This article has been written by Akanksha Singh. This article is an exhaustive piece of work on the detailed study and analysis of the provisions of obscenity under Section 67 of the Information Technology Act, 2000. The article provides a comprehensive learning experience for the readers as it includes a thorough explanation of the concept of obscenity, along with relevant case laws under Section 67 of the Information Technology Act, 2000.
Table of Contents
Introduction
The development of the idea of obscenity in India has been shaped by shifting legal interpretations, cultural sensitivities, and community standards. Early on following its independence, colonial-era legislation, such as the Indian Penal Code (IPC), 1860, which, at that point in time, had ambiguous and subjective definitions pertaining to obscenity, dominated India’s legal system. Often, these provisions of law were used to stifle artistic expression and originality. However, the interpretation of obscenity laws has changed over time to become more progressive. With the coming of the Information Technology Act, 2000, the legal understanding with respect to what is to be considered obscene in the digital space was established. With the internet allowing information to flow freely and technology developing quickly, rules protecting people from online risks are essential in this day and age. Section 67 of the Information Technology (I.T.) Act, 2000 is one such provision. In order to control and handle matters pertaining to the dissemination or publication of pornographic or sexually explicit content on the internet, this section is essential. The I.T. Act’s Section 67 deals with the issues raised by the accessibility online distribution of sexually explicit material. The law seeks to preserve the moral foundation of society and the welfare of its citizens by punishing those who engage in such actions. Moreover, the implementation of Section 67 serves to strengthen the concept of responsible digital citizenship. It serves as a reminder to people and organizations that use the internet to share or publish material with caution and judgment and to make sure that it conforms with community standards and legal requirements. This promotes an environment of decency and respect in cyberspace in addition to aiding in the prevention of the dissemination of obscene content. Although Section 67 of the I.T. Act is an essential instrument in the fight against online obscenity, it is not without its difficulties and restrictions. This article entails a detailed explanation of the concept of obscenity and a detailed analysis of various relevant case laws.
Section 67 of Information Technology Act, 2000 : an overview
Under the I.T. Act, Section 67 exclusively deals with the concept of ‘Obscenity’ in the digital space. It gives the punishment for the publication of any obscene material. Before the meaning of the Section is explained, it is important to have a look at what section 67 of the I.T. Act reads as. It says-
“Punishment for publishing or transmitting obscene material in electronic form.–Whoever publishes or transmits or causes to be published or transmitted in the electronic form, any material which is lascivious or appeals to the prurient interest or if its effect is such as to tend to deprave and corrupt persons who are likely, having regard to all relevant circumstances, to read, see or hear the matter contained or embodied in it, shall be punished on first conviction with imprisonment of either description for a term which may extend to three years and with fine which may extend to five lakh rupees and in the event of second or subsequent conviction with imprisonment of either description for a term which may extend to five years and also with fine which may extend to ten lakh rupees”.
To understand the meaning of Section 67 of the Information Technology, 2000 as given above, it is important to understand certain significant terms used in Section 67. In the case of State of Gujarat v. Bachmiya Musamiya (1992), the High Court of Gujarat mentioned that since the act itself does not provide the meaning for the following terms used in Section 67, it shall be understood in the ordinary meaning of the term as following:
The term ‘lascivious’ means something that creates lust in the mind of a person.
The term ‘appeals to’ refers to something that excites the interest of a person.
The term ‘prurient interest’ means an interest in which one is drawn by lustful thoughts. The term ‘tend to deprave and corrupt’ means to bring a person towards becoming immoral.
Here, the term ‘person’ only includes natural persons, that is, children, men, and women, and does not include any artificial or juridical person.
Further, the term ‘published’ in Section 67 of the I.T. Act refers to the distribution and broadcast of any information formally through its issuing and selling for the purpose of consumption by the general public.
The term ‘transmission’ means communication of such information through any medium or signal.
The phrase ‘caused to be public’ means even an indirect way of publication would come under the ambit of Section 67 of the I.T. Act, that is, to say, a publication by any third-party internet service provider or any server of a website.
Moving forward, let us understand what constitutes the essentials of section 67 of the I.T. Act.
Essentials of Section 67 of Information Technology Act, 2000
Section 67 reads as anyone who disseminates, transmits, or orders the publication of any pornographic or lascivious material in an electronic format, or if its effect is such that it tends to deprave and corrupt the mind of individuals who are likely, given all the relevant circumstances, to read, see, or hear the content contained therein, shall be punished on an imprisonment term of a maximum of three years for the first conviction or with a fine of a maximum of five lakh rupees and in case of a second conviction or subsequent conviction, the offender shall be punished with imprisonment of a term of maximum five years along with a fine of maximum ten lakh rupees. Thus, it says that a punishment of a term of a maximum of three years, along with a fine of a maximum of five lakh rupees is to be given in case when the conviction of the offender is for the first time under section 67 of the I.T. Act. From the bare reading of the provision above, the following are the essentials of Section 67 of the I.T. Act, 2000.
There must be a publication or transmission of material in electronic form.
The material so published shall be such that it is:
Lascivious, or
Appeals to the prurient interest, or
Its effect is such as to tend to deprave and corrupt persons who are likely, to read, see, or hear the matter contained or embodied in it.
In the case of Ranjit D. Udeshi v. State of Maharashtra (1964), the Supreme Court of India provided the meaning of obscene and said: “If any book, pamphlet, paper, writing, drawing, painting, representation, figure, or any other object is lascivious or appeals to the prurient interest or, if taken as a whole, is such as to tend to deprave or corrupt person, who are likely to read, see, or hear the matter contained or embodied in it, then such object shall be deemed to be obscene”.
Scope of Section 67 of the I.T. Act
The scope of Section 67 of the I.T. Act can be well understood with the help of the landmark case of Maqbool Fida Hussain v. Raj Kumar Pandey (2007). In this case, although, the charges against the famous painter Maqbool Fida Hussain, popularly known as M.F. Hussain were put under provisions of the Indian Penal Code, 1860 (hereinafter called the I.P.C.), that is, under Section 292 and Section 294 of the I.P.C, the High Court of Delhi clarified that in case there is a provision available under the I.T. Act and the subject-matter of dispute is in electronic form, provisions of I.T. Act shall prevail over the provisions under I.P.C. The Delhi High Court further mentioned that once a person is acquitted under provisions of the I.T. Act, a similar proceeding against such person cannot be initiated. Thus, provisions under the I.T. Act have an overriding effect on the other legislations containing similar or the same provisions related to obscenity.
Punishment for publishing or transmitting obscene material in electronic form
Under the I.T. Act, Section 67 provides punishment for publishing or transmitting obscene material in electronic form. Section 67, provides that anyone who publishes or transmits any obscene material in electronic form shall be punished with a different gravity of punishment based on the offence. For a first conviction, it is a maximum of three years of imprisonment along with a maximum fine of five lakh rupees and for a second or subsequent conviction, it is a maximum of five lakh rupees along with a maximum fine of ten lakh rupees.
Evolution of law on obscenity
The beginning of the law on obscenity can be traced back to the 4th century when the Roman Catholic Church was making active steps to ban any heretical work. For this purpose, during the 4th century, the church established a separate specific body, named the “Sacred Congregation of the Roman Inquisition”, for the banning of any work that is heretical and immoral in nature. In 18th century England, the Protestant Church also restricted the use of any heretical and immoral books in any form as long as they were in relation to any religion or state acts. It did not significantly suppress any modern work containing obscene material. Through the invention of the printing press, the sale and distribution of obscene material became very easy and feasible. Due to this, by the 17th century, there was a widespread distribution of sexually explicit content in the form of prints and books in Europe. To counter this problem, the church and the government collectively responded by arresting the publishers and distributors of such obscene material. As per the records of England, an English bookseller named ‘Edmund Curll’ was one of the publishers who was arrested and fined for the publication of a new edition of “Venus in the Cloister”, which was a mildly pornographic work. With these events becoming more frequent, the common law system recognised the importance of having a separate, detailed law on obscenity.
The first case on the matter of obscenity in England was “R v. Hicklin (1868)” wherein the question as to the morality was raised. The Court of England said that the question is whether the matter in discussion tends to deprave and corrupt those whose minds are open to immoral influences and into whose hands the publication may fall. Subsequently, in the year 1959, the Obsene Publications Act, 1857 was revised. It was further expanded in the year 1977. It included pornographic films under its ambit through the 1977 Amendment. In India, the history of laws on obscenity can be traced back to the British era. Before the coming of I.P.C., 1860 and Section 292 under it, there was a provision on the same that had received assent from them in the year 1856. This provision was brought in colonial India to direct the society in a morally correct direction. In the year, 1868, the Court of the Queen came up with the ‘Test of Hicklin’. Hicklin’s Test permitted the assessment of obscenity in publications based on single sections that were evaluated based on their apparent impact on the most vulnerable readers, including youngsters or sensitive adults.
The word ‘Obscenity’ has been defined by the Black’s Law Dictionary as “Character or quality of being obscene, conduct, tending to corrupt the public merely by its indecency or lewdness”. One of the best examples to understand the concept of ‘Obscenity’ under Indian jurisprudence is the case of ‘Maqbool Fida Hussain v. Raj Kumar Pandey (2007)’. In this case, several petitions were filed against a painting made by the famous painter Maqbool Fida Hussain. The painting depicted the graphical representation of India in an abstract form, wherein a woman was portrayed in the nude with hair flowing in the form of the Himalayas. This painting was named “Bharat Mata” which was advertised in an online auction for charity for earthquake victims in Kashmir by a non-profit organisation.
Justice Sanjay Kishan Kaul gave the judgement in favour of M.F. Hussain by stating that the painting was not obscene. He beautifully encapsulated the essence of his judgement with the following statements.
He said “India has embraced different eras and civilizations which have given her a colour of mystery and transformed into her glorious past adapting various cultures and art forms. In the Mughal period too one may see murals and miniatures depicting mating couples. That has been the beauty of our land”.
