning over a duration of time according to the validity. A shelf prospectus provides more flexibility than the red herring prospectus for subsequent issuances of securities.
What is a red herring in law?
In law, the primary meaning of a red herring is a legal factual issue that is irrelevant and used to divert attention away from the main issue. It can also be referred to as a misleading clue or distraction. Additionally, it can also be used to refer to the first step in procedures that require government approval, especially in cases of apartment conversion.
Who prepares a red herring prospectus?
The red herring prospectus is prepared by the company’s management, directors, underwriters, and other professionals such as legal and financial experts. The document was prepared after a series of discussions and requires the approval of the board. It undergoes regulatory scrutiny by SEBI before being made available to potential investors. All the issues flagged by the regulatory board need to be addressed.
What are the different types of prospectuses?
There are majorly 4 types of prospectuses mentioned in the Companies Act 2013, they are-
Shelf Prospectus,
Abridged Prospectus,
Deemed Prospectus and
Red Herring Prospectus.
What is a shelf prospectus?
Explanation to Section 31 refers to Shelf Prospectus as a “prospectus in respect of which the securities or class of securities included therein are issued for subscription in one or more issues over a certain period without the issue of a further prospectus.” It is a single prospectus for multiple public offerings issued during the period of validity.
What is an abridged prospectus?
An abridged prospectus is a summary of the prospectus of a company. According to Section 2(1) of the Act, an abridged prospectus is a memorandum containing such salient features of a prospectus as may be specified by the Securities and Exchange Board by making regulations on this behalf. Also, Section 33 of the Act mandates that no form of application for the purchase of any of the securities of a company shall be issued unless such form is accompanied by an abridged prospectus.
What is deemed a prospectus?
A deemed prospectus can be filed for allotting shares or securities through an intermediary, a merchant bank or a stockbroker. It is released by an intermediary on behalf of the issuing company. It can be considered a legal document for an offer for sale if the offer to the public by the intermediary was made within six months of the allotment of shares to the intermediary or if the company that allotted its shares to the intermediary has not received any consideration for the shares till the date the offer was made by the intermediary.
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This article is written by Sana Virani. In this article, the case of Shantabai v. State of Bombay has been discussed. It also talks about the different provisions of the law, fundamental rights, and case laws relevant to the comprehension of the case. This case explores the proprietary interests of the state and cross-examines the claim by the petitioner about infringement of fundamental rights.
Table of Contents
Introduction
In 1951, a change in law caused a lot of distress among the people. To bring estates, mahals, forests, and alienated lands directly under the control of the Madhya Pradesh government, the Madhya Pradesh Abolition of Proprietary Rights (Estates, Mahals, and Alienated Lands) Act was enacted. It abolished proprietary rights and transferred rights to the state. The major reason for enacting this law was to diminish the zamindari system and the dominance of landlords over the common people. It also raised complexities for the state in terms of development and infrastructural growth. Shantabai, the wife of one such proprietor, claimed that her fundamental rights were infringed and filed a writ petition in the Supreme Court challenging the actions of certain administrative authorities. This article provides a detailed analysis of the case of Shantabai v. State of Bombay & Ors. (1958).
Details of Shantabai v. State of Bombay & Ors. (1958)
Bench: The then Chief Justice of India, A.K. Sarkar, Sudhi Ranjan Das, Justice S.K. Das, Vivian Bose, and Justice T.L. Venkatarama Aiyyar
Petitioner: Shrimati Shantabai
Respondents: State of Bombay and others
Judgement Date: 24 March, 1958
Facts of Shantabai v. State of Bombay & Ors. (1958)
On April 26, 1948, Balirambhau Doye, a proprietor of several forests in eight tehsils of Pandharpur, executed an unregistered document with his wife Shantabai, the petitioner in the present case. He granted her the right to take out various kinds of raw materials like fuel wood, bamboo, etc. for 12 ½ years in return for Rs 26,000 and called it a lease. The deed was executed in favour of Shantabai, which conferred on her the right to enter certain areas of forest and cut out fuel wood, teak, and bamboo. On January 26, 1951, the Madhya Pradesh Abolition of Proprietary Rights (Estates, Mahals, and Alienated lands) Act, 1950 (hereinafter referred to as the “Act”) was enacted. Section 3 of the Act confers all the proprietary rights of certain lands located in the state of Madhya Pradesh on the state from March 31, 1951, as specified by the government.
Shantabai was restricted from entering and cutting trees after the Act came into force, even though she was permitted to do so through the lease. She applied to the Deputy Commissioner of Bhandara under Section 6(2) of the Act for validating the lease, and the commissioner held on August 16, 1955, that the lease could not be questioned because the Act would not be applicable to the transfer in question as the Act applied only to those transfers that were made after its enactment, whereas the said transfer was made before the Act came into force, i.e., March 16, 1950. The Commissioner also observed that the lease was genuine, which gives the petitioner the right to work in the forest as per the lease and the rules set out under Section 218(A) of the Central Provinces Land Revenue Act, 1881. Following the order given by the commissioner, the petitioner applied to the Divisional Forest Officer, Bhandara, twice for a permit to work in the forest, and in return, she received a letter from the authorities stating that the claim was being examined. The letter further states that the petitioner, Shantabai, took the matter into her own hands and started cutting the forest trees to exercise her rights, and that the Divisional Forest Officer seized the petitioner when she unlawfully entered the forest to cut the forest trees. Because of the aforesaid reasons, the forest officer cancelled her name and forfeited the extracted materials from the forest.
The petitioner made an application on September 27, 1956, to the Government of Madhya Pradesh to reclaim possession, which is her right acquired through the document. She filed a writ petition for the infringement of her fundamental rights, namely Articles 19(1)(f) and 19(1)(g), on August 26, 1957, to the Supreme Court under Article 32 of the Constitution of India. She moved to the Supreme Court when she did not receive any significant order, and further, she requested that the court set aside the respondent’s order so that she could carry out other activities.
Issues raised
Whether the document conferred any proprietary rights or interests to the petitioner?
Whether the fundamental rights of the petitioner had been violated.
Arguments of the parties in Shantabai v. State of Bombay & Ors. (1958)
Arguments from the petitioner
The petitioner requested to dismiss the order made by the divisional forest officer that restrained her from cutting the forest wood, which was an infringement of rights that arise out of the lease. The counsel of the petitioner referred to the case of Chhotabhai Jethabhai Patel v. State of Madhya Pradesh (1965) and requested a writ directing the respondents to not restrict her from conducting several activities on the land. As per her claim, she had been granted the right to access the forest and cut the trees under the lease, and her fundamental rights guaranteed under Articles 19(1)(f), i.e., the right to property, and 19(1)(g), i.e., the right to carry out trade arising out of the transaction, are infringed due to the offending order.
The foundation of her contractual rights arising on the land is the document termed a “lease deed” executed between the petitioner and her husband.
Arguments from the respondents
The respondents highlighted the contradictory definitions of trees and standing timber, and Section 3(26) of the General Clauses Act, 1897, defines trees under the category of ‘immovable property’ because they are attached to the earth and they benefit from the land. Whereas, Section 3 of the Transfer of Property Act, 1882, states that ‘standing timber’ does not comprise immovable property for this Act as well as for Section 2(6) of the Registration Act, 1908.
The respondent looked into the matter with a different lens. They did not argue about the infringement of fundamental rights. Rather, they highlighted that the contract, which was the foundation of the transaction, was unregistered under the existing law. The question was for the court to shed light on the above concepts to conclude the judgement.
Laws discussed in Shantabai v. State of Bombay & Ors. (1958)
Article 19 of the Constitution
Article 19 was embedded in the Constitution of India so that the citizens had the right to express their thoughts, trade, and move freely. This article contains several rights that have played a crucial role in shaping democracy while balancing the rights and reasonable restrictions imposed on citizens under Article 19(2).
Article 19(1)(f)
When the Indian Constitution came into existence, the right to withhold property was underlined as a fundamental right enshrined under Article 19(1)(f). This right ensured that citizens’ rights against their property remained protected. In 1978, the Constitution (44th Amendment) Act, 1978, led to a change in the status of the right to property from a fundamental right to a constitutional right. This Amendment took place so that the government could boost public infrastructure projects and could not be intervened by claims arising from breaches of fundamental rights.
Article 19(1)(g)
Article 19(1)(g) upholds the fundamental right to carry out any trade, business, occupation, or practice of any profession for all citizens. The scope also extends to the right to shut down a business or commercial activity. However, this right is also backed by reasonable restrictions, like carrying out any activity that is dangerous, illegal, or criminal.
Article 31(1)
According to Article 31(1), the government cannot seize the private property of a citizen by the provision of law and not through an executive order.
Article 32
Article 32 in Part III of the Indian Constitution secures legal remedies that every individual can access for the violation of fundamental rights. To enforce any fundamental right guaranteed under the Constitution, it gives the citizen the right to proceed to the Supreme Court. Article 32 also reiterates the power of the Supreme Court to issue writs, orders, and directions that uphold fundamental rights and their enforcement.
Registration Act, 1908
Registration of a commercial transaction is crucial because it aids the government in maintaining a systematic record of the same and decreases the chances of false claims or disputes over a property. The Registration Act unifies the rules and regulations that are necessary to follow to register documents.
General Clauses Act, 1977
The General Clauses Act is best known as the “laws of all laws” because it creates a solid base for the interpretation of several Acts and their provisions. It leads the path for other general as well as specific provisions so that there is no room for ambiguity.
Halsbury Laws of England
Halsbury Law is a comprehensive dictionary and contains statutory and common law concepts for England and Wales.
Madhya Pradesh Abolition of Proprietary Rights (Estates, Mahals, and Alienated Lands) Act, 1950
The Madhya Pradesh Abolition of Proprietary Rights (Estates, Mahals, and Alienated Lands) Act gained presidential assent in 1951. It was enacted to abolish all the proprietary rights in Madhya Pradesh and to bring reforms on several issues related to proprietary rights. This provision resulted in the transfer of the proprietary rights of individuals on estates, mahals, and alienated lands to the state in return for compensation if liable.
Here are the following objectives of the Act:
The Act imparted the abolition of proprietary rights in estates, mahals, and alienated lands situated in Madhya Pradesh. Its main aim is to hand over the proprietorship to the state government of alienated lands, estates, and mahals to enhance infrastructure and redistribution.
It also asserts that landowners are entitled to compensation whose proprietary rights were terminated due to this provision and also lays down a plan of action for distributing the compensation.
It also emphasises the limit of land an individual or family can hold and gives power to the government to acquire the land if it crosses the maximum limit as prescribed under the Act to redistribute it amongst the small-scale landless farmers to promote social justice.
The provisions of the Act also provide security of tenure and several other rights to tenants and cultivators over the land they farm. It also lays the foundation for structures to implement provisions, including the appointment of authorities to supervise the various activities related to land reforms.
The Madhya Pradesh Abolition of Proprietary Rights (Estates, Mahals, and Alienated lands) Act, 1950, has also incorporated several provisions that are nearby for the constructive and efficient enforcement of it.
Section 3 of the Madhya Pradesh Abolition of Proprietary Rights (Estates, Mahals, and Alienated Lands) Act.
Section 3 of the Madhya Pradesh Abolition of Proprietary Rights (Estates, Mahals, Alienated Lands) Act, 1950, would overpower the state vesting the right over property in return for appropriate compensation to the petitioner. Section 3 provides the conditions that are to be fulfilled to permit and grant the land for cultivation:
If the land falls outside a 15-mile radius of the boundaries of any municipal committee or notified area committee.
The existing cultivation land is under the ownership of a proprietor and is insufficient to fulfil the needs.
The land intended for cultivation has suitable soil, and the proprietor’s situation allows them to cultivate the additional land effectively.
Precedents and similar cases
Anand Behra v. State of Orissa (1956)
The plaintiff in Anand Behra v. State of Orissa (1956)was granted the right by its former owner to fish in certain areas of Chillaka Lake. Soon after that, the Orissa Estates Abolition Act (1951) made the state of Orissa its proprietary owner. When the plaintiff was restricted to exercise activities and his licence became invalid, he filed a petition as per Article 19(1)(f) and Article 31(1). The court, however, categorised fisheries as immovable property and dismissed the petition since the state had rights over the property due to the said Act.
Mulamchand v. State of Madhya Pradesh (1968)
In this case, the appellant secured the right from several proprietors of Malguzari jungles to extract forest produce. The rights to the same forest were transferred to the state after the enactment of the Madhya Pradesh Abolition of Proprietary Rights (Estates, Mahals, and Alienated Lands) Act. On 1st April 1951, under Section 7 of the Act, the Deputy Commissioner of Balaghat took charge of several Malguzari jungles, which restrained the appellant from utilising the rights. Since the appellant already acquired the right to collect tendu leaves, he argued for the amount to be refunded and also demanded a refund of the deposit made by him that permitted him to collect lac for three years. The respondent pointed out that the claim was baseless because the provisions of Article 299 of the Constitution were not fulfilled, which resulted in an invalid contract between the state of Madhya Pradesh and the appellant. The appellant could not manage to provide relevant evidence to prove the validity of the contract and other technicalities associated with the transaction. The Trial Court and High Court dismissed the claim due to a lack of substantial evidence, which made it evident that the appellant was not eligible for a refund of the deposit amount.
Thakur Krishan Singh v. Arvind Kumar (1995)
In this case, the plaintiff and respondent filed a lawsuit that questioned the possession of land located in district Sagar. They claimed that the 0.56 acres of land were leased to them in 1949 by the Lambardar. However, the Court concluded that the appellant was the rightful owner of the land through adverse possession and dismissed the dependents’ appeal. Further, it was held that the High Court did not make any error in acknowledging the lower court’s decision.