He further said that up until lately, there has never been a conflict between art and authority. In actuality, kings and the upper class used to support the arts and artists. It is regrettable that a lot of artists nowadays who have experimented with nudity have had their works scrutinised and had to deal with criticism, which has undoubtedly caused the artists to reconsider showing their work. Thus, examining a work of art from the standpoint of the painter assumes great significance, particularly when it comes to nudity. In order to ensure that the work is not sensational for the sake of sensationalism, it is necessary to comprehend it before raising any concerns. While mentioning the issue of balance of rights, he made a remark and said “The courts have been grappling with the problem of balancing the individuals’ right to speech and expression and the frontiers of exercising that right. The aim has been to arrive at a decision that would protect the ‘quality of life’ without making ‘closed mind’ a principal feature of an open society or an unwilling recipient of information the arbiter to veto or restrict freedom of speech and expression”.
Obscenity Tests
With the passage of time, Courts came up with various tests to determine what is to be considered obscene at a given point in time. Let us look at each of these tests below:
Community-Standard Test
The Apex Court developed a ‘Community-Standard Test’ to determine what would constitute obscene at a given point in time in society. The Community Standard Test says that what is obscene and what is not obscene shall be judged on the basis of the current standards of the society in terms of its perception regarding obscenity as per an ordinary prudent man. The Court further went on to examine the law on obscenity under different jurisprudence. The Courts acknowledged “Obscenity” as an exception to the absolute freedoms provided by the American Constitution in the case of Chaplinsky v. New Hampshire (1942).
Roth Test
The American Courts specifically addressed the question of “Obscenity” as a restriction on the right to free speech and expression in the case of Roth v. United States (1984), which also gave the ‘Roth Test’. In the case of Aveek Sarkar v. State of West Bengal (2014), the Supreme Court referenced the three-pointer ‘Roth Test’ as a more appropriate standard. The court mentioned the following:
The first point is current community standards;
The second is that the content must be blatantly objectionable; and
The third is that it has no redeeming social value.
Hicklin Test
Further, the Supreme Court declined to uphold the common law standard that had developed in the case of R v. Hicklin (1868) and stated that “The Hicklin test, judging obscenity by the effect of isolated passages upon the most susceptible persons, might well encompass material legitimately treating with sex, and so it must be rejected as unconstitutionally restrictive of the freedoms of speech and press. On the other hand, the substituted standard provides safeguards adequate to withstand the charge of constitutional infirmity”.
The judgement further goes on to trace the evolution of the concept of “Obscenity” under Indian laws. It says that a general provision on the law of obscenity can be seen under Section 292 of the I.P.C. However, it is Section 67 of the I.T. Act that comes as a primary provision dealing with any obscene material on the Internet. The Delhi High Court said that although the word “Obscene” is not restricted to the pictures or writings intended to arouse sexual desire, it also does not mean that the mere existence of elements of sex and nudity in literature and artistic creations by default makes it “Obscene”.
In order to decide, whether a piece of work is obscene, the entire work is to be taken into consideration as a whole. The court highlights this balance of freedom of speech and expression and the law of obscenity by stating “Where art and obscenity are mixed, art must so preponderate as to throw the obscenity out into the shadow or the obscenity so trivial and insignificant that it can have no effect and may be overlooked”. Under the Indian jurisprudence, the courts have well-established the fact that mere nudity does not make a content obscene.
In the case of Bobby Art International & Ors. v. Om Pal Singh Hoon & Ors. (1996), multiple scenes showing the lead character of the film based on the real-life of ‘Phoolan Devi’ were alleged to be obscene. In this case, the Delhi High Court’s ruling to restrict the showing of the film “Bandit Queen” was overturned by the Supreme Court of India, which ruled that a film cannot be banned simply for depicting explicit and vulgar content. The movie’s producers petitioned the Court to have the picture’s designation as “Adult only” reinstated. The film was based on a true tale of a lady who was raped and mistreated before exacting retribution on her perpetrators. The Court ruled that the producer’s right to freedom of speech could not be curtailed just because the scenes included profanity and nudity since they were necessary to tell the significant story of the film. The Supreme Court emphasised this point by stating that-
“Nakedness does not always arouse the baser instinct. The reference by the Tribunal to the film ‘Schindler’s List’ was apt. There is a scene in it of rows of naked men and women, shown frontally, being led into the gas chambers of a Nazi concentration camp. Not only are they about to die but they have been stripped in their last moments of the basic dignity of human beings. Tears are a likely reaction; pity, horror and a fellow feeling of shame are certain, except in the pervert who might be aroused. We do not censor to protect the pervert or to assuage the susceptibilities of the over-sensitive. ‘Bandit Queen’ tells a powerful human story and to that story the scene of Phoolan Devi’s enforced naked parade is central. It helps to explain why Phoolan Devi became what she did: rage and vendetta against the society that had heaped indignities upon her”.
In India, the landmark case of Ranjit D. Udeshi v. State of Maharashtra (1965) established the standard for a more sophisticated approach. The Supreme Court of India decided that standards of society should be used to determine what constitutes obscenity. Today, the scope of laws based on restrictions on obscene content has been expanded to the digital space. Subsequent rulings further improved this approach by stressing the significance of purpose and context in defining obscenity. The case of Samaresh Bose v. Amal Mitra (1986)made it further clearer that obscenity must be assessed in the context of modern societal norms rather than Victorian morality. To counteract the degrading representation of women, the Indian Parliament passed the Indecent Representation of Women (Prohibition) Act, 1987. Growing concerns about the objectification of women in the media and in advertising led to the passage of this Act. The development of social media and the internet in recent years has made it exceedingly harder to draw limits around what constitutes obscenity. The Information Technology Act of 2000 (hereinafter called the I.T. Act) together with its amendments, aimed to control information on the internet, including obscenity and pornographic content.
Provisions related to obscenity in IPC and their relation with Section 67 of Information Technology Act, 2000
The I.P.C., 1860 is a comprehensive code of criminal law followed in India from the British Era. The code covers a variety of offences, including offences and punishments for any offence committed online. The I.T. Act and the I.P.C., 1860 contain many Sections that overlap with each other. This part of the article provides a detailed intersection between the provisions related to cybersecurity provided in the criminal code, that is, the I.P.C., 1860, and the Information Technology Act, 2000. They are discussed below in great detail.
Obscenity
Section 67, 67A and 67B of Information Technology Act, 2000
The provisions provided under Section 67, 67A and 67B of the I.T. Act are similar in nature to the provisions given under Section 292, Section 293 and 294 of the I.P.C. Section 292 of the I.P.C. talks about the sale or distribution of obscene material in electronic form. It categorically mentions that any book, pamphlet, drawing, writing, representation, painting, figure or any other object, shall be deemed to be obscene if it is lewd or attracts lustful attention, or if its impact, or (in cases where it consists of multiple distinct items) the impact of any one of its items, is, when considered collectively, such that it tends to corrupt and deprave individuals who are likely, considering all pertinent circumstances, to read, see, or hear the matter contained or embodied in it. The proviso of this Section is the same as that of Section 67B of the I.T. Act.
Additionally, it includes any ancient monument within the meaning of the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958), or any temple, or on any car used for the conveyance of idols, or kept or used for any religious purpose”. Section 67 provides punishment for the transmission or publication of any obscene material in any electronic form. Section 67A deals with the punishment for transmission or publication of any material containing sexually explicit acts in any electronic form. It says any person convicted under this Section if for the first time, shall be punished with imprisonment of either description for a term that may extend to five years and with a fine that may extend to ten lakh rupees, and if for the second time or any subsequent time, shall be punished with imprisonment of either description for a term that may extend to seven years and also with a fine that may extend to ten lakh rupees.
Similarly, Section 67B deals with the punishment for transmission or publication of any material depicting sexually explicit acts involving children in any electronic form. Section 67B of the I.T. Act reads as whoever; publishes, transmits, or orders the publication or transmission of any electronic content that shows minors acting in a sexually explicit manner; or produces text or digital pictures, gathers, looks for, peruses, downloads, promotes, markets, trades, or disseminates content in any electronic format that shows minors in a pornographic, indecent, or sexually explicit way; or encourages, entices, or coerces children to engage in sexually explicit online relationships with one or more other children in a way that might offend a reasonable adult using the computer resource; or facilitates the online abuse of children; or records, in any electronic form, any abuse that oneself or others have committed in relation to sexually explicit online acts with children; shall be punished with an imprisonment term of a maximum of three years for the first conviction or with a fine of a maximum of five lakh rupees and in case of a second conviction or subsequent conviction, the offender shall be punished with imprisonment of a term of maximum five years along with a fine of maximum ten lakh rupees. For the purpose of this Section, a person who has not completed the age of 18 years is considered a ‘Children’.
However, there is a proviso to Section 67B. The proviso exempts certain acts from the ambit of Section 67B. It says that Section 67B is not applicable to any paper, writing, book, pamphlet, drawing, representation, painting, or figure in any electronic form, that is published for the justifiable reasons of public good, that is, such transmission or publication is in the interest of literature, art, science, learning, or other objects of general concern. It also exempts any such transmission or publication of any paper, writings, books etc, if it is transmitted or published for any bona fide religious purpose or for usage in any heritage site.
Section 293 of the I.P.C.
Section 293 of the I.P.C. punishes the sale or distribution of obscene objects to young persons below the age of 20 years. It says the sale or distribution of obscene objects to young persons below the age of 20 years shall be punished in the event of a second or subsequent conviction, the punishment is “imprisonment of either description for a term which may extend to seven years, and also with a fine which may extend to five thousand rupees, along with a term which may extend to three years, and with fine which may extend to two thousand rupees.” Moreover, Section 294 of the I.P.C. talks about ‘Eve Teasing’. It says that upon first conviction, imprisonment of either description for a term that may extend to three years and a fine that may extend to two thousand rupees; upon second or subsequent conviction, imprisonment of either description for a term that may extend to seven years and fine that may extend to five thousand rupees.
Anyone who, to the annoyance of others, engages in any pornographic activity in a public setting or sings, recites, or utters any pornographic lyrics, ballads, or other expressions in or near a public setting faces up to three months in either type of jail, a fine, or both shall be punished with either type of imprisonment for a term that may extend to three months, or with fines, or with both”.