Bihar Eastern Gangetic Fishermen Cooperative Society Limited v. Sipahi Singh (1977)
In this case, the Fishermen Cooperative Society held the fishing rights for one year in 1974 for Rs. 150,000 at Gangapath Islampur Jalkar. In the public auction, the respondent, Sipahi Singh, made the highest bid of Rs. 165,000 for the years 1975 to 1976 to obtain the fishing rights. However, he faced significant losses incurred in the same year and claimed a reduction in settlement amount with the extension of fishing rights until 1978 to recover his losses. The government agreed to extend the term of fishing rights on the condition of a complete payment of Rs. 165,000, but later on, they set aside the decision. The Supreme Court held that the contract between the State of Bihar and Sipahi Singh was not valid since it did not fulfil the essential requirements stated under Article 299 of the Constitution.
Judgement of the Supreme Court in Shantabai v. State of Bombay & Ors. (1958)
The five-judge bench dismissed the petition without any costs and held that, even though a petition under Article 32 is maintainable, the petitioner cannot complain of the infringement by the state about rights if it occurred to the petitioner under any document. Justice Bose delivered a single judgement, while the other judges furnished a separate judgement. Although all the judges had the same view about dismissing the petition, Justice Bose decided to conclude with a separate reason because he had slightly different reasons than the other four judges in viewing the matter.
Judgement by four judges
The judges analysed several aspects of the case and concluded that the document permitted a “profit-a-prendre,” which entitles a person to extract raw materials or any produce from another person’s land. However, it never transfers the right to take advantage of the immovable property and only permits entry and makes use of the extraction of soil yield. The court highlighted that the proof by the petitioner was vague and that the claim under Article 19(1)(f) or Article 31 needed more than a mere grant of the right to enter and cut timber.
The court delved into the movable or immovable property classification, concluding that, under Section 3(26) of the General Clauses Act, 1977, it qualified as “immovable property” due to its connection to the land. Despite conflicting definitions in other statutes, the court asserted that the definition in the General Clauses Act should prevail in the absence of a special definition. Otherwise, the special definition will be applied. It was included in the judgement that such trees are considered “standing timber” as of the date of the document. Since the size is minimal and can fall earlier, it will be regarded as a movable property.
The judges further classified and delved deeper into the classification of movable and immovable property. Although there has been a lot of ambiguity due to the conflicting definitions and interpretations in several statutes, the court referred to Section 3(26) of the General Clauses Act, 1977, and interpreted standing timber as immovable property.
Judgement of Justice Bose
Justice Bose stated in its separate judgement that one can enjoy the property even if it is a lease transaction, but that does not give the right to take it away or remove it from its original location.
He further clarified that the genuineness of the document is not a question, but rather that it being an unregistered document is a concern.
He also highlighted the importance of registering a lease since the total value was INR 26,000 and it is necessary to register a lease for one year of an immovable property. Even under the assumption that the petitioner acquired the share in the property through the document, the state was entitled to the forest land due to Section 3 of the Madhya Pradesh Abolition of Proprietary Rights (Estates, Mahals, Alienated Lands) Act, 1950, and that the petitioner could claim compensation if payable under the Act.
The rationale behind the judgement
Whether the document conferred any proprietary rights or interests to the petitioner?
The court identified the distinction between “timber trees” and “standing timber” after referring to the Ananda Behera case and concluded that the petitioner was entitled to take the benefit of soil. In Ananda Behera v. State of Orissa, it was also held that a document pertaining to immovable property shall have no legitimacy if it is not registered under the Registration Act. Since the deed that is the basis of the petitioner’s right over property is an unregistered lease deed, she could not claim for the remedy of breach of the same.
The court observed that the petitioner, Shantabai, was the proprietor’s wife, which makes her familiar with acting in the capacity of the proprietor oftentimes, but that does not necessarily mean that the lease between them transferred any proprietary rights to the petitioner. Although the legal document calls itself a lease, there are no traces of the transfer of proprietary or management rights to the forest.
A specific clause in the legal document says that “only the lease of forest wood is given to you”. This makes it clear that there is no established right that confers any right to enjoy land.
Grant of profit-a-prendre, which in Indian law is a benefit arising out of land, is a right permitted and granted in the document that creates the petitioner’s interest in the immovable property. However, the document permitted the licensee to enter the land to extract a portion of soil yield and natural resources, but this does not transfer the right to enjoy the forest land or trees, which are immovable property.
Whether the fundamental rights of the petitioner had been violated.
The court stated that to draw a claim under Article 19(1)(f) or Article 31 of the Constitution of India, something substantial shall be disclosed in the favour of the petitioner. Standing timber shall be considered immovable property with reference to Section 3(26) of the General Clauses Act, 1977, as the trees are attached to the earth, and “standing timber” is movable property as stated under Section 3 of the Transfer of Property Act, 1882, and Section 2(6) of the Registration Act, 1908.
However, it was observed by the judges that there has been neither a violation of any fundamental right nor that the petitioner can claim anything since the deed was an unregistered document, which is a prerequisite for the establishment of rights under Indian law.
Comparisons discussed in this case
Profit a prendre vs. lease deed
Under Indian laws and common law jurisdictions, both terms are perceived in the property rights spectrum. As defined in Halsbury’s Law of England, Fourth Edition, Paragraph 240, the meaning of “profit a prendre” is when a person has the right of access and plucks out benefits or profits like crops, minerals, and timber from someone else’s land. In contrast, a lease is a legal document formalised between parties that gives the lessee the right to use the lessor’s land for various purposes.
Profit-a-prendre creates a temporary arrangement that is usually for a short span of time, which makes it restricted to certain activities. Whereas, the lease is dependent on terms agreed upon by the parties in the lease agreement, making it an exclusive and temporary proprietorship.
To conclude, both arrangements confer rights over the property but serve distinct objectives and interests. The Court in this case emphasised that there is a distinction between both because a lease means the right to enjoy the immovable property, whereas profit-a-prendre gives a right only to move the natural resources from the land.
In Bihar Eastern Gangetic Fishermen Cooperative Society Limited v. Sipahi Singh (1977), the Supreme Court held that the right to catch fish is profit-a-prendre, i.e., benefits arising out of the land, so it has to be regarded as “immovable property” as per the Transfer of Property Act.
Movable property vs. immovable property
Immovable property under Section 3(26) of the General Clauses Act is defined as:
Things attached to Earth.
Any land, building, etc.,
Benefits arising out of land.
The Registration Act highlights that benefits arising out of lands are to be labelled as “immovable property”.
Movable property under Section 3(36) of the General Clauses Act defines it as property of every description except immovable property.
In simpler words, any property that can be moved without destroying it or cannot be moved at all is known as “immovable property”. Whereas a property that can be moved from one place to another without any destruction or change in its original quality, quantity, or standard is known as a “movable property”.
Under the Registration Act, there is no rule to register movable property, whereas it is necessary to register a transaction pertaining to immovable property.
Justice Holloway, in Sukry Kurdepa v. Goondakull (1872), 6 Mad. H.C. 71, stated that if a property is not changed or altered from its original place, causing destruction to the property, it shall be considered immovable property.
Critical analysis of Shantabai v. State of Bombay & Ors. (1958)
The legal principle upheld in this case correlates to the nature of standing timber. However, the court majorly highlighted the concept of benefits arising out of land and emphasised that the transaction between Shantabai and her husband only conferred her the right to enter into property to chop and take away certain types of natural resources. The reasoning behind the judgement was influenced by a decision made in the Anand Behera case. The concept that was the spotlight of this case is incorporated in the Registration Act, 1908, and the General Clauses Act, 1987, to a certain extent, and that too under the influence of English case laws. This vague inclusion and interpretation have increased the ambiguity. To give a better understanding and credibility to the transactions relating to profit-a-prendre, the word benefits or the list of “benefits” that can be obtained shall be included in some legislation or judgement. Both the issues raised in this case assessed the right and validity of claims made by the petitioner, which were rightly addressed by the court. However, there were no questions raised about the validity of the newly enacted law, which restrained the petitioner from exercising her right.
Other acts pertaining to the abolition of proprietary rights
Before these acts that abolished proprietary rights were enacted, the zamindar and landlord system prevailed, which became a barrier to the fair distribution of estate and social justice. It also hindered the growth of real cultivators and the agricultural development that could take place. Apart from the Madhya Pradesh Abolition of Proprietary Rights, 1951, various legislation had been enacted to abolish intermediaries and their interest in estates in return for adequate compensation.
Here’s a list of all the Acts that were passed in their respective states:
Shantabai v. State of Bombay & Ors. (1958) is a landmark judgement of Section 3 of the Transfer of Property Act, 1882. This case highlights and raises the question of the applicability of fundamental rights and the obligation of the petitioner to provide substantial evidence to prove the infringement. The essence of this case is derived from the concept of English law and some precedents for similar facts. The judges also asserted the supremacy of the General Clauses Act, 1897, when the ambiguity between definitions arose. In this judgement, it also emphasised the need to register transactions related to immovable property to make them legally binding. The dismissal of the claim filed by the petitioner reiterates the fact that enforcement of fundamental rights requires valid legal ground.
Frequently Asked Questions (FAQs)
Why was Madhya Pradesh’s Abolition of Proprietary Rights Act in 1951 enacted?
The zamindari system was the root cause of many problems, such as the exploitation of farmers and financial dependence on wealthy landlords. It divided society into two categories: the first was a few landlords, and the second was the major chunk of the population working as labourers. The proprietary rights of estates were abolished to eradicate them so that the state could intervene in this matter and uplift the tenants economically.
How did the court balance individual rights and public interest in its decision?
The judges in this case analysed the nature of rights claimed by the petitioner and considered factors like document validity, fundamental rights, and the state’s proprietary rights. However, the court approved public interest over individual rights due to the invalidity and dominance of Madhya Pradesh’s Abolition of Proprietary Rights Act, 1951.
Did the case set any legal precedents for future cases?
Shantabai v. State of Bombay is considered a landmark case of Section 3 of Transfer of Property Act, 1882. Apart from this, it set out many principles, as highlighted in the article, and a legal precedent in Mahadeo v. State of Bombay in the year 1959.
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The article has been written by Samiksha Singh. This article deals with the relevance of motive, preparation, and conduct for the purpose of the law of evidence. Before delving into a detailed discussion of Section 8, the article firstly defines certain important terms that are necessary for understanding this Section. Further, the article also highlights the court’s interpretation of Section 8 of the Indian Evidence Act, 1872.
Table of Contents
Introduction
“Evidentia”, the Latin term for “evidence” means to prove or show something clearly. Deriving thereby, it can be said that evidence law is chiefly based on one fundamental premise, this is either proving or disproving the very existence of any alleged fact. Thus, depending upon what the party intends to prove, he may either be required to show the existence of some disputed fact or the non-existence of that disputed fact.
However, just because one considers a particular fact to be relevant as evidence does not necessarily mean that the law also perceives that fact to be relevant as evidence. Accordingly, the Indian Evidence Act, 1872 (hereinafter referred to as“IEA, 1872”), provides what are those facts that would be considered relevant, thereby allowing parties to furnish evidence of these “relevant facts”. In this article, a detailed description is given about Section 8 of the IEA, 1872, which mentions that “motive”, “preparation” and “conduct” would also be considered “relevant facts.” Thus, as per Section 8, evidence may be given of the aforestated three aspects in order to prove/disprove either the existence/non-existence of any “fact in issue” or a “relevant fact.”
Important definitions
Before delving into a detailed discussion of Section 8 of the IEA, 1872, it is important to understand what the terms “fact”, “facts in issue” and “relevant” imply. These terms are defined under Section 3 of the IEA, 1872.
Fact
The term “fact” has been given a very broad connotation under the law of evidence. Under Section 3 of the Indian Evidence Act, the term “fact” has been understood to mean not just those things which are physically perceivable, but also those aspects which are psychological in nature and exist in the person’s mind. Thus, it encapsulates both a physical and a mental state of affairs.
For example, one S, shoots one Y. Here, the fact that this person S shot Y is a physical fact. However, the fact that this person S intended to shoot Y is a mental or a psychological fact. For the purposes of this Section, both of these aspects are included within the meaning of the word “fact.” Thus, it is safe to say that the legal understanding of this word is distinct from the general or popular understanding of the term inasmuch as in the legal realm, a fact for the purpose of evidence law also includes a mental condition.
Facts in issue
The term “facts in issue”, as the very phrase implies, are those facts which are in issue or simply those facts or set of facts which form the subject matter of the enquiry in the case at hand. It is these very facts on which the court needs to come to a decision. Considering the previously mentioned example, S is accused of shooting Y and is now charged with the murder of Y. In this illustration, the following facts may be considered to be the “facts in issue”
First, S caused Y’s death;
Second, S possessed the intention of causing Y’s death;
Third, Y died;
Fourth, Y’s death is not a case of suicide. The case is one of homicide;
Fifth, S had previously received grave and sudden provocation from Y.
It is these disputed facts that are in issue before the court, and the court has to determine these questions in order to come to a decision. Hence, the term “facts in issue.”
Relevant
The term “relevant” has been defined in the context of the term “connected.” So, let’s say that there are two facts, Fact 1 and Fact 2, then Fact 1, would be considered “relevant” to Fact 2, if Fact 1 is so linked or “connected” with the Fact 2, that when Fact 1 is either taken independently or it is considered in light of certain other facts, then Fact 1 proves/disproves or has the probability to prove/disprove the very existence or non-existence of Fact 2. Thus, in simple terms, if the test of relevancy (as understood by the interpretation clause-Section 3 titled “relevant”) is applied to any two given facts, then one fact would be construed relevant to another when they are so intertwined or linked to each other, that the first fact can either prove/disprove the existence/non-existence of the second fact.
Explanation of Section 8 of Indian Evidence Act, 1872
According to Section 8 of the IEA, 1872, the following facts are construed as relevant facts:
Firstly, if there is some fact which exhibits either motive or preparation.
Secondly, any fact that exhibits conduct. “Conduct”, herein includes, conduct of any party, the party’s agent, and the victim. However, for conduct to be considered “relevant”, such conduct must either influence or be influenced by any relevant fact or fact in issue.
Additionally, there are two explanations under Section 8 of the IEA, 1872.
Explanation 1 provides that the term “conduct” would not include mere “statements” within its ambit. For a statement to be relevant under Section 8, such statement must follow and provide an explanation of other acts. However, just because a statement may not be considered relevant under Section 8, does not necessarily mean that it would not be relevant for any other Section of the IEA, 1872.
Explanation 2 additionally makes two kinds of statements relevant. In cases where the conduct of any person is considered relevant, then firstly, statements made to such a person or secondly, statements made in that person’s presence where he can hear it, would also be relevant if any of the abovementioned statements has the power to affect the conduct of the person.
Principle and scope of Section 8 of Indian Evidence Act, 1872
Section 7 of the IEA, 1872 provides that those facts which exhibit aspects like “cause”, “effect”, “occasion” of the “facts in issue” would also be construed to be “relevant facts.” Section 8 of the IEA, 1872, in effect, essentially widens the scope of Section 7, by bringing aspects like “motive”, “preparation” and “conduct” within the meaning of “relevant facts”. Thus, while taking into account aspects like the “cause” or “effect” of the “facts in issue”, it may equally be important to know facts like, why would the accused have committed the offence (or what was the accused’s “motive”), did the accused take any previous actions to carry out the offence (or was there any “preparation” on the part of the accused)? It is important to ascertain these facts because these facts may help both the prosecution and the court to infer the “mens rea” (or “guilty mind”), and provide a link in establishing the commission of the offence.
If the prosecution is able to show these facts be it the motive of the accused, or the preparation before the commission of the offence, or a conduct exhibiting the presence or absence of guilt, then, these facts would ultimately help in proving/disproving the issues that are in dispute before the court.
The theory of relevancy
This theory provides an idea as to what are those aspects of which evidence may be given. It is pertinent to mention that not everything may be adduced as evidence before the court. This theory is encapsulated in Section 5 of the IEA, 1872. According to this Section, a party may be allowed to give evidence of only two types of facts. Firstly, the party may give evidence of “every fact in issue” in order to show that it either exists or it does not exist. Secondly, the party may provide evidence of any fact which is construed to be a “relevant fact”, again to show that it either exists or does not exist. Accordingly, by applying the theory of relevancy to Section 8 of the IEA, 1872, it is clear that evidence may be given of those aspects which reveal “motive”, “preparation” or “conduct” of the parties since these three aspects constitute “relevant facts” in accordance with Section 8.
Essential elements under Section 8 of Indian Evidence Act, 1872
The following elements are said to be ‘relevant’ facts as per Section 8 of IEA, 1872:
Motive
Preparation
Conduct, either previous or subsequent
Motive under Section 8 of Indian Evidence Act, 1872
Although all the perceivable actions of a human being are physical in nature, any voluntary physical or perceivable act cannot exist without an internal feeling or driving force that compels us humans to act the way we act. Simply put, behind every perceivable physical/external act of a sane individual, there is always an inherent internal emotion or reason that compels us to do or act in a particular way. This internal reason behind our actions is termed as “motive”.
Now, in law, motive per se is not unlawful or punishable. This is because “motive” no matter how loathsome or hateful is only an “internal” act. Until and unless a person’s despicable motive subsequently turns into an external act or conduct that the law regards as punishable, that person would not be guilty only because his motive was pure evil. In fact, it is not even possible for one to know what is running through the mind of another person unless he does something perceivable or external. Conversely, just because a person’s motive behind committing an unlawful act is extremely commendable, does not mean that the motive itself would justify the commission of the crime.
Now, one cannot generally establish the “motive” of a person for committing a crime ‘directly’, therefore, “direct evidence” is barely of much relevance when it comes to establishing “motive.” Again, this is simply because it is not possible to know what is running through the other person’s mind, which is only best within the knowledge of that person. Thus, in cases where ‘motive’ has to be established, it must be done through circumstantial evidence, say the conduct of the person. We have, many a time, watched on television or witnessed it in real life, wherein the first question asked before the commencement of an investigation is to see who is that person who would profit most from the commission of the crime.
Intention and motive
Generally, the terms “motive” and “intention” are oftentimes used interchangeably as if they connote the same meaning. However, these two terms have a distinct understanding. The term “motive” denotes the driving or compelling force behind our actions. As opposed to this, intention simply implies what it is that one must do in order to achieve the motive. Let’s understand this with the help of an illustration.
For example, Y is a beggar and during the normal course of his day, Y comes across a starving child D. Now since Y himself has nothing to offer to the child yet because he wants to feed the starving child, Y runs to the supermarket and steals bread. Here, while Y’s motive behind stealing the bread is to feed the starving child, however, Y’s intention here is simply to steal. Put another way, how or what a person does in order to achieve his motive, is his intention. Thus, it can be said that a person’s motive is his “why”, and his intention may be “to do” or “by doing what”. Therefore, while motive is the cause behind an action, what the person does in order to achieve his motive, in fact, the very choice whether to carry out the action or not in itself constitutes one’s intention.
Importance of motive
As already discussed above, evidence may only be given of two types of facts, one being “facts in issue”, and the second one being “relevant fact.” Section 8 of the IEA, 1872 widens the scope of what may be construed as relevant by incorporating within its ambit, “motive” of the accused. Now, it is an established principle that the law of crimes is built upon the existence of two elements:
Actus reus (a guilty act); and
Mens rea (a guilty mind).
Motive is important because it goes on to disclose a person’s guilty mind. However, if the prosecution does not put forth any other strong or reliable evidence in addition to showing motive, merely presenting the motive would not assist the prosecution’s case. More than motive, the prosecution has to show the intention of the accused to commit the crime. For example, Y may have a strong animosity towards a person thereby possessing a strong motive to commit murder in order to exact revenge, but Y may not necessarily possess the intention to carry out the act. Meaning thereby, Y may have many reasons (or motive) to kill someone, yet he may not intend to commit murder.
Sampath Kumar v. Inspector of Police, Krishnagiri (2012)
In the case of Sampath Kumar v. Inspector of Police, Krishnagiri (2012), an important observation regarding the scope of motive was made by the Supreme Court. In this case, the appellants were convicted of murder and sentenced to imprisonment for life by the trial Court, which was subsequently upheld by the Madras High Court on appeal. In this case, there were three appellants, Velu, Shanmugam and Sampath Kumar. Velu’s sister Usha was in love with the deceased Senthil Kumar. Previously, Velu had asked Senthil (the deceased) to stay away from his sister and had threatened Senthil (the deceased) that he would hurt the deceased if the deceased failed to stay away from Usha. However, later, Velu himself had agreed to marry off his sister to the deceased. Further, it was not known, but the other appellant, Shanmugam, was in a one sided love affair with Usha, and he had once seen the deceased and Usha in a romantic embrace. The trial Court convicted the appellants on the basis of the presence of strong motive on the part of both Velu and Shanmugam to murder the deceased.
The Supreme Court, herein, observed that the fact that the appellants possessed a strong motive to kill the deceased may be an important factor, however, even such strong motive to commit the crime cannot substitute the need for the presence of a conclusive proof. Thus, in the absence of a “conclusive proof” that is “beyond reasonable doubt”, the existence of a strong motive, no matter how strong, would not sustain. The Apex Court thereby acquitted the appellants for want of “proof beyond reasonable doubt.”
Existence of motive is not an absolute requirement
While motive is important in as much as it evidences a person’s guilty mind thereby making it ‘relevant’ yet “motive” alone is not an absolute requirement. This is because while it may always be desired, however, it is not always the case that the prosecution is successful in establishing the motive of the accused. Why? Simply because the prosecution cannot enter the mind of the accused. Thus, motive is always an ‘important’ or a ‘relevant’ factor, yet it should not be understood to be the ‘only’ factor. If the prosecution is able to suggest and establish motive, it may only serve the limited purpose of strengthening the prosecution’s case when the courts analyse the prosecution’s evidence to determine if the accused is guilty or not. Thus, an establishment of “motive” merely acts as an assurance to the other evidence presented by the prosecution to establish guilt of the accused. It is for this reason only that if the prosecution is not able to establish motive, that does not mean that the accused is without guilt and should thus be acquitted.
Hence, it can be said that motive by itself is not sufficient to lead to conviction of the accused. Nor, does the absence of motive discredit the available evidence. If there is absence of motive but enough evidence to prove the guilt of the accused, he shall be convicted. In fact, the Supreme Court in the case of Ranganayaki v. State by Inspector of Police (2005)elaboratively examined the question of motive and how difficult an area it is to be established. This is because motive, as the Supreme Court opined, is a psychological phenomenon. It is not possible for the prosecution to enter into the mind of the accused. Consequently, it was noted that merely for the sole reason that the prosecution was unsuccessful in ascertaining and establishing the motive of the accused does not imply that there was no such mental condition. Further, even if there is an absence of motive, that also does not help the accused. In this case, while no substantive motive to commit murder was established, there was also no other practical evidence to support abetment to murder. Hence, the appellant was acquitted of the offence.
Proof of motive
As has already been discussed in the previous heading, a proof of motive is only an assisting factor to the prosecution’s case and not the determining factor. Many a time, we come across situations, wherein the most heinous crimes are committed with the most insubstantial motive. In the case of Ravi v. the State of Maharashtra (2019) the Apex Court observed that an absence of motive would not mean death to the prosecution’s case. This is because human beings at times act without much thought and in the spur of the moment. Thus, if there is strong evidence against the accused like the presence of a reliable eye-witness, then it is not necessary that the motive be definitely determined.
So, in cases where the prosecution is able to show “motive”, then, considering the other evidence on record pointing towards the guilt of the accused, a corroboration of ‘motive’ may be a strong case against the accused. Yet, merely because the prosecution finds itself in a position where it is not able to ascertain and establish motive does not necessarily mean that a contrary inference can be drawn. Thus, in cases where there is clear evidence that points towards the guilt of the accused, let’s say the presence of an eye witness, then the question of presence or absence of motive becomes irrelevant.
In the case of Balram Singh v. State of Punjab (2003), wherein the question of relevance of motive arose, the Apex Court noted that in an altercation between 2 families, if there were three persons, where one of them lost his life and the other two were severely injured, then the evidence of the injured witnesses if admitted and taken into consideration, would render the question of presence of motive irrelevant.
Adequacy of motive
Adequacy of motive, even if extremely strong, is not enough to sustain a criminal charge if there is no other clear evidence that points towards the guilt of the accused. This is chiefly because there are many instances where heinous crimes are committed yet the motive behind the commission of the crime is too slight. This is because a person’s motive to commit a criminal act need not necessarily be proportionate to the crime committed. Crimes are oftentimes committed in the heat of the moment or momentary outrage. In fact, they may even be committed in need. For example, a poor person, in extreme poverty and starvation may be led to commit an offence for gaining some monetary advantage. Thus, whether the motive behind the commission of crime is adequate or not is hardly of any importance or relevance.
Nathuni Yadav v. State of Bihar (1996)
The case titled Nathuni Yadav and Ors v. State of Bihar and Anr (1996) is relevant for answering whether the prosecution has to ascertain an adequate motive for them to infer guilt on the part of the accused. The Apex Court answered this question in negative. In this case, appellants were convicted for the murder of Mrs. Sona Devi, the wife of Mr. Bhagelu Singh. In this case, the appellant had attempted to kill both Mr. Bhagelu and his wife. However, Mr. Bhagelu, since he had not sustained injury in any vital organ, was able to survive the injury.
In this case, the prosecution suggested that the motive behind murdering Mrs. Sona Devi was because Mr. Bhagelu gifted away his landed property to his wife. Thus, according to the prosecution’s case, the murder of Mrs. Sona Devi was out of spite since the appellant was the cousin of Mr. Bhagelu. To this suggestion of motive, the appellant’s counsel argued that the motive suggested by the prosecution was too weak a motive for the appellant to commit such a brutal crime.
In this light, the Apex Court observed that it is not possible to ascertain what runs through the mind of the accused when he thinks of committing a crime. Only for the reason that the prosecution finds itself in a position where it cannot establish a motive or the motive proposed is weak, does not signify that there was no motive at all. In the opinion of the Apex Court, thus, it is not necessary that the cause behind the commission of an offence be proportionate to the offence itself. Citing the case of R v. Palmer (1856), the Hon’ble Court, thus, noted that adequacy of motive is not a criteria and is hardly important.
Importance or significance of motive in circumstantial evidence
In instances where the case of the prosecution relies heavily on circumstantial evidence, then the presence of motive gains an increased significance. This is because unlike in cases where there is strong ocular evidence like the presence of a reliable eye-witness, in cases of circumstantial evidence, “motive” in itself is a link in the chain of events upon which the prosecution may argue and rest his case. Thus, in situations where the prosecution seeks to base its entire or major part of the case on circumstantial evidence, motive assumes an even greater significance. This is because in instances where reliance is placed on an eye witness (the one who has actually seen the commission of the crime), the only question that the court majorly has to decide is whether that evidence of the eye witness is to be believed or not. However, in situations where the court has to make a decision only on the basis of circumstantial evidence, absence of motive actually works in favour of the accused. Again, this is primarily because in such situations, the central or pivotal part of the prosecution’s argument is the accused’s “why” (or motive) behind the commission of the crime.
Munish Mubar v. State of Haryana (2012)
This case of Munish Mubar v. State of Haryana (2012) is relevant in as much as it highlights the Apex Court’s interpretation of the importance and sufficiency of motive in a case based on circumstantial evidence. In this case, the appellant, one Munish Mubar was convicted for the murder of the deceased. Here, the appellant was in an intimate relationship with the co-accused, one Shivani, who allegedly was also in an intimate relationship with the deceased, her boss. The appellants argued that Munish was falsely incriminated, and that in a case based on circumstantial evidence, the motive of the accused is of great importance which in this case could not be established by the prosecution.
The Apex Court opined that even though motive is extremely important when the prosecution rests its entire or major part of the case on circumstantial evidence, yet, motive being an internal act can only originate, exist and be known to the accused. In fact, the Hon’ble Court further observed that even the victim may be unaware as to why the accused is committing that offence against the victim. Therefore, if the evidence placed is able to only “suggest sufficient motive”, that suggestion based on the evidence on record would be sufficient to construe that the accused was the one who committed the crime.