Additionally, the provisions related to obscenity and the provisions of invasion of one’s privacy under the I.T. Act go hand-in-hand. Section 66E of the I.T. Act provides punishment for invasion of privacy. It says that anyone who intentionally or knowingly takes a picture of someone else’s private area and publishes it or transmits it without that person’s consent, in a way that violates that person’s right to privacy, faces up to three years in prison, a fine of up to Rs. two lahks, or both.
A similar provision is provided under Section 509 of the I.P.C which is also applied together with chargers under section 67 and section 66E of the I.T. Act. Section 509 of the I.P.C says that anyone who injures a woman’s modesty by speaking, acting, or displaying an object with the intention that the woman hears or sees it, or by invading her privacy, faces a sentence of simple imprisonment, which may last up to a year, a fine, or both.”The difference between Section 66E of the I.T. Act and Section 509 of the I.P.C. is that the former is applicable to both genders, while the latter includes only women as possible victims under the provisions of this Section.
Thus, as it can be safely inferred that there are multiple overlapping or similar provisions under the cybercrimes concerning obscenity, there have also been multiple instances wherein there has been a conflict and confusion as to which law, whether provisions under I.T. Act or I.P.C. is to be applied, in certain cases involving elements of Cybercrime and Obscenity.
In the case of Sharat Babu Digumarti v. Government of NCT of Delhi (2015),a sexually explicit video was listed for sale on a platform run by the accused. The obscene videos were intentionally listed under the category of ‘Book and Magazines’ to escape detection by the platform on which it were uploaded. The charges were laid against the accused, who was the managing director of the platform on which it was published. There were charges under both Section 67 of the I.T. Act and Section 292 of the I.P.C. However, later, both the charges were withdrawn and the question before the Court was whether to apply provisions of the I.T. Act or I.P.C. in the present situation. The Court made it clear that in cases where the content of obscenity is in electronic form, the provisions of the I.T. Act would alone be applied. The Court further held that this is so because the very intent of the legislation was to apply the provisions of the I.T. Act where there is any involvement of electronic form. The Court also mentioned that as a settled principle of interpretation of laws, it is well-known that a special provision of law prevails over the general one, Here, the I.T. Act is a special law on the Cyberlaw and hence, the matter would exclusively come under the ambit of I.T. Act.
Provisions of obscenity under Bharatiya Nyaya Sanhita
‘Bharatiya Nyaya Sanhita’ or B.N.S. is a criminal code of the Indian Republic. It is meant to replace the I.P.C., 1860. B.N.S. has retained multiple provisions of the I.P.C. However, it has also added new provisions to the criminal code. Among diverse other changes, such as the addition of organised crimes, a significant change has been brought with regard to the law on ‘Obscenity’.
Section 294 of B.N.S.
Under Section 294 of the B.N.S., along with the conventional physical sale and distribution of materials such as books, drawings, pamphlets, and figures that are obscene, the distribution and sale of such materials in electronic form has also been penalised.
Section 294 of the B.N.S. says selling or distributing books, pamphlets, papers, writings, drawings, paintings, representations, figures, or any other object, including the display of any content in electronic form, is considered obscene if it is lewd or appeals to prurient interests. If its effect, or the effect of any one of its items, is, when taken as a whole, such that it tends to deprave and corrupt persons who are likely, considering all relevant circumstances, to read, see, or hear the matter contained or embodied in it. Earlier, the same provision was provided under Section 292 of the I.P.C.
Additionally, the punishment provided under Section 292 of the I.P.C. has been increased. Under Section 292 of the I.P.C, the offender was to be punished for an imprisonment term of a maximum of two years and with a fine of a maximum of two thousand rupees in case of the first conviction, while in the case of a second conviction, the offender is to be punished for an imprisonment term of a maximum of five years and with a fine of a maximum of five thousand rupees. Section 292 of the I.P.C. says “An offence under this Section, shall be punished on first conviction with imprisonment of either description for a term which may extend to two years, and with fine which may extend to two thousand rupees, and, in the event of a second or subsequent conviction, with imprisonment of either description for a term which may extend to five years, and also with a fine which may extend to five thousand rupees.”
On the other hand, Section 294 of the B.N.S. provides for an increased punishment for a term of a maximum of two years and a fine of a maximum of five thousand rupees on account of the first conviction, and on account of the second conviction, the offender is to be punished with a term of maximum five years and also with a fine of maximum ten thousand rupees.
Criticism of Section 67 of Information Technology Act, 2000
As with any legislative provision, Section 67 has been the subject of debate and criticism. One of the prime criticisms that have been seen with the provisions under Section 67 of the I.T. Act is that of the use of words such as “lascivious” and “prurient interests”. The usage of such a word, without any specific definition provided under the I.T. Act is criticised due to it being open to interpretation. In such a case, there is a high chance of potential abuse and misuse of the provisions under this Section.
There have been cases where Section 67 of the I.T. Act was invoked in an arbitrary manner. Under such circumstances, it violated the person’s freedom of speech and expression. For instance, in a very recent case named ‘Apoorva Arora v. State (NCT of Delhi) (2024)’, popularly known as the ‘College Romance Web Series Case’, the Supreme Court quashed the orders of investigation and prosecution against the makers of the web series ‘College Romance’ (TVF Media Labs Private Ltd.) for production, transmission and online publication of obscene and sexually explicit material under Section 67 and Section 67A of the I.T. Act.
This judgment reversed the order passed by the High Court of Delhi which was against the makers of the aforementioned web series. In this case, the alleged obscene material contained vulgar language. The Supreme Court said that the question was wrongly framed by the High Court of Delhi, and thus, the answer arrived at is also wrong. The concepts of profanity and vulgarity cannot be equated with the concept of ‘obscenity’ without analysing the link between the two with regard to the facts and circumstances of the case at hand. The Court said that it is important to see how vulgarity in language by itself could be lascivious, sexually explicit, prurient, or of a corrupting nature.
The Court further said that even if the phrases may have a sexual connotation in their literal sense and may allude to sexual actions, their use does not generate lust or other sensual impulses in any viewer of common sense and discretion. Instead, the sentiments of anger, frustration, sadness, enthusiasm, and rage are more often expressed while using these terms. It is evident that the usage of these phrases has no sexual meaning and is unrelated to sex when we consider them in the context of the web series’s subject and narrative, which is a lighthearted look at young students’ college life. This case is one of the many examples of how provisions of Section 67 of the I.T. Act have been invoked arbitrarily and unnecessarily.
Another criticism of the provisions under Section 67 of the I.T. Act is that the provisions of this Section have been found to be used to target a particular community, especially, any marginalised community. Additionally, even obscene or sexually explicit conversations held in private between two or more consenting adults are criminalized under Sections 67 and 67A of the I.T. Act. Private or obscene behaviour is not illegal under the law of the obscenity-related offence under Section 292 of the I.P.C. However, if the same is found to be done through electronic means is considered offensive, even if it is communicated privately through electronic means.
There have been attempts to target individuals expressing legitimate artistic works and thus, the provisions under this Section have the possibility to be used as a weapon against the reasonable expression of one’s freedom of speech and expression as seen in several cases concerning artistic freedom. When the Supreme Court considered censorship in the case of S. Rangarajan v. P. Jagjivan Ram (1989), it ruled that an intolerable group of individuals could not prohibit speech. Only the goals specified in Article 19(2) of the Consitution of India may legitimately restrict a basic right under Article 19(1)(a) of the Constitution of India, and the restriction must have a valid justification.
It came up with a ‘Test of Ordinary Man’ and observed that “The standard to be applied by the Board or courts for judging the film should be that of an ordinary man of common sense and prudence and not that of an out of the ordinary or hypersensitive man. We, however, wish to add a word more. The censors Board should exercise considerable circumspection on movies affecting the morality or decency of our people and cultural heritage of the country”. The Court further said that it is unacceptable to enable social progress or cultural integration to come at the expense of moral principles in particular. The honour of producing a galaxy of great thinkers and sages has befallen our nation. Through their lives and deeds, the great philosophers and sages left us with guidelines for adhering to morality. Efforts to relearn and reiterate those values have been ongoing. In addition, the Indian culture has made a singular gift to global mankind in the form of the notion of “Dharam” which means righteousness in every way. These are the cornerstones of our society and ought not to be subject to compromise due to immoral practices. However, it does not mean that the Court is indicating towards orthodox or conservative outlook, rather the Court is indicative towards a society that is rapidly responsive to change.
Important case laws on Section 67 of Information Technology Act, 2000
Avnish Bajaj v. State (N.C.T.) of Delhi (2008)
Avnish Bajaj vs State (N.C.T.) of Delhi (2008) is a landmark case with regard to Section 67 of the I.T. Act, 2000.
Facts of the case
In this case, a student from IIT Kharagpur, named Ravi Raj, published an obscene MMS video clip named “DPS Girls having Fun”, on the platform named “Baazee.com” with the username “Alice-elec”. The website, baazee.com, had a filter to separate any objectionable obscene material. However, the upload was made in such a way that it escaped the filtering process. Within two days of the item being listed online, it was deleted. The Delhi Police Crime Branch filed a formal complaint after becoming aware of the situation. Following an inquiry, a charge sheet was submitted, implicating Sharat Digumarti, the person in charge of managing such information, and Avnish Bajaj, CEO of the website baazee.com, together with Ravi Raj. Avnish Bajaj submitted a plea to have the criminal charges against Ravi Raj dropped since he fled. Among other things, he said that because the website is a customer-to-customer platform that makes it easier to sell real estate online, the MMS was transmitted directly between the buyer and seller without the involvement of the website. The website makes money via advertisements on the internet in addition to receiving a commission from these web pages. However, Avnish Bajaj was arrested under Section 67 of the I.T. Act, 2000. He further filed a bail application before the trial court. The trial Court rejected the bail. Thus, he further approached the High Court of Delhi for bail.
Issues raised
The following issues were put forth before the High Court of Delhi, in this case:
Whether there is a prima facie case made out against ‘Avnish Bajaj’ (petitioner) under Section 67 of the I.T. Act?