Preparation under Section 8 of Indian Evidence Act, 1872
Section 8 of the IEA, 1872 also makes “preparation” a relevant fact. As was observed by the Supreme Court in Malkiat Singh & Anr v. State of Punjab (1968)preparation implies the measures or actions that are taken for the commission of any offence.
Stages of a crime
There are generally 3 stages which occur before the commission of any crime. These are:
First, a person’s ‘intention’ to commit a crime;
Second, that person’s ‘preparation’ to commit that crime;
Third, that person’s ‘attempt’ to commit the crime; and
Finally, the actual ‘commission’ of crime.
What is preparation
When a person commits a crime after premeditation or a calculated and well crafted plan, it is safe to say that there must have been some level of preparation that must have been done by the person before the actual commission of the crime. For example, if Y intends to kill D by poisoning, Y necessarily has to procure poison before carrying out his plan. Section 8, thus, makes any type of preparation on the part of the accused, whether to commit the crime, hide any discovery, prevent any suspicion and so on a ‘relevant’ fact in inferring guilt.
However, again, while preparation has been made a relevant fact, still, preparation alone does not infer guilt in situations where such preparations may have been innocently done or such culpable actions for which preparations were made, were not carried out. Let’s consider the previous example again. Assuming that, D dies of poisoning and Y is charged with poisoning D. Upon investigation, it is found that Y had purchased some quantity of rat poison. Then, there may be an inference that Y poisoned D. However, it is later found that Y was troubled with too many rats at his residence and had actually purchased rat poison to get rid of those rats. In such a scenario, the previous inference against Y would have to be done away with. Alternatively, suppose Y actually procures rat poison to kill D, however, after self reflection, Y is filled with regret and decides to do away with the thought of poisoning D altogether and gets rid of the poison that he had procured. Here again, the inference drawn from the procurement of poison would have to be discarded.
Is mere preparation punishable
Is merely preparing for the commission of a crime, a crime? No, while preparation may be a ‘relevant’ fact as per Section 8 IEA, 1872, preparation alone is not punishable under the Indian Penal Code (hereinafter “IPC, 1860”). However, there are certain special cases, where mere preparation to commit the crime is per se an offence and is thus punishable. These special circumstances include:
Section 399 IPC, 1860- Under this Section, mere preparation to commit dacoity is punishable with rigorous imprisonment up to 10 years and fine.
Section 122 IPC, 1860- Under this Section preparation for waging war against the Government of India is punishable with either life imprisonment or imprisonment up to 10 years and fine.
Otherwise, even if a person prepares to commit a crime, which generally is not moral, mere preparation is not legally punishable unless the person’s preparation subsequently reaches the stage of ‘attempt’ to commit the crime.
Conduct of a party under Section 8 of Indian Evidence Act, 1872
The scope of relevancy of facts also includes the conduct of a person. Now, it is important to understand when, what and whose conduct is made relevant by Section 8.
Whose conduct is relevant
The conduct of the following persons are made relevant by virtue of Section 8:
First, such conduct is in connection with such suit or proceeding
Second, it is in connection with any “fact in issue”
Third, it relates to a relevant fact
Fourth, that conduct is in itself influenced, or it influences either any ‘fact in issue’ or any ‘relevant fact’
When should that conduct take place
Section 8 specifies two timelines regarding the relevancy of conduct. ‘Whose’ conduct and ‘what’ conduct, as discussed above, is relevant when it takes place either:
Previously; or
Subsequently
While the bare text of Section 8 only specifies these two timelines, yet those conduct which take place “at the same time” as the “facts in issue” or “relevant fact” are also relevant under this Section. This interpretation may be drawn from Illustration (e) to Section 8 IEA, 1872. Let’s consider a similar illustration. If a person Y is accused of a crime, and if Y provides any evidence either favourable or unfavourable by destroying or concealing evidence, then any of the facts that take place before, at the time or after the commission of the crime would be relevant.
It is only logical to also make such conduct relevant that takes place at the same time as the commission of the crime because there has to be a proximity in the time frame. This is because according to Section 8, it is not any conduct of a person that is relevant. Any such conduct must have the capacity to either “influence” or “be influenced” by either a “fact in issue” or a “relevant fact”. If there is a close connection between the conduct of those persons with any “fact in issue” or a “relevant fact”, only then it would be relevant. It must be borne in mind that the purpose of a relevant fact is that it must aid in either proving or disproving, or at least have the probability to prove or disprove the existence of any “fact in issue”. A conduct that is too remote or has no bearing on the “fact in issue” or a “relevant fact” would be of no relevance to the prosecution’s case or the court itself in coming to a decision.
Who is a “party” for the purpose of conduct
In terms of Section 8, the conduct of “any party” is made relevant. The term “any party” here denotes the plaintiff/defendant in the case of a civil suit, and the accused in any criminal case.
Explanation 1 to Section 8 IEA, 1872
The first explanation to Section 8 clarifies what the term “conduct” does not incorporate. According to this clarification, mere “statements” would not be relevant facts to show conduct of a person. In order for such statements to be construed as conduct, it is pertinent that those statements either, one, accompany certain acts, or, two, they act as an explanation or justification of certain acts. This is simply because mere statements need not be reflective of any conduct of a person, unless that statement actually leads to something or explains some actions of the same person.
Statements can be made just for the sake of making it. It may not necessarily mean that the person making that statement is actually intending to follow that statement with some subsequent conduct, or has made that statement after some action. It is for this reason that mere statements would not be construed as conduct for the purpose of this Section.
Relevance of statement under other provisions of IEA, 1872
Now, since mere statements have no role to play under Section 8 of IEA, 1872, does that mean it is completely irrelevant? The answer is no. While mere statements without an impact on conduct would not be relevant for the purpose of Section 8 that does not mean that the statement itself may not be relevant at all under any of the Sections of the IEA, 1872. If such statements are otherwise admissible, then for the mere fact that it is not relevant under Section 8 does not mean that such statements would lose relevance under the other provisions of the evidence law. Like, if admissible, a statement could be useful under:
Section 6 IEA, 1872 – If spontaneous, unfabricated statements are made during the transaction, they may be admissible under Section 6 of the IEA, 1872. Thus, when a statement made by a witness is such that it is closely linked to other facts in issue, such statements may be used under Section 6 to show that a fact “forms part of the same transaction.”
Section 155 IEA, 1872 – To contradict a former statement. As per Section 155 of the IEA, 1872, the credit of a witness may be impeached by showing some previous statements that were inconsistent with his evidence.
Section 32(1) IEA, 1872 – When such statement amounts to a dying declaration. Illustrations (j) and (k) to Section 8 also provide the same. Thus, either oral or documentary, a statement by a person regarding the cause of his death would be admissible under Section 32 of the IEA, 1872.
Section 157 IEA, 1872 – For the purpose of corroboration of a previous statement, if the person who has made the statement appears in the capacity of a witness. Illustrations (j) and (k) to Section 8 also provide the same. Accordingly, when the witness makes a statement to either any person regarding “the time when a fact” occurred or to a competent authority with the power to investigate, such statement may be used for the purpose of corroboration.
However, it is pertinent to note that the use of these statements under the aforementioned Sections would only be useful if they are not excluded as per:
Section 162 of the Code of Criminal Procedure, 1973 – which provides for the ‘use of statement’ as evidence. This section provides that statements made in the presence of a police officer during any investigation need not be signed by the maker if those statements are reduced to a written format.
Section 25 IEA, 1872 – where statements made to a police officer should not be proved against the accused. This section provides that any confession made by the accused to a police officer would not be proved against him.
Section 26 IEA, 1872 – where an accused’s confession made in police custody would not be proved against the accused except if such confession is made in the “immediate presence” of the Magistrate.
Explanation 2 to Section 8 IEA, 1872
Explanation 2 further goes on to make certain “statements” relevant when considered in the light of the “conduct” of a person. Accordingly, if there is a person whose conduct is already considered relevant for the purpose of Section 8, then certain “statements” made to him would also be relevant. Explanation 2 offers two types of “statement” that would be relevant:
First, statements that are made “to” the person whose conduct is of relevance, and
Second, statements that are made in the “presence and hearing” of the person whose conduct is of relevance.
It is important to note, however, that these statements would only be considered relevant if it has an impact on the party whose conduct is relevant under Section 8 of the IEA, 1872. This would be better understood with the help of an illustration.
For example, Y is charged with murder and some conduct of Y is also relevant under Section 8 of the IEA, 1872. According to Explanation 2, the following “statements” which are made “to Y” and “in Y’s presence and hearing” would also be relevant.
Y shot D. During the commission of this act, a bystander S, witnessed Y while he was shooting D. In this scenario, if S starts shouting something like, “Someone call the police, Y shot D dead.” If upon hearing this, Y runs away, then this statement would be relevant, since this statement was made “in Y’s presence (whose conduct is relevant) and hearing”. Furthermore, S’s statement affected Y’s conduct.
Now, in this same scenario, Y shot D. Y’s neighbour, one S, made a phone call to Y stating that upon hearing a gunshot coming from Y’s house, S called the police to check up on Y’s house. Upon learning this, Y runs away. Here, S made a statement ‘to’ Y which affected Y’s conduct. This statement of S too would be relevant since it affected the conduct of Y (whose conduct is already relevant).
Y’s conduct was already relevant under Section 8 of the IEA, 1872. In both the above mentioned situations, the statements made “to Y” and “in Y’s presence and hearing” would also be relevant because these statements had an impact on Y’s conduct.
When is a statement relevant in determining conduct
Thus, according to Explanation 1 and 2, the following is clear
Only statement = Not relevant
Statement + some influence on conduct or relevant person = relevant
Against whom is the conduct admissible
Under this Section, the “conduct” as a relevant fact is only admissible against the accused himself. The conduct of an accused would not be used to admit the conduct of any co accused.
Conduct of accused
The conduct of the accused is extremely determinative in a criminal proceeding. If the accused actually committed the crime of which he has been charged, then how he committed the crime, why he did it, what he did before and after the commission of crime, did he destroy evidence or fled from the scene after the commission of the crime, assumes great importance. This is because based on these factors only, the court has to determine the both, first, the guilt of the accused, and second, the extent of punishment to be awarded to the accused person.
Totality principle in awarding sentence
The conduct of the accused is important not just in inferring and finding his guilt, but also in determining the appropriate punishment and sentence. The “totality principle” is considered by the courts in determining the punishment of the accused, that is, the sentence of the accused. Totality principle implies that while passing an order regarding the sentence, the court would consider all the facts in totality, like the nature and gravity of the offence, conduct and all the circumstances surrounding the commission of the offence.
In the case of Nathu Ram Bansal v. State of Haryana (1996), it was observed by the Punjab and Haryana High Court that in determining what sentence should be awarded to the accused and whether the sentences should run concurrently or consecutively, the court would have to consider the “totality of” circumstances. It is only after the court considers the facts and circumstances in toto that it would come to a conclusion as to whether the accused’s sentence would run concurrently or consecutively in instances where the accused has committed and is convicted of multiple offences.
The De Simoni principle
The De Simoni principle, propounded in the Australian case of R v. De Simoni (1981), made an important observation regarding conviction and punishment based on the conduct of the accused. The Australian High Court, in appeal, noted that while convicting the accused, the accused should not be convicted for a crime or a conduct that he has not been charged with. Consequently, his punishment should also not be for something for which the accused was not convicted.
In this case, one Mr. Simoni was charged with robbery. It was undisputed that during the course of the robbery, Mr. Simoni had inflicted a blow on the back of the head of an aged woman. A pertinent fact to be noted here is that he was charged with robbery only. However, at the time of awarding the sentence, the trial judge took the blow on the aged woman into consideration and stated that a substantial punishment should be awarded. The trial Court, thus, taking this “wounding” into consideration, sentenced Mr. Simoni for an offence more serious than the one Mr. Simoni had been charged with, which in this case was only robbery. The High Court, while overturning the sentencing on appeal, observed that the accused cannot be convicted for something that he had not been charged with.
What amounts to conduct under Section 8 of Indian Evidence Act, 1872
Complaint as conduct
Now, as we have seen under Explanations 1 and 2 to Section 8 IEA, 1872, mere “statement” is not conduct. However, what about a complaint made by the victim? Would that be considered as a mere statement, irrelevant to determine the complainant’s conduct under Section 8? The answer is “no”. This Section further increases the scope of what may be considered as conduct by including within its ambit ‘complaint’ as conduct. This can be deduced from a perusal of Illustration (j) to Section 8, IEA, 1872. In this illustration, the moot point was whether A was ravished. From an understanding of the illustration, it can be interpreted that soon after the alleged rape, the fact that the woman makes a complaint then the circumstances and the terms of the complaint are relevant. Further, if the woman, without a formal complaint, states that she had been ravished, such a fact would not be relevant for the purpose of Section 8 of the IEA, 1872.
This illustration essentially makes a distinction between ‘statement’ and ‘complaint’. Accordingly, a statement merely being a sort of verbal communication expressing only knowledge cannot be construed as “conduct.” A “complaint”, on the other hand, expressing emotion and seeking redressal signifies “conduct” and is, thus, relevant under Section 8.
Does silence amount to conduct
In the case of Hadu v. State (1950), it was observed by the Orissa High Court that ‘silence’ may also be construed as ‘conduct’ under Section 8 of the IEA, 1872. However, even in the light of such an observation, a guilt cannot necessarily be presumed just because the accused is silent. It is well established that an accused has the right to remain silent. Thus, if conduct has to be construed just from the accused’s silence, the approach of the courts must be very careful and vigilant, and an adverse inference must not be drawn unless circumstances are such wherein the accused’s silence itself would be incriminating.
Whether “signs” amount to conduct
Yes, even signs and gestures may also amount to conduct for the purpose of Section 8 of the IEA, 1872. The only condition is that those signs or gestures must either have an “influence” or they themselves should “be influenced” by a “fact in issue” or “relevant fact”. In the case of Bhagwat Putalya Pawar v. The State of Maharashtra (2020), the Bombay High Court observed that the accused’s gesture to show where the deceased’s dead body was buried amounted to “conduct” for the purpose of Section 8 of the IEA, 1872
Previous conduct
As already discussed, previous conduct is considered to be a relevant fact as per Section 8. Before the actual commission of the crime, the accused’s behaviour, be it his preparation to commit the crime, falls within the purview of this Section and has been understood to be a relevant fact.
The doctrine of “last seen together”
According to this doctrine, if the accused is in the “company of the deceased”, and is the “last” one to be seen in the “company of the deceased”, such conduct too assumes relevance under Section 8. However, for this doctrine to be operative, ‘time’ is of great essence. This is because if there is too big a time gap between the time when the accused was “last seen” in the company of the deceased prior to his death, and when the deceased was actually found dead, it may be possible that some other person met the deceased in between and committed the offence. This observation was also made by the Apex Court in S K Yusuf v. State of West Bengal (2011). Here, the Hon’ble Court observed that for the “last seen together” doctrine to have any relevance, essentially, the time gap between the time when the accused was “last seen” in the company of the deceased and the time when the deceased’s dead body is found must be so little that there is no chance or possibility of a third person to have stepped in and committed the crime except the accused.
Generally, the burden of proof is on the prosecution to make a case against the accused. However, in cases where the evidence in support of the “last seen” doctrine is strong and reliable, Section 106 of the IEA, 1872 casts a burden on the accused, that is, to show to the satisfaction of the court how and when he left the company of the deceased. As was observed by the Supreme Court in the case of State of Rajasthan v. Kashi Ram (2006), if the accused is able to satisfactorily offer an explanation to the court, the accused would be relieved of the burden cast upon him by the mandate of Section 106 of IEA, 1872. However, if the accused fails to discharge this burden, then it would weigh against the accused. Since these cases are essentially established by means of circumstantial evidence, a failure on the part of the accused to discharge the Section 106 of IEA, 1872 burden, would be a strong link in the chain of events.
Thus, in the recent case of Pappu v. State of Uttar Pradesh (2022), where a seven year old girl child was sexually assaulted, and she subsequently met her death, the accused’s failure to offer satisfactory explanation, coupled with other evidences on record like medical evidence and accused’s knowledge of the location of the dead body of the child, the Supreme Court came to the conclusion that the accused was the last person to be seen when the deceased was still alive. Therefore, the Supreme Court observed that the Trial Court and the Allahabad High Court had rightly convicted the appellant for the offence.
Subsequent conduct
Not just the previous conduct, but what the parties do subsequent to the commission of the crime, is also relevant for the purpose of Section 8. Here, the accused may, subsequent to the commission of the crime, try to destroy evidence, mislead the police, shield himself, abscond or disappear. All of these conduct, subsequent to the commission of the crime, is made relevant.
Abscondence by the accused
After the commission of the crime, a natural response of the accused may be to flee away or abscond. In the case of Durga Burman Roy v. State of Sikkim (2014), the act of absconding was defined by the Apex Court as the “secret, illegal and hurried escape” to avoid either “custody or arrest”. However, a pertinent question would be whether a mere abscondence or fleeing away on the part of a person would weigh negatively on the person’s case and infer guilt? The answer to this is negative. This is because a person may also hurriedly flee owing to fear that he may falsely be apprehended. It is not necessary that just because a person is absconding, his act speaks for itself and that the person is guilty and also that the absconding person was the one who committed the crime. Fleeing could also be for self-preservation. Thus, in the case of Sunil Kundu v. State of Jharkhand (2013), the Supreme Court stated that only because a person absconded does not mean that any negative inference be drawn.
For this reason, the Apex Court in Durga Burman Roy v. State of Sikkim (2014), where the accused after informing others that they were going home from their place of work, went to their respective homes from where they were subsequently taken into custody in a murder trial, observed that such actions does not necessarily mean that the accused persons were absconding.
Sekaran v. State of Tamil Nadu (2023)
In a very recent case of Sekaran v. State of Tamil Nadu (2023), on the question of whether abscondence amounts to guilt, the Supreme Court made a very important observation. In this case the appellant was convicted of culpable homicide not amounting to murder under Section 304 of the IPC, 1860 by the Madras High Court and the appellant was awarded with a 5 year sentence. On an appeal to the Supreme Court, the Apex Court did not find the appellant guilty. For this reason, he was acquitted. Though it was not argued, the Apex Court noted that in this case, despite there being an FIR which was lodged way prior to the accused’s apprehension, the appellant could only be apprehended three years after the alleged incident took place. In this regard, the Apex Court observed that merely because it took a good amount of time in apprehending the appellant owing to the fact that the appellant had absconded does not point to a guilty conduct. In fact, the court noted that in instances where an FIR has already been lodged, it is all the more logical for the appellant to have absconded for the ‘fear’ of being apprehended. Therefore, such abscondence does not merit a negative inference.
Case laws on Section 8 of Indian Evidence Act, 1872
Yunis Alias Karia v. State of Madhya Pradesh (2002)
Facts
In this case, there were eight accused who had attacked a boy named Zuber in broad daylight, leading to his death. In these eight accused, only six could be arrested. The six accused were convicted under Section 302 read with Section 149 of the IPC, 1860. Their conviction and sentence pronounced by the Trial Court were subsequently upheld by the Madhya Pradesh High Court. Four convicts challenged their conviction before the Supreme Court. The main argument of the appellants was that the evidence of the eye witnesses was not to be relied upon since the entire incident took place hardly under a minute and the witnesses could not possibly have observed what transpired in such a short time. Further, the appellants argued that there was a discrepancy in the testimony of the eyewitness and the medical evidence of the Autopsy Surgeon. It was also observed that the prosecution had failed to establish motive in the instant case.
Held
It was firstly observed by the Supreme Court that since the evidence of the eye witnesses were consistent with each other, there was no reason to doubt it. Further, regarding the discrepancy in the medical evidence and the testimony of the eye witnesses, the Supreme Court observed that since at least three of the injuries supported by the medical evidence was common to that of the testimony of the eye witnesses. Since these three injuries in themselves were sufficient to cause death, the discrepancy, if any, would not defeat the prosecution’s case. On the question of motive, the Supreme Court opined that in cases where there is a presence of reliable eyewitnesses, the presence or absence of motive is of no relevance. Motive is not an indispensable requirement. Since the guilt of the accused can be determined on the basis of reliable ocular evidence, it is irrelevant that the motive of the appellants could not be established.
Ranganayaki v. State by Inspector of Police (2005)
Facts
In this case, the appellant faced trial alongside a man named Selvam. The appellant was convicted under Section 302 read with Section 109 of the IPC, 1860. She was convicted on the ground of instigating Selvam to commit the murder of the deceased. It was the prosecution’s story that Selvam had invited the deceased to have some brandy. Further, the prosecution alleged that Selvam had mixed some white material which appeared to be camphor in the brandy. Selvam also offered the deceased some plantain. Upon the consumption, the deceased immediately felt giddy, fainted and subsequently found to be dead when taken to the hospital. The appellant herein was the first wife of the deceased and had left the deceased after some time. According to the prosecution story, the deceased had subsequently entered into another marriage, but the appellant came back and again stayed with the deceased and their child for some time. The evidence against the appellant was her motive to commit the crime and some recovery material based on her confessional statement. Further, the deceased and the appellant’s child, Gopi, alleged that the appellant had instigated Selvam to beat the deceased. It was also submitted that the appellant had motive to kill the deceased, since in the past also there were various incidents where the deceased was assaulted by various persons engaged by the appellant.
Held
The Supreme Court made an important observation on the question of motive. It was observed that since one cannot actually enter the mind of another person, it is generally difficult for the prosecution to establish motive in such cases. Thus, even if the prosecution is unable to ascertain and establish motive, it does not necessarily mean that there was no motive at all. Further, even if a motive suggested by the prosecution is construed as a “weak motive”, that also does not defeat the prosecution’s case. Alternatively, just because no motive can be found, that too does not help the accused. It has to be independently determined in accordance with the facts of the case. In this case, the court found that not only was there no substantive motive, there was also no evidence to show abetment to murder. For this reason, the appellant was acquitted and her conviction and sentence were set aside.
Conclusion
This Section, thus, essentially widens the scope of what may be construed as relevant fact by bringing acts such as motive, preparation, and conduct of the parties within the scope of this relevancy. It must be borne in mind however that such acts only assume increased relevance wherein the prosecution intends to establish a case against the accused based on circumstantial evidence. While these acts may also be relevant where there is an availability of direct evidence. However, its relevance in cases where there is an availability of direct evidence is for the limited purpose of providing strength to the prosecution’s case.
In cases of circumstantial evidence, it is an “important” factor because it forms a link in the chain of events, yet, it is not the “only” determinative factor. In the absence of other clear, and reliable circumstantial evidence, pointing towards the guilt of the accused, the mere factor that there is a “strong motive” would imply the accused’s conviction.
Frequently Asked Questions (FAQs)
What is meant by circumstantial evidence?
Circumstantial evidence means a proof of circumstance. An evidence of a fact or set of facts through which the existence or non-existence of the facts in issue may be inferred can be termed as circumstantial evidence. For example, if a person R is brutally murdered with a knife and a person S is charged with murdering R. If during his trial a witness F, states that he saw S running away from the scene of the crime with a knife covered in blood, this evidence by F would classify as circumstantial evidence.
What is conclusive proof where motive is of relevance?
While motive is an important link in the prosecution’s case, the Supreme Court in Sampath Kumar v. Inspector of Police, Krishnagiri (2012) has opined that motive alone, no matter how strong, cannot replace the need for “conclusive proof.” Conclusive proof, here, implies proof of guilt beyond reasonable doubt. Meaning thus, if apart from motive, there is not enough evidence to conclusively prove beyond reasonable doubt that the accused concerned was actually the one who committed the crime, the accused would not be convicted on the basis of a strong motive alone. There has to be a “conclusive proof” that points towards the guilt of the accused.
Is the conduct of the party of any relevance when the court is interpreting a document?
No, a five judge bench of the Supreme Court in the case of Ramkishore Lal v. Kamal Narayan (1962) , observed that in cases where the court is interpreting a document, and that document itself is clear and unequivocal, the conduct of the party is irrelevant.
When is the presence or absence of “motive” not indispensable?
The Supreme Court, in numerous judgments like Yunis alias Karia v. State of Madhya Pradesh (2002), has observed that “motive” though important, is not indispensable when there is a presence of a reliable eye-witness. In cases where the eye-witnesses’ account of the commission of the offence is credible, the mere fact that the prosecution was not able to establish the presence or absence of “motive” would not dilute the prosecution’s case.
In what instances can the testimony of the eye-witness be discarded?
Even the testimony of an eye witness is liable to be discarded by the court on the ground that the “conduct” of such a witness is “unnatural”. Such a view was expressed by the three judge bench of the Supreme Court in the case of Bhagchandra v. State of Madhya Pradesh (2021).
What is the weight of hearsay evidence in determining the conduct of a witness?
If any aspect or conduct of the witness could be explained by that hearsay evidence, then that too would be admissible under Section 8 of the IEA, 1872. The Supreme Court in Balram Prasad Agrawal v. State of Bihar (1996)affirmed this view.
Is absconding for a long time a determinant to infer guilt?
No, abscondence, no matter for how long, cannot be a ground to infer guilt on the part of the accused as was observed by the three judge bench of the Supreme Court in the case of Sekaran v. State of Tamil Nadu (2023).
What is the status of admissibility and relevance for the purpose of finding the accused’s guilt, when recovery of the weapon used for the commission of the offence is made on the basis of the accused’s evidence?
If any weapon used for the commission of the crime is recovered on the basis of the evidence that has been provided by the accused, such recovery would be admissible under Section 8 of the IEA, 1872. However, just because such a weapon has been recovered because of the accused’s evidence, would not mean that such a fact alone would be sufficient to find guilt. An inference and finding of guilt would depend upon other evidence on record. Yet, such a fact would be taken into account by the court when it is making a final analysis. The same view was held by the Supreme Court in the case of Hari Om v. State of Uttar Pradesh (2021).
What “conduct” is admissible under Section 8?
Only those “conduct” which portray a close connection or link with either any “fact in issue” or a “relevant fact” would be admissible in accordance with Section 8 of IEA, 1872, as observed by the Supreme Court in State (NCT of Delhi) v. Navjot Sandhu (2005).
Is spreading false accusations regarding who committed the crime, a factor to infer the guilt of the accused?
Yes, if the accused goes out of his way to spread false news regarding the fact that it was someone else who carried out the commission of the crime, then, such “conduct” further goes on to point a finger towards the guilty mind of the accused. The Supreme Court in State of Rajasthan v. Kheraj Ram (2003) observed that the accused’s attempt to divert attention from himself is a relevant fact in determining “conduct.”
Textbook on The Law of Evidence by Chief Justice M Monir (12th edition)
The Indian Evidence Act, Dr. V Nageswara Rao (3rd edition)
Textbook on the Indian Evidence Act, KD Gaur (2nd edition)
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GST in India was introduced as the 101 Amendment Act. Initially, the Central Act was enacted, followed by state GST laws by various state legislatures. GST was launched at midnight on July 1, 2017. The late Arun Jaitley was the first chairman of the Goods and Services Tax (GST) council at the time of its implementation. GST is a revolutionary indirect tax reform that aims to establish a unified national market.
The goods and services tax is a broad-based Value added tax and Destination based tax. It is technically paid by suppliers but it is borne by consumers. GST is collected at multiple stages of production and distribution of goods and services, in which taxes paid on inputs are allowed to be set off against taxes payable on output.