The arguments put forth by the petitioner said that, as per Section 67 of the I.T. Act, the publication of obscene material is substantial to the commission of an offence under Section 67. The petitioner argued that it does not relate to the transmission of such material. The petitioner further argued that the MMS video clip was transferred directly to the buyer from the seller, without any intervention from the website. The only responsibility that the website can take is the listing of the content on its website, which is not obscene in itself, and thus it does not constitute any offence under Section 67 of the I.T. Act. Furthermore, the petitioner submitted that the website took all due diligence on its part to immediately remove the obscene video clip after it came to the knowledge of the website stakeholders that it was objectionable content. They further mentioned that the website removed the content within 38 hours after it came to their knowledge that the sale of such content was of unlawful character. It took a total of 38 hours because the intervening period was a weekend. The petitioner further contended that the charges laid down in the case suggest that the director has no direct role in the present case. The listing and placement of any content from any category on the website was an automatic process.
Additionally, the petitioner pleaded that, as per the principles of criminal liability, in the absence of a specific case being made out against a person in his individual capacity, the criminal liability of a crime cannot be laid upon him. The petitioner further referred to the case of Ranjit D. Udeshi v. State of Maharashtra (1964). It quotes two paragraphs of the judgment as follows to point out the element of knowledge in establishing the offence under Section 292 of the I.P.C. Paragraph 10 of the judgment says that Unlike several other sub-sections of Section 292, which begin with the words “Whoever knowingly or negligently, etc.”, the first sub-section of Section 292 does not include knowledge of obscenity as a requirement for the crime. It is not necessary for the prosecution to establish anything that the law does not require. If the law required the prosecution to establish knowledge as a component of the criminal act (actus reus), it would provide offenders with an almost unbeatable defence. As a result, something far less than true knowledge has to do. The argument is that because there are so many books in circulation today and their contents are so diverse, determining whether or not mens rea exists requires conclusive information about the presence of obscenity.
Arguments of the Respondent (State)
The counsel for the state argued that the offence under Section 292 of the I.P.C. does not include only “overt acts but illegal omissions within the meaning of Section 32,Section 35, and Section 36 of the I.P.C.” and hence, clearly, there is a case made out against the petitioner. Furthermore, the respondent argued that the offence under Section 67 of the I.T. Act, read with Section 85 of the I.T. Act, is prima facie made out against the petitioner, Avnish Bajaj, because the aforementioned provisions of the I.T. Act recognise the deemed criminal liability of the directors of a company even if the company is not arraigned as an accused. They further stated that the absence of adequate filters on a website that is fully automated has serious implications, and based on such grounds, the petitioner can not escape liability. The respondent also argued that it was evident from the bank statement of the company that the website earned profit from the sale of questionable and objectionable content on the website. Additionally, they also mentioned that since it is the petitioner who is responsible for the policy and planning of the website, the role of the petitioner is direct, and he cannot escape liability.
Judgment of the case
The High Court of Delhi did not agree with the aforementioned arguments put forth by the petitioner. The Court observed that there is a prima facie offence made out under Sections 292(2)(a) and 292(2)(d) of the I.P.C. against the website, baazee.com. Further, the Court said that “not having appropriate filters that could have detected the words in the listing or the pornographic content of what was being offered for sale, the website ran a risk of having imputed to it the knowledge that such an object was in fact obscene”. The Court said that it cannot be said that baazee.com, in this case, did not even prima facie “cause” the publication of the obscene material. The ultimate transmission of the video clip might be through the seller to the buyer but in a fully automated system, that limb of the transaction cannot take place unless all the previous steps of registration with the website and making payment take place. It is a continuous chain. When five to six links of the chain are under the direct control of the website and it is only on completion of each step that the final two steps which result in the actual publication of the obscene material ensue, it cannot be said that the website did not even prima facie cause the publication of the obscene material.
However, the Court further said that there has been no recognizance of the provisions of automatic criminal liability attaching to a director, in the present case, Avnish Bajaj, where the company is accused. The Court further discharged the director, Avnish Bajaj under Sections 292 and Section 294 of I.P.C. The Court further held that when taken as a whole, the charge sheet establishes a prima facie case for the crimes under Sections 67 of the I.T. Act, 292(2)(d), and 292(1)(a) of the I.P.C. Nevertheless, there is no adequate justification to support an offence under Section 294 IPC. The Court held that the petitioner is discharged from charges under Section 292 and Section 294 of the I.P.C. but is not discharged from the charges under Section 67, read with Section 85 of the I.T. Act, and a prima facie case is made out against the petitioner under Section 67 of the I.T. Act, as the criminal liability of a director of a company can be recognised as a deemed criminal liability even if the company of which he is the director is not arraigned as an accused.
Sharat Babu Digumatri v. Government of NCT of Delhi (2015)
In the present case, the petitioner, Sharat Babu Digumatri, was working as a senior manager in the ‘Trust and Safety’ department of the BIPL, which is a wholly-owned subsidiary of eBay, while the DPS MMS video clip was uploaded on Bazee.com, which is a part of the eBay domain itself. Therefore, this case stems from the case of ‘Avnish Bajaj v. State of NCT (Delhi) (2005). The petitioner in the present case was the officer responsible for maintaining the safety standards of the portal on which the objectional video clip was put up for sale. It was the duty of the petitioner to take action against any suspected lists of items as and when it is reported by any user. The work of the petitioner involved blocking any user who uploads any objectionable content and taking down such objectionable content from the website. The petitioner was alleged to have been actively involved in an offence under Section 292 of the I.P.C.
Issues raised
In this case, it was clearly mentioned that the facts of the case come from the case of ‘Avnish Bajaj v. State of NCT (Delhi) (2005)’. The present case involved the issue regarding the following:
Whether there is any ground for framing of charges under Section 292 of the I.P.C. against the petitioner (Sharat Babu Digumarti)?
The following part provides a detailed explanation while answering this question.
Arguments from Petitioner
The petitioner put forth an argument stating that the petitioner was charge-sheeted purely on the fact that he is the manager of the trust and safety of the website/company, and has no other active involvement in the case. They also argued that there is no provision under the I.P.C. imposing deemed criminal liability upon any person solely because of his holding a particular designation that is relevant to the case at hand. They further contended that a mere failure to immediately remove the objectionable video clip from the website after flagging an alert by the community watch system does not attract any criminal liability.
Arguments from Respondent
The senior manager for trust and safety, Sharat Digumarti, was in charge of the compliance of the prohibited keyword list, the subject, and the listing of no obscene items for sale on the website. It was the responsibility of Sharat Digumarti to make sure that no prohibited or unlawful goods were exchanged on the website. He did not, however, take the necessary steps to guarantee that the list of prohibited and questionable phrases was updated. Even though the website is operational around the clock, he has not assigned someone from his team to check the listings and reply to system alarms. As a result, when the Community Watch programme raised an alarm, the item was able to be listed for 38 hours. Investigations revealed that the filters, which the defendants said were employed to screen offensive content, were severely insufficient. Without being placed under arrest, Sharat Digumarti was charged with recognisance. It is a well-established fact that the petitioner has sold or communicated an explicit or pornographic MMS clip, generating a lascivious influence on people.
Judgment of the case
The Court gave a judgment upholding the decision of the trial Court and said that there is no illegality or any material irregularity in the order given by the trial Court in which it has proceeded against the petitioner by framing a charge under Section 292 of the I.P.C. While explaining its point for such a decision, the Court referred to the case of ‘State of Bihar v. Ramesh Singh (1977)’, the Court said that “Strong suspicion against the accused, if it remains in the region of suspicion, cannot take the place of proof of his guilt at the conclusion of a trial. But at the initial stage, if there is a strong suspicion that leads the Court to think that there is a ground for presuming that the accused has committed an offence, then it is not open to the Court to say that there is no sufficient ground for proceeding against the accused”. The Court further mentioned that it serves solely as a preliminary determination of whether the Court should move on with the trial or not. If the prosecution’s evidence fail to establish the guilt of the accused, even if it is accepted beyond reasonable doubt prior to being questioned in cross-examination or refuted by any defence evidence, then there will not be enough justification to move forward with the trial.
Thus, the Court said that there were sufficient grounds to believe that there could be such probable consequences of not having a filter that works accurately, and thus a case against the petitioner stands valid under the provisions of law. The Court further said that based on the facts and circumstances of the case, the petitioner can be said to be reasonably connected to the offence alleged. The Court stressed the fact that there is a possible reasonable probability of the accused being found guilty of the alleged offence and that there is sufficient material evidence to proceed against the petitioner under Section 292 of the I.P.C. Thus, the Court disposed of the pending application by dismissing the revision petition and upholding the decision of the trial court.
Niyaz Ahmad Khan v. State of Uttar Pradesh and Another (2022)
Facts of the case
A First Information Report (FIR) was registered against the applicant (Niyaz Ahmad Khan) and two others. This FIR was filed under Section 67 of the I.T. Act.
Issues raised
In this case, the issue was to determine whether the applicant had been wrongly implicated in the case.
Arguments
The applicant argued that there was no proper investigation and that the charge sheet had been submitted against the applicant without any proper inquiry or investigation. They further said that the investigating officer is unable to trace the details of the person who made the objectionable photo viral on the internet due to the non-availability of a URL of the account of the unknown person, and thus the applicant contended that he is being falsely or wrongly implicated in this case, and prayed for the quashing of the charge sheet and a summons order.
Judgment of the case
The High Court of Allahabad said that after considering the facts and circumstances as stated by the FIR, that is, the allegations and material facts are sufficient to frame a case against the applicant, and hence, there is a case made out against the applicant in the present case. The Court elaborately explained the ingredients of Section 67 of the I.T. Act, in order to clarify its point and said the following:
When examining the components of Section 67 of the Information Technology Act of 2000, it is necessary to first note that any content is published or transmitted in an electronic format.
In addition, the content must be lewd or appealing to a sensual appetite.
Secondly, the transmission and dissemination of such content must have the effect of corrupting and depraving those who are likely to read, see, or hear it.
Taking into account the definitions of “publication” and “transmission,” it must be proven that the individual accused of the crime really published or communicated the relevant content.
Written content and visual content, such as images, cartoons, and/or drawings, will all be included in the material.
The characteristics of lasciviousness material, ought to be considered instead of the decency criteria, nevertheless.
In terms of obscenity, this type of electronic publication of content will encompass not just the internet but also its distribution and storage on floppy discs and CDs.
Who is the publisher on the internet is a complicated and important question. Regarding publication through print media, this is readily apparent on the index page, where the publisher’s and editor’s names and addresses must be provided in compliance with legal requirements.
The Court further mentioned the restrictions imposed on the freedom of speech and expression in order to answer the issue of whether the provisions of Section 67 of the I.T. Act violate the fundamental right to freedom of speech and expression. The Court referred to the case of ‘Life Insurance Corporation of India v. Manubhai D. Shah (1992)’ and said that there are certain limitations on the freedom of speech and expression; it is not unrestricted. Reasonable constraints apply to this freedom, and nothing that is deemed vulgar, disrespectful, or defamatory may be considered to be under its purview. This issue is resolved enough that there is no need to consult the Indian Constitution or case law. The notion that every person has the right to safeguard his reputation, which is considered property, is as well-established as the protection of freedom of speech and expression. No one may, then, utilise their right to free speech and expression in a way that harms the reputation of another.
Regarding the freedom to get information or the freedom to express opinions in newspapers, magazines, and other publications, journals, or through electronic media, what has been held is that this freedom must, however, be exercised with circumspection, and care must be taken not to trench on the rights of other citizens or to jeopardise public interest. The Court held that it did not find any reasons to vitiate the registered FIR against the applicant. The Court further said whether there is any offence committed within the meaning of such provisions as mentioned under the FIR depends upon the specific facts and circumstances of the case. The Court further said that whether the alleged offences are proved beyond any reasonable doubt is again dependent on the evidence provided by the parties, and thus, it is open for the trial Court to decide the matter independently while considering the essential ingredients of Section 67 of the I.T. 2000. Thus, the Court heard and dismissed the application filed by the petitioner and allowed the trial Court to proceed further.
Conclusion
One of the most important provisions of the I.T. Act, 2000, is to regulate and limit the spread of obscene and sexually explicit content on digital platforms in India. For the purpose of controlling online material and safeguarding the integrity of digital spaces, Section 67 of the I.T. Act is essential. It is an essential instrument for preserving social values in the digital era and keeping the online conduct of a person in check. The provision seeks to uphold decency and stop the spread of objectionable content that might undermine the value of society by prohibiting the publishing, transmission, or instigation of the publication of any information that is lascivious or appeals to the prurient desires of a person. In addition to this, Section 67 of the I.T. Act acts as an effective deterrent for online abuse, revenge pornography, and the distribution of obscene content that exploits minors. It guarantees a safer online environment for all users and gives law enforcement bodies the authority to take action against offenders.
However, the provisions under Section 67 and Section 67A of the I.T. Act contain a serious flaw in that it deems the publication of obscene material privately and publication on an open-ended platform as equivalent. The main weakness of the existing provision becomes apparent when one considers the punishments that would be meted out for both publishing and transmission of obscene material. However, many researchers believe that such transmission should be treated with the same regard as private interaction or conversation behind closed doors. This calls for clearer provisions for any form of content to be classified as ‘obscene’.
Frequently Asked Questions (FAQs)
What is CSAM?
CSAM stands for ‘Child Sexually Abusive Material’. It refers to obscene materials containing sexual images or videos of a child who is sexually abused or exploited.
Which Section of the I.T. Act prevents CSAM?
Section 67B of the I.T. Act provides for punishment for publication in any electronic form of any material consisting of children depicted in a sexually explicit manner. It prescribes punishment with imprisonment of either description for a term that may extend to five years and with a fine that may extend to Rs. 10 Lakhs if it is the first conviction, and imprisonment of either description for a term that may extend up to seven years and also with a fine that may extend up to Rs. 10 lakhs.
Is Section 67 of the I.T. Act bailable or not?
Section 67 of the I.T. Act is a non-bailable offence. It means the accused may not be released on bond at the time of their arrest.
What is the difference between Section 67 and Section 67A of the I.T. Act, 2000?
Publication or transmission of pornographic materials via electronic means was punishable under Section 67. On the other hand, Section 67A outlined penalties for posting or sending electronic content that included sexually explicit activities, etc.
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This article is written by Shweta Singh. The article attempts to provide exhaustive information regarding the Annual General Meeting. The article highlights key aspects such as the importance of the annual general meeting holds in today’s corporate world, the legal requirements pertaining to conducting the meeting as outlined in the Indian Company Law, and the procedural aspects related to it.
It has been published by Rachit Garg.
Table of Contents
Introduction
In the corporate world, every crucial decision regarding the course of a business, ranging from obtaining a loan from the bank or approving financial reports is decided and approved during the meetings of the company. For such purposes, a company conducts several types of meetings like Board Meetings, Class Meetings, Annual General Meetings, Extraordinary General Meetings, etc., with each meeting having a different purpose and agenda. Amongst these meetings, the Annual General Meeting holds the utmost importance as it provides a stage for every shareholder of the company, the Board of Directors, and other stakeholders to participate and discuss important matters. Typically, the meeting addresses a wide range of key topics fundamental to the company’s operations and performance, including the presentation and discussion of financial reports, strategic plans for the future, appointments of company officials (directors, key managerial personnel, managers, etc.), and any other pertinent business matters. It also enables the member to vote on important matters and analyse the overall governance and strategic direction of the company. Thus, the annual general meeting is crucial in corporate affairs as it facilitates transparency and accountability together with engaging shareholders to participate in the organisational functions. Due to its importance in the business world, certain guidelines have been provided under the Indian laws to ensure that the meeting is conducted in accordance with the rules and guidelines provided under those laws. The Companies Act of 2013, (hereinafter referred to as “Act of 2013”) regulates the conducting of the annual general meeting by the company. It mandates every company to conduct a meeting every year in compliance with the statutory requirements provided under the Act of 2013.
This article elaborates on the various provisions contained in the Act of 2013 that deals with the conducting of Annual General Meeting and the procedures that are required to be followed for conducting a valid meeting.
What is an Annual General Meeting (AGM)
It has been mandated by the Act of 2013 that every company operating its business in India is required to conduct at least one meeting comprising of all the shareholders every year and such meeting shall be known as the Annual General Meeting (hereinafter referred to as “a meeting” or “general meeting”). The meeting is the assembly of all the shareholders of the company, the Board of Directors, and other stakeholders to discuss important matters regarding the company’s future operations. It provides a forum for the company to communicate crucial information, so that the stakeholders can participate actively in the decision-making process. Under the Act of 2013, specific provisions from Section 96 to Section 112 govern the conduct and proceedings of the meeting. It outlines the requirements and obligations imposed on companies to convene and manage the meeting in accordance with legal standards and regulations. The provision regarding the meeting is contained under Section 96 of the Act of 2013.
Importance of holding an Annual General Meeting (AGM)
It is important for every company to conduct the meeting every year as it assists in safeguarding the interest of the shareholders of the company. Through participation in the meeting, the shareholders of the company get the opportunity to participate and discuss important matters affecting their interest in the company. The conducting of the meeting is important in order to ensure the interest and welfare of the shareholders of the company, providing them with the platform to come together and assess the performance of the company. Such participation by the members is exercised by way of scrutinising and electing directors, appraisal of retiring auditors, and deciding on their re-appointment. Moreover, the meeting also provides the shareholders with a platform for deciding upon crucial matters of the company like declaration of dividends. In the meeting, the directors of the company are required to present the annual accounts, which are subjected to the scrutiny of the shareholders who are empowered to make any inquiries concerning the company’s finances and operations. The meeting typically follows the agenda outlined in the company’s articles, covering routine matters known as ordinary business, while also allowing for the discussion of special business, and addressing any additional issues pertinent to the company’s interests and operations.
Time frame for conducting an Annual General Meeting (AGM)
The comprehensive analysis of Section 96 (1) and the proviso provided under this Section, entails that there are 3 fundamental conditions regarding the conducting of the general meeting by the company.
Firstly, it is mandatory for the company to conduct the general meeting every year, ensuring a recurrent forum for shareholder engagement and oversight.
Secondly, it is further provided that there should not be a gap of more than 15 months between successive meetings, ensuring regularity and continuity in shareholder interactions.
Thirdly, the meeting shall be held within a period of six months from the date of the closing of the financial year. In the case of a newly incorporated company, the meeting is required to be held within a period of nine months from the closing of the financial year. However, if the meeting is held by the newly incorporated company as provided above, in such case it is not required to hold the meeting in the year of its incorporation. This provision grants flexibility to newly established companies, allowing them adequate time to stabilize their operations before fulfilling the statutory requirement for holding a meeting.
For instance, if the company is incorporated on 1st January 2015, then as provided in Section 2 (41), the first financial year shall conclude on 31st March 2016. Hence, as per the requirement provided above for the newly incorporated company, the meeting must be convened on or before 31st December 2016 and such a meeting shall be considered as a collective meeting for both the years 2015 and 2016. However, if the company gets incorporated on the date 31st of December 2014, its financial year shall close on 31st of March, 2015, and thus the company shall have to convene the meeting on or before 31st of December 2015. Such a meeting pertains solely to the year 2015, marking the commencement of the company’s compliance with the statutory obligation to hold annual general meetings.
Exemptions
According to the provisions contained in Section 96(1), every company is required to conduct a meeting every year, except for the one-person company as defined under Section 2(62) of the Act of 2013. It is not mandatory for the one-person company to hold the general meeting. The manner in which the company can pass a resolution regarding ordinary and special business (Section 114) as discussed or decided by in the meeting is provided under Section 122 of the Act of 2013.
Extension of time
The third proviso to Section 96(1) of the Act of 2013 vests the Registrar with the authority to extend the time for conducting the meeting. It permits the company to request an extension of time from the registrar for holding the meeting. If allowed by the Registrar, the company is exempted from holding the meeting at the stipulated time frame as provided above. However, there are certain restrictions to such extension of time by the Registrar. The Registrar can grant an extension for holding the meeting, but it cannot exceed 3 months from the specified timeframe.
Such an authority of the Registrar is discretionary in nature. It is to be noted that such an extension is not applicable in the case of the company holding its first meeting after incorporation.