GST has been adopted by 175 countries around the world. In many countries, a unified GST is followed, with a single tax applicable nationwide. However, federal governments like Brazil and Canada have a dual GST system where both the federal and state governments levy GST. India has adopted a dual GST model due to its distinctive federal structure.
Under the earlier tax regime structure, certain transactions were subject to double taxation and were taxed as both goods and services without any benefit of input tax credit.
Benefits of GST
Creation of a unified national market: GST aims to make India a common market with common tax rates and procedures and remove economic barriers, thus paving the way for an integrated economy at the national level.
Mitigation of the ill effects of cascading: By subsuming most of the central and state taxes into a single tax and allowing a set-off of prior stage taxes for transactions across the entire value chain, it would mitigate the ill effects of cascading, improve competitiveness and improve the liquidity of businesses.
Elimination of multiple taxes and double taxation: GST will subsume the majority of existing indirect taxes into one tax having a dual nature, i.e., GST is leviable uniformly on goods and services, eliminating double taxation. Due to this, it will be easy to do business.
Manufacturers have also benefited from GST, as they get an Input tax credit, so manufacturing costs have been reduced. Apart from manufacturers, exporters now have many benefits, like eligible input tax credits and a zero percent GST rate for exported goods and services, subject to the condition that proceeds of income are received in convertible foreign exchange.
Input Tax Credit
Under the CGST Act, to claim input tax credit, stringent provisions are included, Section 17(5) of the CGST Act deals with blocked credit, which includes GST paid for Food and Beverages, Outdoor catering, Beauty treatments, Health Services, Cosmetic / Plastic surgery, leasing, renting or hiring of vehicles, vessels or aircraft. An exception to this list is that if the above services are procured for further business, then the taxpayer can avail input tax credit.
Section 16(2) deals with conditions for availing of ITC. A registered person shall have an invoice in his possession; details of the invoice or debit note are to be furnished. Goods or services must be received; ITC concerning supply can be availed only if such credit has not been restricted u/s 38. Tax must have been paid to the government; the GSTR 3B return is filed by recipient. The GST department is very concerned about the availing and utilisation of Input tax credits; wrong utilisation leads to interest at the rate of 18 percent
GSTIN portal
The GST site, https://www.gst.gov.in/ is the primary tool used to file GST returns: The CGST Act mandates that all registered persons file GST returns GSTR 1 (in which details regarding outward sales are to be mentioned). The due date for the same is the 11th of the subsequent month. The details entered by the supplier in GSTR 1 of the registered person are auto-populated in GSTR 2A of the receiver, and then while filing GSTR 3B, the supplier can set off the eligible input tax credit that has been auto-populated and pay the remaining GST through banking channels. The CGST Act has provided flexibility to submit returns on either a monthly or quarterly basis.
One of the drawbacks of GST is that, at present, taxpayers don’t have the option to revise the GST return. However, they can amend the details while filing GSTR 9. Also, registered persons whose turnover exceeds Rs. 2 crore and Rs. 5 crore are required to file GSTR 9 and GSTR 9C annually. Nevertheless, Taxpayers are not allowed to revise GSTR 9 & 9C.
EWAY Bill
With the implementation of GST in India, interstate movement of goods has become hassle-free, subject to the requirements of the Eway Bill, which can be generated through https://ewaybillgst.gov.in/ portal. The Eway Bill system has several benefits. It has streamlined the process of transporting goods across states, making it more efficient and cost-effective. It has also reduced the need for physical verification of goods at state borders, leading to faster movement of goods. Additionally, the Eway Bill system has helped curb tax evasion and facilitated better tax compliance.
Overall, the Eway Bill system is a key component of the GST regime in India that has made the interstate movement of goods hassle-free, transparent, and efficient.
GST destination-based tax
As mentioned earlier, since GST is a destination-based tax, the state where there is more consumption has more tax revenue compared to states which have less consumption. Tamil Nadu is the top state for manufacturing; however, Maharashtra has ranked one among all the states that earn more GST revenues due to more consumption in the state. In a nutshell, states that have more consumption power earn more GST Revenue than states that are into manufacturing. In the public interest, the government, on recommendation of the Council, has, by special order, exempted goods and services.
Composition scheme
The CGST Act has given an option for small taxpayers to opt for a composition scheme whose turnover is less than Rs. 1.5 crore; however, for the states of Manipur, Sikkim, Tripura, Uttarakhand, Mizoram, Meghalaya, Arunachal Pradesh, and Nagaland, the threshold limit is Rs. 75 lakhs.
The definition of turnover under the composition scheme includes all taxable supplies, exempt supplies, and exports of persons having the same PAN to be computed on an all India basis but excludes CGST, SGST, UTGST, IGST, Cess, and inward supplies on which tax is to be paid by the recipient of services and the value of exempt supplies provided by way of extending loans or advances. The Composition Scheme is not available for the Service sector except for Restaurants. To claim the benefit of the Composition Scheme Registered persons have to make only intra-state sales; that is, movement of goods shall happen only within the state, and relaxation is provided when procuring goods from outside the state. This scheme is also not available to those who supply through an e-commerce operator.
The composition scheme lapses once the aggregate turnover exceeds the threshold limit. Registered composition suppliers are not allowed to collect tax and are also not eligible to claim input tax credit. All registered persons having the same PAN must opt to pay under composition scheme.
Demand and recovery
CGST Act has provisions relating to Demand and recovery; in case of any discrepancies, the taxpayer has to face a huge amount of penalties. Proper officers can issue a notice in the following cases where tax has not been paid, tax has not been paid, tax has been erroneously refunded, or ITC has been wrongly availed and utilised.
The GST Department has the right to conduct a provisional assessment for determining the tax liability in case a taxable person is unable to determine the value of taxable goods and/or services or the rate of tax applicable at the time of supply.
Appeals and revisions
Any person aggrieved by any order or decision passed under the GST law or an officer directed to appeal against any decision or order under the said law may appeal within 3 months, and in the case of an appeal by a department, the time limit will be 6 months instead of 3 months from the date of communication of said decision or order.
In the CGST Act, orders passed by the Revisional Authority can be revised by subordinate officers. On examination of case records, if revisional authority is of the view that the decision or order passed under the CGST Act / SGST Act / UTGST Act by any officer subordinate to him is erroneous, in so far as it is prejudicial to the interest of the revenue and is illegal or improper or where the proper officer has not taken into account material facts.
GST and socio-economic development
The Goods and Services Tax (GST) regime in India has been a significant step towards promoting socio-economic development in the country. Here’s how:
1. Increased tax compliance
The Goods and Services Tax (GST) has simplified tax structures and reduced the number of indirect taxes, making it easier for businesses to comply with tax regulations.
This has encouraged more businesses to come into the formal economy, widening the tax base and increasing government revenue.
The GST has also made it easier for businesses to file their taxes online, reducing the compliance burden and improving the overall efficiency of the tax system.
2. Reduced cascading effect
The GST has replaced multiple indirect taxes with a single, comprehensive tax, eliminating the cascading effect.
This has reduced the cost of doing business and made goods and services more affordable for consumers.
The GST has also made it easier for businesses to claim input tax credits, which further reduces the cost of goods and services.
3. Simplified tax administration
The GST has introduced a centralised and streamlined tax administration system, making it easier for businesses to file returns and pay taxes.
The GST portal provides businesses with a single point of contact for all their tax needs, including filing returns, paying taxes, and tracking refunds.
The GST portal is also integrated with other government systems, such as the e-way bill system, which makes it easier for businesses to comply with tax regulations.
4. Improved inter-state trade
The GST has removed the barriers to inter-state trade by creating a uniform tax rate across the country.
This has facilitated seamless movement of goods and services between states, reducing logistics costs and boosting economic activity.
The GST has also made it easier for businesses to set up warehouses and distribution centres in different states, which has further improved inter-state trade.
5. Enhanced transparency
The GST has brought greater transparency and accountability to the tax system.
The online GST portal provides real-time access to tax information, enabling businesses to track their tax payments and refunds.
The GST portal also provides businesses with access to their electronic invoices and other tax-related documents, which makes it easier for them to comply with tax regulations.
6. Increased government revenue:
The GST has led to an increase in government revenue, which can be used for various socio-economic development programmes.
The additional revenue has been used to fund initiatives such as healthcare, education, infrastructure development, and poverty alleviation.
The GST has also helped reduce the fiscal deficit and improve the overall health of the economy.
7. Formalisation of the economy:
The GST has encouraged informal businesses to enter the formal economy by providing them with simplified tax procedures and reducing compliance costs.
This has led to an increase in tax revenue and has helped reduce the size of the informal economy.
The formalisation of the economy has also led to increased job creation and improved working conditions for workers.
8. Job creation:
The GST has stimulated economic growth and created new job opportunities, particularly in the logistics, transportation, and retail sectors.
The increased demand for goods and services has led to an expansion of businesses and job creation.
The GST has also made it easier for businesses to set up shop in different parts of the country, which has further boosted job creation.
9. Enhanced competitiveness:
The GST has made Indian businesses more competitive in the global market by reducing the cost of production and improving the ease of doing business.
This has attracted foreign investment and boosted exports.
The GST has also made it easier for Indian businesses to compete with foreign businesses in the domestic market.
10. Promotion of the digital economy:
The GST has encouraged the adoption of digital technologies by businesses, including e-invoicing, e-payments, and online filing of returns.
This has led to increased efficiency, reduced paperwork, and improved transparency in business transactions.
The GST has also made it easier for businesses to reach new customers online, which has boosted e-commerce in India.
Overall, the GST regime in India has played a crucial role in promoting socio-economic development by simplifying the tax system, reducing compliance costs, boosting economic activity, and improving government revenue. Its impact has been significant in both urban and rural areas, contributing to the overall growth and prosperity of the country.
Essential features of GST
The Goods and Service Tax (GST), introduced in India on July 1, 2017, is a comprehensive indirect tax levied on the supply of goods and services. It has replaced multiple indirect taxes levied by the central and state governments, such as excise duty, service tax, value-added tax (VAT), and octroi.
Here are some essential features of GST:
GST rates
GST is levied at different rates depending on the nature of the goods and services. The rates are broadly classified into four categories:
0% GST: Essential items like unprocessed food grains, milk, salt, and educational services are exempted from GST.
5% GST: Goods and services like processed food items, books, and newspapers are taxed at 5%.
12% GST: Most goods and services, including consumer durables and clothing, fall under the 12% GST bracket.
18% GST: Luxury items like cars, electronic goods, and air travel attract an 18% GST.
28% GST: Certain luxury goods, such as tobacco products and alcoholic beverages, are taxed at 28%.
The GST rates are designed to ensure that the tax burden is evenly distributed across different sectors of the economy. The lower rates are applied to essential goods and services, while the higher rates are applied to luxury goods and services. This ensures that the tax system is progressive and does not disproportionately burden the poor.
The GST rates are also subject to change from time to time. The GST Council, which is the apex decision-making body for GST, may revise the rates based on various factors, such as the economic situation, the need to promote certain sectors, or to address administrative issues.
GST return filing
Businesses registered under the Goods and Services Tax (GST) are required to file regular returns, typically on a monthly or quarterly basis. The frequency of filing returns depends on the turnover of the business. Businesses with a turnover of up to Rs. 5 crore per annum can file returns on a quarterly basis, while businesses with a turnover exceeding Rs. 5 crore must file returns on a monthly basis.
The GST returns include details of sales, purchases, and tax liabilities. Businesses are required to file their returns electronically using the GST portal. The returns must be filed by the due date specified by the government. Late filing of returns may result in penalties.
The GST return filing process can be complex and time-consuming. Businesses may need to seek professional help to ensure that their returns are filed correctly and on time.
Here are some of the key points to remember when filing GST returns:
The due date for filing GST returns is the 20th of the month following the end of the tax period.
Businesses can file their returns online using the GST portal.
The returns must be filed in the prescribed format.
Businesses must keep a record of all invoices and other documents related to their GST transactions for at least five years.
Late filing of GST returns may result in penalties.
Businesses can avail of various benefits by filing their GST returns on time. These benefits include:
Reduced compliance burden
Improved cash flow
Enhanced reputation
Eligibility for government incentives
Filing GST returns on time is a critical responsibility for businesses registered under GST. By understanding the requirements and following the procedures correctly, businesses can ensure that they comply with the law and avoid any penalties.
GST Council
The GST Council is a crucial constitutional body in India, playing a pivotal role in overseeing the implementation and functioning of the Goods and Services Tax (GST). It consists of the Union Finance Minister, State Finance Ministers of all states and union territories, and other nominated members.
The GST Council was constituted under Article 279A of the Constitution of India. Its primary objective is to ensure a smooth and effective implementation of GST across the country. The Council is responsible for making recommendations to the Central Government on various aspects of GST, including tax rates, exemptions, and procedures. It also has the authority to resolve disputes between the Centre and the States regarding GST.
The GST Council meets regularly, usually once every quarter. The meetings are chaired by the Union Finance Minister. The agenda of the meetings includes discussions on GST rates, policy changes, and any other GST-related issues. The Council takes decisions through a consensus-based process.
The GST Council has played a significant role in shaping the GST regime in India. It has made several important decisions, such as the introduction of a four-tier GST rate structure, the exemption of certain goods and services from GST, and the implementation of the e-way bill system.
Anti-profiteering measures
GST laws include anti-profiteering measures to ensure that the benefits of GST are passed on to consumers. Businesses are required to reduce prices or provide equivalent benefits to consumers if the GST rate on their goods or services is reduced.
Reverse charge mechanism (RCM)
Under the reverse charge mechanism, the recipient of goods or services is responsible for paying GST instead of the supplier. This mechanism is applicable in certain cases, such as when goods are imported or when services are provided by an unregistered supplier.
The implementation of GST has brought about significant changes in the indirect tax regime in India. It has simplified tax laws, reduced compliance burdens, and created a unified national market for goods and services.
Conclusion
According to the source, https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1992123 There has been a 12 percent year-on-year growth rate of Rs. 14.97 lakh crore collected for the period April 2023 to December 2023, whereas for the period April 2022 to December 2022, GST collected was Rs. 13.4 lakh crore. Given the key difference between GST and earlier tax regimes, the implementation of GST on Goods and services has proved to be more efficient and transparent in many ways.