Time and place of an Annual General Meeting (AGM)
The time and place where the meeting will be held is of utmost importance in order to provide the members with the convenience of attending the meeting. The Act of 2013 provides a guideline to decide upon the time and place of the meeting of the companies. Section 96(2) stipulates that the meeting must be conducted during business hours, i.e., 9:00 am to 6:00 pm. This section further mandates that the meeting should take place at a location with which the company has registered itself. The meeting can take place at another location as well, but such a location has to be in the same city, locality, district, or village where the registered office is located.
There are certain exceptions to this rule in case a company is an unlisted company. The proviso to Subsection 2 of Section 96 allows the unlisted company to hold its meeting at any other place as it deems necessary, however, it can only be done if the prior written or electronic consent has been obtained from all the members. This exception allows the unlisted company the flexibility to convene meetings at venues beyond their registered office or its vicinity, as long as all members agree in advance. It is further provided under the second proviso to the above-mentioned Section that the Central Government has the authority to exempt any company from fulfilling the requirement prescribed under this Section subject to such conditions as considered necessary. The exception to this requirement is also applicable in the case of Section 8 Companies. The Section 8 companies can held its meeting at any time, date, and place provided it has been decided beforehand by the Board of Directors and is in accordance with any directions given by the company in its general meeting.
Calling of an Annual General Meeting (AGM) by the tribunal
When the company fails to conduct the general meeting for a particular year as mandated by the provision of Section 96, the National Company Law Tribunal (NCLT) has the authority to call the meeting, even if any of the provisions of the Act of 2013 or the Articles of the company state otherwise. The provisions regarding calling the meeting by the Tribunal are provided under Section 97 of the Act of 2013. According to the provisions of this Section, when the company defaults in conducting the meeting, any member of the company can approach and ask the Tribunal to schedule a meeting. Upon receiving the request, the Tribunal after analysing the request shall call and direct the conducting of the meeting along with some additional and necessary directions. Such a direction may also include a rule regarding constituting the quorum with only one member, who is present in the meeting either physically or by proxy. In the case of Priyanka Overseas Pvt. Ltd. And Ors. vs. Pasupati Fabrics Ltd (2007) it was observed by the Company Law Board (Board) that active involvement of shareholders in the general meetings is one of the essential statutory rights that shareholders have. Consequently, according to Section 167 of the 1956 Act, if a company refuses to convene a general meeting, any member of the company could apply to this Board with a prayer to call or direct the calling of a general meeting.
Section 97 (2) further provides that the meeting called by the Tribunal shall be deemed to be the official annual general meeting of the company provided all the directions as outlined by the Tribunal are met.
For example, company A has failed to conduct its meeting within the time frame prescribed under Section 96. A shareholder, named Mr. X, can file a request with the Tribunal to call the meeting as provided under Section 97, and thus exercising this right he files an application with the NCLT. Thereafter, NCLT reviews the application and if considered necessary directs the company to conduct the meeting. Additionally, the Tribunal by acknowledging the challenge of reaching a quorum, decides that the presence of Mr. X alone, whether in person or by proxy, will fulfil the quorum requirement for this meeting. Consequently, the meeting proceeds with Mr. X’s presence, meeting the criteria set by the Companies Act, as per the Tribunal’s directive under Section 97.
Consequences for not holding an Annual General Meeting (AGM) within the time frame
Companies that fail to hold their annual general meetings within the specified period, as mandated by Section 96 of the Act, 2013, are in violation of the law and are subject to penalties under Section 99 of the Act of 2013. Section 99 also provides that if the company defaults in complying with the direction of the Tribunal that has ordered to conduct the meeting, such a default is also liable to be fined under this Section. The penalty under this Section is on a continuity basis until compliance is achieved, meaning that fines may continue to accrue until the company holds the required meeting within the prescribed time frame. In the case of Mathew vs. Nadukkara Agro Processing Co. Ltd. (2001), it was observed by the Kerala High Court that the failure to conduct the meeting is a continuing default, and hence what must be done in such a circumstance is to direct the conducting of the meeting at the earliest. By applying this principle, the court in this case directed the company to convene the meeting within one month from the date of the order.
When the company defaults in complying with the stipulated time frame for conducting the meeting, the company together with every officer, who is responsible for such a default shall be responsible for paying the penalty which may extend to one lakh rupees. If the default is not rectified within the time as directed by the appropriate authority, then an additional fine shall be imposed which may extend to five thousand rupees for every day till the default persists. The MCA through its adjudication order in the matter of Ringming Hotels And Restaurants Private Limitedunder Section 118 r|w Section 454(3) of the Companies Act, 2013 observed that the firm did not file for its Annual Return and Financial Statement together with the Directors Report for the first fiscal year, which was 2018-19. As a result of this, there is no record of Board Meetings or Annual General Meetings which is statutorily required by Section 118 of the Companies Act, 2013. Therefore, a penalty was imposed on the company and its officers for the amount of Rs. 25,000/- and 5000/- respectively.
In the case of Re. El Sombrero Ltd. (1958) 3 All ER 1, it was clearly held by the Chancery Court that the meeting must be convened, regardless of whether the annual accounts to be subjected to review during the meeting are prepared or not. Directors have a legal obligation to call the meeting, even if the accounts, which are just one of the meeting’s agenda items, are not yet finalised.
Provisions related to Annual General Meetings (AGM)
The provision regarding the meeting is contained in Section 96 of the Act of 2013. In addition to this, the procedure for conducting the meeting and legal requirements that need to be fulfilled in order to validly conduct the meeting is provided from Section 101 to Section 121 of the Act of 2013. The rules regarding conducting the meeting are also provided in Rules 18 to 23 of the Companies (Management and Administration) Rules, 2014. These rules provide for the procedure to hold the meeting, quorum, members’ rights, and minutes of meeting. The companies are also required to comply with the rules contained in the Secretarial Standard on General Meetings, which act as a guide for conducting the meeting in accordance with the provisions contained in the Act of 2013.
Applicability of secretarial standard on general meetings
The “Secretarial Standard on General Meetings” (SS-2), developed by the Secretarial Standards Board (SSB) of the Institute of Company Secretaries of India (ICSI) and endorsed by the Central Government, is mandatory under Sub-Section (10) of Section 118 of the Act of 2013. Effective from July 1, 2015, SS-2 applies to all general meetings for which notices are issued on or after this date. It lays down a comprehensive framework for the organisation to conduct general meetings and related matters. This guidance note aims to elucidate the provisions outlined in SS-2, offering explanations, procedures, and practical insights to aid stakeholders in ensuring compliance.
The fundamental law with respect to conducting the meeting is contained under the Act of 2013. SS-2 aims to provide uniformity and established guidelines which are the foundation and core of the corporations’ general meetings, thereby ensuring and promoting adherence to the implementation of set principles found within the Act of 2013. Complying with SS-2 leads to the establishment of robust procedures and systems that guarantee the company’s needs and responses to stakeholders. Among the most serious problems related to non-compliance, particularly in smaller -and private- companies, are misconduct and poor record keeping as a result of which litigation may result. The very first goal of SS-2 is to tackle these problems effectively by letting these guidelines cater for all the general meetings that need successful execution as well as documentation.
SS-2 highlights responsibilities performed by the Company Secretary, including overseeing the effective decision-making process and maintaining the integrity of meetings. The duties of the Company Secretary can be temporarily performed by members of the Board of Directors or by a member of the management on an ad hoc basis, provided that they have been granted the necessary authority by the Company. Furthermore, SS-2 does not seek to replace existing laws but rather supplements them to enhance corporate governance. Hence, it is also necessary that alongside compliance with SS-2, companies must also adhere to other applicable laws, rules, and regulations.
In instances where there are divergences between the SS-2 guidelines and the relevant applicable laws, the more severe laws, that impose stricter requirements or penalties must be adhered to so as to maintain compliance with higher standards. In a nutshell, the SS-2 is a core component that facilitates transparency, accountability, and fulfilment of legal requirements at the general meetings thereby forming part of the institutional framework for companies, which serves the purpose of building trust among stakeholders.
Procedural requirements of holding an Annual General Meeting (AGM)
The procedure regarding the meeting is contained from Section 101 to Section 121 of the Act of 2013, together with SS-2. It is mandatory for the company to conduct the meeting in accordance with the provisions contained under these sections to constitute the meeting and its proceedings validly.
The meeting should be called by the proper authority
The first essential requirement, as per Para 1.1 of SS-2, for conducting an Annual General Meeting by the company is that the meeting should be called by a competent authority. The authority to call a general meeting rests with the Boards of Directors of the company collectively or with individual members such as a Director, Company Secretary, Manager, or any other officer of the company. However, these individuals do not have the power to independently convene the meeting. They can do so only if they are specifically authorised by the Board of Directors to call the general meeting. Such a requirement ensures that there exists a collective decision and authorisation for conducting the meeting preventing the unilateral exercise of this significant corporate power by a single individual.
Need for a properly constituted board to call a meeting
As mentioned above, the first requirement for conducting the meeting is that it should be called by the Board of Directors of the company, but if the Board is not properly constituted and the meeting is called by them, will it render the general meeting invalid?
According to the SS-2, the Board shall be deemed to be incomplete if the minimum number of Directors required by the Act of 2013 or the articles of the company have not been appointed. Consequently, if a meeting is convened by the Board that is not properly constituted in accordance with the legal requirements, then both the meeting and any resolutions passed in such meeting shall be considered invalid.
Notice for a meeting
The other most important requirement for conducting the general meeting validly is to ensure that the notice of the meeting is provided to all members of the company. The provision regarding the sending of the notice is contained under Section 101 of the 2013 Act. Section 101 expressly states that the requirement of sending notice extends to every single member involved in the company.
It was therefore held in the case of Gajanan Narayan Patil vs. Dattatraya Waman (1990) that a purposeful omission to give notice to even a single member of the company has the effect of invalidating the entire meeting. However, as per Section 101 (4) if the omission is unintentional or a member does not receive the notice such failure shall not render the proceeding of the whole meeting invalid.
This principle emanates from the theory that the major corporate decisions are taken by the members of the company collectively. By providing notice to every member, the company makes sure that everyone has the opportunity to be informed and participate in the decision-making process.
Form of notice
According to Section 101(1), the notice to be given to the members should be in writing and must be sent 21 days before the convening of the meeting. However, a meeting can be called by giving a shorter notice, as provided under the proviso to Section 101(1). However, such an exception to the general rule of 21 days can only be availed if consent is given by all the members entitled to be present in the meeting. The consent for shorter notice may be given before the meeting or in some cases on the day of the meeting through Form no. 22 A as prescribed in the Companies (Central Government‘s) General Rules and Forms, 1956.
Computation of 21 days for giving notice
The term ‘not less than twenty-one days’ as provided under Section 101(1) is considered as complete 21 days, in the interpretation of which both the posting and the date of the actual meeting are excluded while calculating the notice period. In computing the notice period any holidays that come during such a period are included. Moreover, if the notice for the meeting is sent by post, an additional 48 hours are included in the calculation of the notice period. The case of NVR Nagappa Chettiar vs. Madras Race Club (1948) can be taken as an illustration for computing the 21 days of the notice period. The Madras High Court in this case stated that the notice that was posted on the 16th of October for the meeting to be convened on the 7th of November falls short of 1 day in the computation of 21 days. The court clarified that while computing a period of 21 days the day when the notice was posted and the day of the meeting has to be excluded. The gap of 21 days between the date of posting and the day of the meeting should be clear and complete.
Persons entitled to receive the notice
As mentioned above the service of notice of the meeting on every member of the company is mandatory. Section 101(3) specifically outlines all those individuals who are entitled to receive the notice of the general meeting. This particular section provides that a notice is required to be sent to each and every member of the company, directors as well as to the auditors of the company. If the member is deceased, then the notice is required to be sent to the legal representative of the member and if an individual is insolvent, then his assignees shall become entitled to receive a notice. Moreover, the auditors as well as every director of the company shall be given notice of the general meeting.
In the case of a private company, that is not a subsidiary of a public company, the Articles of such company may specify additional individuals upon whom the notice is required to be served.
It is pertinent to note here that though it is mandatory to serve notice on every member of the company, the entitlement to receive meeting notices is not universal among all members, as Articles often dictate specific conditions. Such an exception can be made in the case of preference shareholders. They can be excluded from receiving notices and voting at the general meeting. However, there are certain circumstances under which it becomes obligatory for the company to issue notice to preference shareholders. When preference shareholders’ dividends are in arrears for a specified period Section 47(2) mandates the company to send them notice, as they retain the right to attend and vote in such situations.
Section 101(4) of the 2013 Act provides that any omission or non-receipt of notice to any member does not in itself render the proceedings of the meeting invalid. However, if the notice is not served due to some deliberate intention then that may be considered as a ground for invalidating the meeting.
In the case of Musselwhite vs. C.H. Musselwhite & Sons Ltd. (1962) Ch 964,the Chancery Court opined that if the notice is mistakenly not served to a member based on the incorrect belief that they are not a shareholder, this would not be considered an accidental omission. Further, in the case of Maharaja Export vs. Apparels Exports Promotion Council (1985) the Delhi High Court defines the accidental omission as a non-deliberate and unintentional oversight, emphasising that the omission must not only be unplanned but also not purposeful. Such a legal framework emphasises that corporate affairs are run in a fair, transparent, and in accordance with the acceptable principles of corporate governance.
Contents of the notice
It is mandatory as per the provisions contained in Section 101(2) that the notice should contain information regarding the date, time, and location of the meeting. In addition to this, the notice must also contain a detailed statement regarding the specific business going to be transacted in the meeting.
Day, date, and time of the meeting
The day at which the meeting is going to take place along with the exact time of the meeting serves as important information for the members to ensure their presence in the meeting. Thus, it is important that every notice provided by the company to its members must clearly state the day, date, time, and venue of the meeting. Consequently, an omission made in this regard renders the meeting invalid. For instance, if the notice contains incorrect information regarding the day of the meeting resulting in a mismatch between the day of the week and the provided date and month, such a notice shall be considered as bad in law.
It is further provided that every meeting shall be convened during business hours, i.e., between 9 a.m. to 6 p.m. on any day excluding a National Holiday. As per section 96(2) of the 2013 Act a general meeting can be scheduled on any day, including public holidays or Sundays, however, it cannot be held on a day that is a National Holiday.
Another requirement for the notice to be valid is that it must contain a precise time for the commencement of the meeting, for instance, 11:00 a.m. As held in the case ofRao Bahadur MRSRathnavelusami vs. MRS Manickavelu Chettiar (1950) the failure to mention the meeting’s hours renders the notice and any resolutions passed during the meeting invalid.
It is important to note that the time mentioned in the notice signifies the starting time of the meeting. As clarified by the Ministry of Corporate Affairs (MCA) [Letter of the then Department of Company Affairs, No.8/16(1)/61-PR dated 9-5-1961]. The ‘time’ specifically refers to the hour of commencement of the meeting, however, there is no requirement for it to conclude within this timeframe, allowing flexibility for meetings to extend beyond regular business hours if necessary.
Venue of the meeting
According to Section 101(2) of the 2013 Act, the notice should contain comprehensive details regarding the venue where the general meeting is to be held. Such comprehensive details include a route map and a prominent landmark for easy identification. Even though e-voting is mandatory for such a company, such practice of providing full details regarding the venue of the meeting is beneficial for members who may prefer to attend the meeting physically.
The term ‘place’ in clause 2 of Section 101 implies the exact location or full postal address where the meeting will take place. In the case of Aidqua Holdings (Mauritius) Inc vs. Tamil Nadu Water Investment Co. Limited (2014), it was held by the court that the company cannot choose a meeting place prohibited by its Articles in order to ensure that individuals can easily locate the venue without encountering any difficulty.
The practice of providing a route map and a prominent landmark is considered a good practice, however, such inclusion may not be necessary if the venue of the meeting is generally known to the members. For instance, Mr. X, Ms. Y (Mr. X’s wife), and Mr. C (Mr. X & Ms. Y’s son) are Directors and Members of XYZ Ltd. Along with four other members who are siblings of Mr. X, they plan to hold a General Meeting at Mr. X’s residence. Because everyone in XYZ Ltd. knows Mr. X’s residence and it’s easy to find, there’s no need to include a route map or prominent landmark in the notice.
As per the requirement under SS-2, the meeting may be held either at the registered office of the company. The company may also take place at any other location, but such location has to be within the same city, town, or village where the registered office of the company is located.
Statement to be annexed to the notice
In addition to mentioning the date, time, and place of the meeting, section 101(2) also provides that every notice for a meeting is required to include a comprehensive statement regarding the business to be transacted during the meeting.
As per Section 102 of the 2013 Act, a business is categorised into two types. The first type of business is known as the General Business and the other one is known as Special Business. The general business as provided under Section 102(2), includes the consideration of accounts and the directors’ report, declaration of dividends, and the appointment of directors and auditors, along with fixing their remuneration. These matters are typically addressed at annual meetings. On the other hand, any other business at an annual meeting and all business at extraordinary general meetings fall under the special business category. This can include significant decisions or matters beyond the routine affairs of the company.
Where the business to be transacted at the general meeting includes the further issue of capital, that falls under the special business category, it becomes obligatory to mention such special business in the notice sent to its member. The failure to do so not only renders the meeting invalid but also impacts the validity of the notice itself and any subsequent actions related to the further issue.
Section 102 of the 2013 Act provides in detail as to what all special business that is going to be dealt with in the meeting should be mentioned in the notice calling for the meeting. The section mandates that if any special business is intended to be conducted in an annual meeting, a notice is to be attached with the statement explicitly indicating such business. The provisions of this section further mandate that the statement attached to the notice should comprehensively outline all relevant facts related to each aspect of the special business, ensuring a transparent disclosure of information. The statement should also contain information disclosing any potential interests held by directors or other key managerial personnel in the matter because it becomes crucial for the shareholders who are asked to vote on the matter to have a thorough and open disclosure of the facts that might affect their decision. Such a disclosure by way of attaching a statement to the notice serves the purpose of keeping members informed about the nature of the business to be discussed in the meeting. It also ensures that the members have the necessary information to make informed decisions during the course of the meeting.
Contents of the statement
When a meeting involves special business, the notice must contain a statement with key details about each special business item. As provided under Section 102(1) the statement must cover the nature of concern and interest, whether financial or otherwise related to directors, managers, key managerial persons, and relatives of these persons. In addition to this clause 1 of section 102 further provides that the statement must also contain all that information that assists the members in understanding the meaning, scope, and implications of the business to be discussed in the meeting as such information empowers members to make informed decisions during the meeting when asked to vote on these matters.
The form of such disclosure can be understood with the help of an example. For example, if the meeting involves consideration of a special business that pertains to or influences another company, then the notice shall be attached with the statement specifying the extent of shareholding in the other company by every promoter, director, and manager, as well as for every other key managerial personnel if their shareholding in the paid-up capital is more than 2%. Another example would be if in the meeting a particular document is to be referred to that relates to the special business, the notice must specify the time and place where such document can be inspected by the members. It is to be understood with the help of these examples that such information ensures transparency and provides every member with the opportunity to review relevant materials before the meeting, fostering an informed decision-making process.
The decision made by the court in the case of Bimal Singh Kothari v Muir Mills Co Ltd. (1952) highlights the importance of notice being transparent, clear, and complete. In this case, a large group of shareholders resides at considerable distances from the company’s registered office. The court held that it is unfair to merely leave the proposed articles at the registered office and inform shareholders of that fact. In such cases, printed copies of the new Articles should be sent along with the notice to ensure sufficiency. Failure to do so renders the notice inadequate.
The importance of disclosing material facts is underscored by instances where non-disclosure has led to legal consequences. For example, if a notice contains information that the meeting is convened for the purpose of adopting an agreement related to the proposed transaction of selling one company’s assets to another. A notice fails to fully disclose important information, such as compensation payable to directors as compensation for loss of office. In such a case, if the court determines that the undisclosed information is significant and could impact shareholders’ decisions, it may declare that the notice did not fairly represent the true purpose of the meeting.