Recently, policies established by the government have focused on making India a better platform for investment opportunities for global business. Out of the policies, let us discuss below the recent amendments made in the area of taxation and how those have enabled the formation and running of businesses in India.
Need for taxation
Taxes are a source of income for the government. The amount collected through various forms of taxes is invested by the government in building the strength of the nation by creating infrastructure facilities and providing amenities. Governments invest the revenue generated from taxation in a myriad of ways to build and maintain the infrastructure that is essential for the well-being and progress of the nation. This includes constructing and repairing roads, bridges, and other transportation systems; developing and maintaining educational institutions, hospitals, and other public facilities; and providing essential services such as national defence, law enforcement, and disaster relief. By investing in infrastructure, governments create a conducive environment for economic growth, improve the quality of life for citizens, and enhance the overall competitiveness of the nation.
In addition to infrastructure development, taxation revenue is also used to finance social programmes and services that aim to promote equity and address societal challenges. These programmes may include healthcare, education, unemployment benefits, and other forms of assistance for vulnerable populations. By investing in social programmes, governments strive to create a more just and inclusive society, reduce poverty and inequality, and ensure that all citizens have the opportunity to reach their full potential.
Furthermore, tax revenue is essential for funding public services such as law enforcement, national defence, and disaster relief. These services are crucial for maintaining public order, protecting the nation’s sovereignty, and responding effectively to natural disasters and emergencies. By investing in public services, governments ensure the safety and well-being of their citizens and contribute to a stable and secure society.
Effects of taxation
Business often establishes patterns of production, administration, and investment principles. However, the taxation policies and changes by the government bring disruption to this pattern, which is called the effect of taxation. Some of the effects of taxation are highlighted below.
Reduction in disposable income
Disposable income is the final income left in the hands of taxpayers for their personal use or consumption. The levy of taxes reduces a person’s disposable income, which reduces the person’s ability to consume, as a result of which changes in the consumption pattern are made, thereby affecting the ability of an individual to invest.
When a small business owner is taxed heavily, it could have a negative impact on startups, thereby affecting the nation. However, there are policies that provide certain benefits and exemptions to startups, thereby promoting their growth.
But not all startups get the benefits. For instance, a supermarket owner who opens a proprietorship concern does not get the benefits that a private startup would get. The proprietorship is bound to pay the taxes of a normal taxpayer, and this might reduce his investment and consumption patterns, which can hinder his idea of starting his own business.
Influence on production
Taxation plays a crucial role in an organisation’s decision regarding the volume of production. The level of production can be increased or decreased by increasing or decreasing the tax rates for the product.
If we take indirect taxes, we can see that there is no GST on fresh juices; however, carbonated cold drinks have a GST rate of 28% and a 12% compensation cess. Whereby it is clearly seen that the government wishes to reduce the production of carbonated cold drinks by levying a higher tax rate on them.
Similarly, under the Income Tax Act, lottery winnings and online gaming are taxed at 30%; however, other businesses are taxed at a rate starting at 22%; proprietorship businesses even have the option to not pay taxes up to a total income of Rs. 700,000.
Thus, the government increases taxes on harmful products and activities, thereby trying to curb their production or activity level to the minimum.
Improves Price stability
Taxes help the government keep a margin over the pricing of the product, and they also act as a guard against inflation.
For example – GST on Readymade garments has two rates of taxation, and the rates are fixed based upon the per unit pricing of the garment. If the product is priced below Rs. 1000 per unit, then it is taxed at 5%, and if it is priced above Rs. 1000 per unit, it is taxed at 12%.
This particular example above benefits both large scale and small scale industries, where large scale industries can reduce their cost of production by achieving economies of scale and small scale industries could achieve growth by increasing production due to reduced GST rates for lower cost goods.
A similar example can be seen for hotel rooms, where different levels of GST rates are attracted based on the pricing of the rooms. Thus, the government is increasing the scope for small scale industries and pushing large scale industries towards achieving economies of scale, which will benefit the nation as a whole.
Similarly, the government lays customs duty on imported goods, so that the pricing of the goods becomes similar or higher than locally manufactured goods.
Recently, the government has increased the duty on several finished products or goods that are being imported and reduced the duty on the raw materials of goods that are needed for manufacturing.
One such product is Electric Kitchen chimneys, where the duty on import of electric chimneys is raised from 7.5% to 15%, but the chimney’s heat coil used in the manufacture of the chimneys is reduced from 20% to 15%
The government is introducing various other schemes for improving the manufacturing or production sector in India.
Promote regionally balanced growth
A nation always has to focus on balanced growth, which means it has to make all the people equally grow. Taxes are the best way to achieve this. Taxes help collect money from the rich and distribute it to the poor.
Under the provisions of the Income Tax Act, there are special concessions and deductions for businesses started in backward areas. These concessions shall motivate a person to start a business in a backward area, thereby providing employment opportunities, infrastructure facilities to people in those areas, which shall aid as a pathway for their growth.
Similar provisions were also provided under the indirect taxes for the promotion of the industrially backward districts.
Easy compliance procedures
The recent policies have worked towards making the compliance procedures easy and try to cut down on the administrative costs involved in the business.
GST is one such case where people can relate to where the compliances have been reduced and the e-filing has enabled the business to reduce their cost and effort on being in line with the compliances compared to the paper-based procedures. The new portal for income tax filing also aims for the same, which has made the portal user friendly and has been structured in a way that reduces the time and effort of the auditors, assessors, and everyone else involved.
Both of these portals provide additional information that can be easily collaborated on by the auditors, and any missing information could be addressed before compliances are done, thereby reducing errors and the time of the proceedings.
Where GST helps us verify the purchases of the business by providing us timely reports in GSTR 2A, the income tax has come up with the Annual Information System [AIS], both of which shall enable the auditor as a checking process and verify the same with the records provided by the business owners. Not just the filing procedures, the proceedings are also dealt with in a faceless manner, thereby ensuring fair practice is followed.
The income tax portal has enabled faceless proceedings and appeals; this ensures that all the related evidence is submitted online, as a result of which no face-to-face meeting is required and there is no knowledge of who is the officer handling the case. This ensures or curbs the probability of bribery.
Recent amendments
Under Section 115 BAC of the Income Tax Act, which is commonly known as the New Tax Regime, the basic exemption limit has been increased to Rs. 300,000, and thereafter, the tax slabs increase by 5% for each increase of Rs. 300,000. The highest tax rate is 30%, which is for income above Rs. 15,00,000. Also, the rebate has been increased to Rs. 25,000 for the assessee opting for the new tax regime.
A new Section called Section 115 BAE is introduced for the benefit of co-operative societies, which stipulates a tax rate of 15% for societies engaged in the manufacturing of articles and 22% for societies engaged in non-manufacturing activities.
The deduction under Section 43B, which relates to statutory payments, can only be made when actual payments are made, despite an organisation following an accrual basis of accounting. A deduction on interest expense – can be claimed only when payments are made to companies registered under the MSME Act within 45 days of the receipt of goods or services. Also, the outstanding balances need to be disclosed separately in the financial statements.
The threshold limit for the presumptive taxation scheme has been increased to Rs. 3 crores for business and Rs. 75 lakhs for profession – if at least 95% of the total transaction has been made through non cash mode.
Benefits from recent amendments
From the above changes, we can clearly see that the policies are aligned towards promoting startups and growth of the business, like the increase of the basic exemption limit and rebate for income up to Rs. 700,000, which is a huge incentive provided for people in proprietorship businesses.
Also, the introduction of certain restrictions on expenses claimed, like deductions on interest for MSME suppliers, is only provided if payment is made within 45 days, which ensures that small and medium enterprises are getting their payments duly done. This encourages budding entrepreneurs to scale their businesses to a larger level, as they are sure of the policies and rules backing them up.
An increase in the limit under the presumptive taxation scheme is a huge benefit for businesses as there is no burden on the company to maintain a huge set of accounts, and it also reduces administrative costs like auditing fees, accountant charges, and others.
Tax laws for small and large businesses
Tax laws for small and large businesses play a crucial role in shaping their financial landscape. Understanding and adhering to these laws is essential for businesses to operate legally and efficiently. Here’s a more detailed elaboration on tax laws for small and large businesses:
Income tax
Small businesses:
Small businesses, often organised as sole proprietorships or partnerships, are subject to individual income tax rates. Their business income is reported on their personal tax return, and they pay taxes based on their combined income.
Large businesses:
Large businesses, typically corporations, are separate legal entities and are subject to corporate income tax rates. Their profits are taxed at corporate rates, and dividends paid to shareholders are subject to personal income tax when received.
Payroll taxes
Small businesses:
Small businesses with employees are responsible for withholding payroll taxes, including income taxes, Social Security (FICA), and Medicare (FICA) taxes, from their employees’ wages. These taxes are deposited to the appropriate government agencies.
Large businesses:
Large businesses have similar payroll tax obligations, but may also offer employee benefits such as retirement plans and health insurance, which have associated tax implications.
Sales and use taxes
Small businesses:
Small businesses that sell goods or services may be required to collect sales or use taxes from their customers. These taxes vary by state and municipality, and businesses must comply with local regulations for collecting, reporting, and remitting sales taxes.
Large businesses:
Large businesses with a national presence may need to navigate complex sales tax laws across multiple jurisdictions. They often have dedicated tax departments or external advisors to ensure compliance.
Property taxes
Small businesses:
Small businesses that own or lease property may be subject to property taxes. These taxes are typically assessed by local governments and are based on the value of the property.
Large businesses:
Large businesses with significant property holdings may have substantial property tax obligations. They may also benefit from tax incentives or exemptions offered by local governments to attract businesses and promote economic development.
International taxation
Small businesses:
Small businesses engaged in international trade may encounter customs duties, tariffs, and other international tax regulations. They need to be aware of tax treaties and agreements between their home country and the countries they do business with.
Large businesses:
Large businesses with global operations face complex international tax issues, including transfer pricing, foreign tax credits, and controlled foreign corporations. They often have dedicated international tax teams or advisors to manage these complexities.
Tax compliance and reporting
Small businesses:
Small businesses must maintain accurate financial records and comply with tax filing deadlines. They are typically responsible for preparing and filing their own tax returns unless they seek professional assistance.
Large businesses:
Large businesses have more complex tax compliance requirements and may be subject to additional reporting obligations, such as quarterly estimated tax payments and annual financial statement disclosures. They often work with tax professionals to ensure accuracy and minimise tax liabilities.
Tax planning and optimisation
Small businesses:
Small businesses can engage in tax planning strategies to minimise their tax burden. This may include choosing the appropriate business structure, deducting eligible expenses, and utilising tax credits and deductions.
Large businesses:
Large businesses have more sophisticated tax planning opportunities, such as structuring transactions, utilising tax-advantaged investment vehicles, and managing intercompany pricing. They may also have dedicated tax planning departments or external advisors to develop and implement tax-efficient strategies.
Conclusion
Taxes are currently seen as a burden on the person, which makes them look for illegal ways of reducing the taxes. However, current amendments or policies are made in such a way that they help a person plan their taxes by utilising the benefits provided and also ensure that India is created as a platform for budding entrepreneurs. We should understand that taxes are a form of income, which is how the government tries to ensure equality among people, and a major source for providing infrastructure that is accessible to all the people in the country.
This article is written by Avneet Kaur. It discusses various aspects of the case of Sunderbhai Ambalal v. State of Gujarat, a significant order of the Supreme Court wherein principles regarding the handling of valuable property in police custody during legal proceedings were enumerated. The article aims at discussing the landmark order in exhaustive depth. It also discusses the significance of the order in light of recent judgements.
It has been published by Rachit Garg.
Table of Contents
Introduction
When we talk about disposing of property from police custody, it implies the procedure of handling and managing property that has been seized by the police. This can have different meanings, such as returning the property to the owner, selling it, destroying it, or taking it into state custody. Suppose a person’s car is seized by the police and kept in its custody until the pendency of the trial, and when the legal proceeding is complete, what is left is a piece of junk to be returned to its owner. This results in a loss to the owner, and in order to prevent such situations, several procedural laws have been incorporated.
The case of Sunderbhai Ambalal Desai v. State of Gujarat (2002) also deals with the question of retention of different kinds of property in police custody, in respect of which an offence has been committed or which is likely to be useful during an investigation or trial. Such retention of property at police stations results in loss to the rightful owner, depreciation in its value, and also burdens the court and the police. There is also the risk of misappropriation or police tampering with the property while it is in custody, as is contended in this case. Though several provisions exist for dealing with such related issues, their implementation remains unequivocal. The main idea of the article is to give a detailed legal analysis of the different provisions dealing with property disposal and the role of courts in facilitating the same.
Details of Sunderbhai Ambalal Desai & Ors. v. State of Gujarat (2002)
Name of the case: Sunderbhai Ambalal Desai & Ors. v. State of Gujarat
Bench: Justice M.B. Shah and Justice D.M. Dharamadhikari
Facts of Sunderbhai Ambalal Desai & Ors. v. State of Gujarat (2002)
A First Information Report (FIR) was filed against some personnel of the Gujarat police by the Assistant Commissioner of Police, “D” Division, Surat, alleging that the accused were involved in the commission of offences under Sections 420, 429, 465, 468, 477-A, and 144 of the Indian Penal Code, 1860 (hereinafter mentioned as “IPC”). The First Information Report stated that the accused were involved in the misappropriation of property that was entrusted to police custody, the illegal replacement of articles, meddling with police records, and unlawfully disposing of or dealing with such property. They were accused of mishandling valuable articles such as money, gold, and vehicles and replacing them with other counterfeit articles. The Trial Court granted remand to the accused. The High Court of Gujarat later rejected the applications in response to the order of the Trial Court.
Thereon, two Special Leave Petitions were filed by the accused police personnel before the Supreme Court.
Issues raised in Sunderbhai Ambalal Desai & Ors. v. State of Gujarat (2002)
Whether there is proper implementation of rules regarding the handling of property in police custody as given under Section 451 and 457 of the Code of Criminal Procedure, 1973 (hereinafter mentioned as “CrPC”)
Whether valuable property and articles should be detained in police custody beyond necessity.
Whether the custody of seized articles should be with the police or the person entitled to their possession.
Arguments of the parties in Sunderbhai Ambalal Desai v. State of Gujarat (2002)
Petitioners
The counsel on behalf of the petitioners argued that the names of the police officers were not mentioned in the FIR, and there was also no evidence of any preceding antecedents registered against them except for the present case.
It was argued that the application for remand of the petitioners was unjustified when they were granted anticipatory bail because it would defeat the objective of granting anticipatory bail and would also veto the guarantee of personal liberty.
The petitioners put forward that there was no conclusive evidence regarding the misappropriation of property and commission of other offences as mentioned in the FIR and that any damage caused to the property while in police custody was because of a lack of orders and directions to be given by the concerned Magistrate in dealing with such property.
The counsel also contended that releasing property and vehicles in police custody to owners would unfold a risk of extensive litigation before the Court, thereby increasing its burden.
Respondent
The counsel on behalf of the respondent submitted that the property and articles kept in police stations are not in compliance with the provisions mentioned in such regard under the CrPC. This exposes the state exchequer and the citizens whose articles are kept in custody to possible risk or loss.
The respondents submitted that the object of keeping articles in police stations is to ensure their safe custody; however, the non-adherence to provisions and long durations of trials allow the police officers to misappropriate the property. When property is kept in police custody, there is entrustment of that property, which is to be kept safe and not misappropriated for its own use in order to facilitate the return of the articles.
It was also contended that there is non-compliance with the provisions of the Gujarat Police Act, 1951, for the disposal and safekeeping of property in police custody and maintaining police records for the same.
The respondents contended that police stations are overburdened with custody of property and articles, which may lead to tampering with police records, and the property also starts depreciating over time. To prevent such circumstances, it must be ensured that provisions in this regard, such as Section 451 of the CrPC, are duly implemented.
The respondents argued that valuable property and articles should be released to the rightful owner after they have already been produced before the Court in the concerned investigation or trial.
The counsel also referred to Sections 451 and 457 of the CrPC, 1973, dealing with the question of custody and disposal of property and the procedure to be followed by police with regard to seized property, respectively. These provisions give wide powers to pass appropriate orders. The counsel contended that, despite these powers, proper orders are not passed by the court.
Legal provisions involved in Sunderbhai Ambalal Desai v. State of Gujarat (2002)
The key legal aspects in this case revolve around the handling of property in police custody, which can be highlighted through the following provisions:
Section 451 CrPC
It is a significant provision that deals with the power of the police and the court to seize and retain property if there is reason to believe the property can be used as evidence or is necessary for production before the court in a legal proceeding. This section places wide discretion on the part of the concerned Magistrate to pass any order as it may deem fit for the proper custody of any property produced during a legal proceeding before a criminal court. The governing principle is that seized property should not be kept for any time longer than it is needed for a legal proceeding. This section empowers the Court to grant interim custody of the property to the rightful owner, whereas under Section 452, the order for disposal of property can be made only upon the conclusion of the investigation or trial. For the purpose of Section 452, it is necessary that there be an inquiry or trial before the Court and it should also be completed. If the offence has been compounded before the legal proceedings have commenced, Section 452 will not be attracted.
Section 451 also empowers the Magistrate to order the property to be sold or disposed of after recording evidence if the property is of a perishable nature. This has also been discussed under Section 459, which deals with the power of the Magistrate to sell perishable property valued less than Rs 500.
Section 457 CrPC
This section enumerates the procedure to be followed when seized property is not produced before the Magistrate during legal proceedings. In such a case, the property may be disposed of or delivered to the person entitled to its possession. The Court may order the property to be returned to the rightful owner or the person claiming its possession, on such conditions as it may deem fit. However, if the person entitled to possession is unknown, then the Magistrate may issue a proclamation specifying the property, thereby enabling the person entitled to establish his claim before the court within six months.
Section 458 CrPC
The section deals with two situations: first, when a person fails to file a claim for the seized property within six months, and second, when the person having possession of the property fails to show that the property had been legally acquired by him. In such a situation, the Court may order the property to be at the disposal of the concerned state government. The court may also order the property to be sold by the government, and the proceeds from such a sale shall be dealt by the government as may be prescribed.
Order in Sunderbhai Ambalal Desai v. State of Gujarat (2002)
The Court held that a speedier procedure needs to be evolved for the disposal of articles kept at police stations; in this regard, Section 451 should be exercised and implemented expeditiously. The Supreme Court held that this would result in achieving the objective of the provisions mentioned under the CrPC. The Court held that through proper implementation of Section 451 of the CrPC 1973, the burden upon the police stations and courts can be reduced. The Supreme Court, in the present case, laid down the following procedure to be followed by the police officials for custody of different kinds of property, such as valuable articles, money, vehicles, narcotics, etc., separately, which was discussed below.
Valuable articles and currency notes
The Court accepted the contention of the respondents that keeping valuable property and articles such as gold and silver ornaments and money for years until the trial is over serves no use. The Magistrate should pass an appropriate order in respect of such property after recording evidence. The Court also set forth that a proper panchnama prepared before handing over possession of property can be used as a substitute for the production of property in the court as evidence.
The Court also held that if articles belong to the person at whose house robbery, dacoity, or theft has been committed, then the property should be handed over after making a proper panchanama, taking photographs, and making a bond or security deposit to guarantee that the property should be produced before the Court when required during trial. The Court laid down the following guidelines for preparing a panchnama:
The panchnama for the return of property should be prepared by the police officers with the same precautions as the panchnama for the seizure of property.
In addition, photographs should be taken of the concerned articles. The claimant shall also pay a bond and security deposit to ensure that the articles are not altered, damaged, or destroyed.
The photographs of the articles should be countersigned by the prosecution, the accused, and the claimant of the property.
In respect of a vehicle, the production of a seizure report is sufficient before the Court, and there is no need to produce the vehicle.
The Court can impose any other condition it deems fit in the interest of justice.
The Court held that there may arise a situation when the property is not handed over to the claimant as well as the complainant. In such a case, the court may direct the property to be kept in a bank locker. Similarly, when articles are in police custody, the station house officer can keep the articles in a bank locker after preparing a panchnama.
The court held that all seized property should be produced before the Magistrate within a week. The Magistrate may also entrust the investigating officer with the seized property for the purpose of investigation. However, the property shall not be kept for any longer than is needed for the purpose of investigation.
Vehicles
A number of seized vehicles are present at police stations for long periods of time, which leads to their decay and converts them into junk. The Court also held that seized vehicles should not be kept at a police station for a long period of time. It shall be returned after taking a bond and security deposit. However, if the claimant is unknown, then it can be auctioned by the court. If the vehicle is insured, then the insurance company shall be informed to take possession. If the company also fails to take possession, then the Court may order it to be disposed of by an order within six months of the production of the vehicle before the Court. However, before handing over possession of the vehicle, a proper panchnama should be prepared by the police with appropriate photographs.
Narcotics and intoxicants
With regard to articles such as liquor and narcotic drugs, the court held that such articles should not be kept at police stations for a long time, but rather prompt action should be taken to dispose of them. A sample for identification should be taken and sent to the chemical analyzer to be used as evidence in court and to prevent the possibility of contention that the article that was seized was not the same. Larger quantities of such articles should not be kept at police stations. A proper panchnama should be prepared before disposing of such articles.
The Court also held that if the property while in police custody is lost, damaged, or destroyed and there exists no prima facie evidence as to whether the state and its officers took due care and caution to protect it and ensure its safekeeping, then the Magistrate may order the payment of the value of the property. The court set forth that the Magistrate concerned with the supervision of the Registry of the High Court should oversee the implementation of Section 451 of the CrPC 1973 and ensure that seized articles are not kept for more than fifteen days to one month at the police station. The matter was adjourned by the court for three weeks.
Rationale behind the judgement in Sunderbhai Ambalal Desai v. State of Gujarat (2002)
The rationale behind the Supreme Court’s order in the case of Sunderbhai Ambalal Desai v. State of Gujarat was based on the decision given in the case of Smt. Basaw Kom Dyanmangouda Patil v. State of Mysore and Anr. (1977), wherein it was held by the Karnataka High Court that the objective of different provisions of the Code of Criminal Procedure, 1973 seems to revolve around the notion that, when a property is seized by the police in relation to an offence, it should not be retained by the Court or police for any time longer than is necessary for the legal proceedings. The Supreme Court referred to the observation of the Karnataka High Court and stated that retaining the property with the state until the trial is over not only defeats the use of such an article and causes loss to its owner but also places an additional responsibility on the state to ensure its safety and protection. The Court further observed that, since the act of property seizure by the police implies entrustment to the state or its officers, the ultimate intention is for the property to be returned to its owner or person entitled to its possession once the need to retain it does not exist. In order to ensure this, all seized property is required to be produced before the court. The Supreme Court further observed that, during the proceeding of any criminal case, the police have to act under the directions and orders of the Magistrate at every stage of investigation and trial. Therefore, it is apparent that the Court exercises comprehensive control over the actions of the police officers. Accordingly, it becomes the duty of the Court to take cognizance of such situations and pass appropriate orders to dispose of or deliver the property according to the law without any unnecessary delay.
Critical analysis of Sunderbhai Ambalal v. State of Gujarat (2002)
The order of the Supreme Court in this case reiterates the flawed mechanism of the Indian legal system, reflected through well-devised but rarely implemented statutory provisions. The order did not lead to the creation of any new principle or rule; rather, it focused on the execution of already existing principles with regard to property seized by the police. Sections 451 and 457 of the CrPC specifically deal with such situations. However, despite the existence of wide powers and discretion that are conferred upon the judges and the Court, such powers are not duly exercised and proper orders are not passed in regard to the return, disposal, or delivery of property seized by the police. Apart from that, there exists the Gujarat Police Act, 1951, which also specifically deals with such situations and places responsibility upon the police officers to maintain proper records. However, all these provisions lack proper implementation and execution. The court in this case focused on passing appropriate orders and directions. However, in view of the current situation of an excessive judicial backlog, this would only add to the burden on the courts.
Recent pronouncement of the Gujarat High Court
Recently, in 2022, the Gujarat High Court, in the famous case of Rameshbhai Dhulabhai Katara v. State of Gujarat (2022), made a reference to the decision of the Supreme Court in the case of Sunderbhai Ambalal Desai v. State of Gujarat 2002. In the Rameshbhai Katara case, certain police personnel learned that a vehicle carrying large quantities of liquor was passing nearby. When confronted, the police officers found that the truck driver was carrying liquor without any permit or permission. Therefore, the vehicle and the liquor were seized in police custody. The Gujarat High Court relied on the order of the Supreme Court in the Sunderbhai case with regard to custody of seized vehicles and held that within six months of the production of the vehicle before the court, appropriate orders should be made to dispose of it or return it to the owner. Hence, the High Court ordered the vehicle to be released on the following conditions:
The petitioner should pay a surety of an amount equivalent to that of the vehicle as listed in the panchnama.
An undertaking should be filed before the Trial Court stating that before the alienation or transfer of the concerned vehicle, permission from the concerned court will be obtained.
Another undertaking should be filed stating that the vehicle will be produced as and when directed by the court.
If any offence is committed by the petitioner subsequently, the vehicle will be confiscated.
Conclusion
The case highlighted the plight of persons whose property had been seized for years of legal proceedings and the inaction on the part of courts and police officers to reinstate such persons with possession of their property. However, the law enables the courts to pass orders to deal with the disposal of seized property.
In this particular case, the Court played a crucial role in reaffirming the notion that under no circumstances does the seizure of property by the police confer upon them the right to misappropriate it or retain it any longer than is absolutely necessary. Therefore, the order was primarily focused on the prevention of loss to citizens, reducing the burden on police stations by streamlining the safekeeping of property and ensuring proper implementation of statutory provisions in this regard. By emphasising the importance of protecting the rights of individuals and handling seized property responsibly, the court’s decision aimed to bring about a fair and just resolution. It serves as a reminder that the ultimate goal should be to safeguard the interests of the citizens and maintain the integrity of the legal system.
Frequently Asked Questions (FAQs)
What is the meaning of property for the purpose of Section 451 of the CrPC?
The term ‘property’ here signifies four different kinds of properties mentioned below:
Property used in the commission of an offence
Property on which an offence has been committed
Property which has been produced before the court
Property which is in police or court custody
Therefore, the term “property” under Section 451 of the CrPC refers to those moveable as well as immovable articles and items in connection to which an offence has been committed or is to be used as evidence in a legal proceeding.
What is a panchnama?
The panchnama is a legal document consisting of a record of observation, evidence, findings, or property found in relation to an offence. It is a crucial piece of evidence in a legal proceeding and helps establish the facts of the case. The purpose is to ensure transparency and accuracy in the investigation process.
What is the remedy if property is lost or damaged while in police custody?
In such a case, if it is found that no prima facie evidence exists to show that proper care and caution had been undertaken by the police officers, the court can order the making of a payment of the value of property to the affected individual.
What is the process for getting back seized property from police or court custody?
Property is generally held under police custody until it is needed for production in court during a legal proceeding. After the evidence has been recorded and the property is no longer needed, the police officers or the court declare it to be available for return. The owner can file a claim for the property, and the court may pass an appropriate order as it deems fit.
What is the time period in which a person can make a claim for recovery of seized property?
Section 457 of the CrPC mentions that, when the claimant of property is unknown, a proclamation may be issued regarding the property, enabling the person entitled to such property to make a claim before the Court within six months of the proclamation.
Which provision in the CrPC deals with the disposal of property?
Section 451-459 of the CrPC deals with various aspects of disposing, handling, returning or selling the seized property by an order of the court.
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