According to Section 102(4), if by reason of any non-disclosure or inadequate disclosure in any statement made by a promoter, director, manager, or other key managerial personnel, such person or their relative accrues any benefits either directly or indirectly, then in such circumstances they are responsible to hold such benefits in trust for the company. Moreover, they are also liable to compensate the company to the extent of the benefits received by them. The provision with this regard has been incorporated under the Act of 2013 to ensure that any benefits arising from non-disclosure or insufficient disclosure are treated as belongings to the company and the person benefiting must repay the company for the value of those benefits.
Section 102(5) of the Act of 2013 provides that, if any individual fails to adhere to the provisions as outlined under Section 102, then such individuals including promoters, directors, managers, or other key personnel found to be in default shall be made subject to a penalty. As per the provision of clause 5 of Section 102, the person who is found to have non-complied with the provision of this section shall be fined with the amount being either up to Rs 50,000 or five times the value of the benefit accrued to the person in question, whichever amount is higher.
Quorum for an Annual General Meeting (AGM)
The term “quorum” refers to the minimum number of members that are required in order to declare a meeting to be valid. Quorum is essential for assuring the presence of sufficient members to effectively make decisions throughout the meeting. Quorum requirements help maintain the integrity of the decision-making process and prevent decisions from being made without adequate representation.
The provisions contained in the Act of 2013 with regard to quorum provide the minimum number of members needed to be present to have a valid meeting. The Articles of Association, which is the governing document of the company, may require a higher number of members needed to constitute a valid meeting. This provides companies with the flexibility to set quorum levels that align with their specific organisational needs and structures.
The provisions related to quorum are contained under Section 103 of the Act of 2013. According to section 103, there are different categories of firms for which different minimum quorum requirements are specified. For example, a different quorum is required in case of a private company and public company. The quorum requirement in case of a public company also depends upon the number of members the company has. However, the Articles of Association of the Company may determine a higher figure than the minimum threshold required by the law.
Why quorum is required
According to SS-2 the presence of a quorum is essential for a meeting to be constituted appropriately and the proceedings to be considered as valid. The quorum specifies the minimum number of members that need to be present in person for the purpose of the meeting to be considered officially convened and for business to be transacted in a legally recognized manner.
It is vital to ensure that a quorum is present during the entire voting period, conference, and even adjournment for an effective meeting. Not only must it be set at the very beginning of the meeting, it must be maintained consistently during the conducting of the business. In other words, there should be a quorum not only at the commencement of the meeting but also at the time of decision-making on different issues at hand.
The necessity of a quorum during the decision-making process is particularly emphasised. The mere presence of a minimum number of members at the beginning of the meeting is not sufficient. A quorum must be maintained when the critical questions or issues presented before the meeting are actively being decided. This guarantees that decisions are made with the majority of those in the meeting thus participatory democracy is rendered possible resulting in the enhancement of the legitimacy and validity of the meeting’s outcomes. Therefore, a meeting is considered to have been held in the right way and is legally valid only when there is a continuous presence of a quorum.
There are different quorum requirements for both private and public companies unless a larger quorum is prescribed by the Article of the respective company under section 103 of the Act of 2013.
The quorum requirement for a public company
In accordance with Section 103 (1) (a) of the Act of 2013, the requirement of a quorum for a public company depends upon the total membership of the company. Thus, on the day of the meeting the total membership of the company is less than one thousand (1000), the quorum for the meeting shall be five (5) members personally present. On the other hand, if the membership of the company ranges from one thousand to five thousand, the quorum shall be fifteen (15) members personally present. Moreover, if the membership exceeds five thousand, then in such a case, the quorum shall increase to thirty (30) members personally present.
However, it is important to note here that the public company has the flexibility of establishing a higher quorum than the statutory requirement outlined in the Act through its Articles. In such a scenario the company is obligated to adhere to the quorum as specified by the company in its Articles. This requirement balances the adaptability to the company’s internal governance structures while maintaining a threshold of member representation for valid decision-making during meetings.
The Quorum Requirement For A Private Company
As per clause (b) of Sub-section (1) of Section 103 of the Act of 2013, the quorum requirement for a private company is two (2) members personally present. As with the case of public companies as provided above, private companies too, can prescribe a higher quorum than required by the provision of the Act of 2013 through its Articles. Where the higher quorum is specified under the Articles of the private company, such a requirement shall be complied with. It is also provided that the requirement of the quorum should be maintained during the meeting. It is not sufficient for the quorum to be present only at the start of the meeting, but throughout the meeting, whenever any business is proposed to be transacted.
Requirement of quorum under articles of the company
In accordance with Section 103(1), the Articles of the company may set a quorum with a number of members that exceeds the statutory minimum. In addition, the Articles of the company may also provide for the provisions dealing with the composition of the quorum. Generally, such clauses are present in agreements mainly among shareholders such as the shareholders’ agreement or the share subscription agreement, which give the preferential vote or other specific rights to shareholders. For the legal compliance of these contractual agreements, they need to be included in the company’s articles, which is a document signed by all the shareholders. Thus, once inserted into the Article, these provisions carry statutory binding force, superseding the requirements of the Act. Through this mechanism, the provisions of the Articles supersede those of the contractual nature among shareholders by the application of a stricter regime than what is statutorily stated.
Members constituting the quorum
As per para 3.1 of SS-2 in order to establish a quorum for the purpose of convening a meeting, the members constituting the quorum must physically present themselves. Only those members who are present in person shall be considered to ascertain the quorum. It is mentioned that proxies representing the interest of the member absent in the meeting are not taken into consideration while determining the quorum. A proxy cannot be considered equivalent to a member personally present and is therefore excluded from the determination of the quorum.
However, certain individuals who are representing body corporates, Government officials like the President or Governor, and a donee of a power of attorney specifically authorised to attend the meeting, are considered as members personally present and are included in quorum calculations. These include:
Para 3.2 of SS-2 further provided that in no other case, an individual attending a meeting as a representative of a member absent from the meeting shall be considered a member
personally present for quorum purposes.
For the purpose of establishing the quorum, joint shareholders shall be considered as a single member. As per the terms provided in the Articles of the company, any one of the joint shareholders present at a meeting has the power to exercise the voting right and contribute to the quorum count. Similarly, in the case of multiple joint shareholders, only one amongst them is entitled to exercise voting rights, when it comes to voting on a particular matter. As per Regulation 52 of Table F of Schedule I of a Regulations For Management of A Company Limited By Shares the senior holder among the joint holders has the exclusive right to exercise the voting rights, disregarding the others.
With regards to a body corporate, an individual who attends the meeting in person as an authorised representative for multiple bodies corporate, such an individual is considered equivalent to the number of bodies represented for the purpose of establishing the quorum. However, in order to officially constitute a meeting a minimum of two members are required to be present in person. For example, if a public company has a total membership of less than 1000 members, the quorum requirement to constitute the meeting is five, in this case even if the body representative who represents five body corporate is present in the meeting, it shall not constitute a quorum, representative of other body corporate is also required to be present for the quorum to be present validly.
It is important to note that the members who are present and attend the meeting by way of an e-remote facility are also counted for the purpose of quorum. The related party of the company, though they do not have the right to vote, shall also be considered while counting for the quorum.
It is important that for every business transacted at the meeting, the quorum is present. However, in the case of business transacted through postal ballots, the requirement of a quorum can be done away with. In other words, it is not mandatory to ensure that the quorum requirement is met when the business is being transacted by way of postal ballots.
Consequences, when the requirement of quorum is not met
It is established that for the meeting to initial its proceedings, it is essential that the quorum is present, without it the meeting can be conducted validly. If the quorum requirement as provided under the Act of 2013 or the Articles of the company, is not met, and the meeting is conducted then it shall be considered invalid due to the lack of the required quorum. Such a requirement of establishing a quorum is not waivable, and therefore any business conducted or resolution passed in such a meeting shall be considered void. However, there is an exception to the above-mentioned requirement. A circumstance may arise where all the members of the company are present and the quorum provided by the Article is higher. In such a situation, the proceedings of the meeting shall be considered valid. Such a scenario can be understood by way of an example. For instance, a company has five hundred (500) members and the quorum prescribed by the Articles was a hundred members (100). However, later on, 450 members sold their shares that were purchased by the remaining 50 members. Under such circumstances, if the meeting is attended by all the 50 members of the company the proceedings would be valid.
Section 103(2) of the Act of 2013 prescribes that if within half an hour from the time scheduled for the meeting, a quorum is not achieved, then the meeting gets adjourned to the same day in the next week at the same time and place or to any other day, time, and place as may be decided by the board. Further, according to Section 103(3), if, at the adjourned meeting the quorum is still not achieved within half an hour from the time appointed for the meeting, the members that are already present shall constitute the quorum.
In the case of Janaki Printers Private Limited vs. Nadar Press Ltd. and Others (1999), a principle was established regarding the establishment of a quorum within a specified time frame for meetings as outlined in the Act. It was determined that although the Act stipulates a half-hour period for quorum establishment from the designated meeting time, members desiring to extend the waiting period beyond this duration are permitted to do so, as there is no explicit prohibition in the Act. The Company Law Board clarified that the half-hour timeframe is regarded as a recommendation rather than a mandatory requirement, thereby affirming that exceeding this duration does not contravene legal provisions.
Notice of adjourned meeting
When the Board of Directors adjourns a meeting to a different date, time, or venue than initially indicated in Clause (a) of Section 103(2), it is obligatory to inform the members accordingly in accordance with the stipulations outlined in the proviso to sub-section (2) of section 103. The adjournment of a meeting necessitates the company to issue a notice to its members, ensuring that they are promptly informed of the change.
As per the provision contained in the proviso to sub-section (2) of section 103, the notice should be given not less than three days before the rescheduled meeting. The section further provides that the company may send notice by either sending it individually to every member or by publishing an advertisement in newspapers. If the notice is served by way of publishing it in a newspaper, then it must be assured that the advertisement is published in both English and a vernacular language. The advertisement should be published in a newspaper widely circulated in the vicinity where the registered office of the company is situated. This measure guarantees that members are sufficiently informed regarding the alterations to the meeting schedule.
In accordance with the provisions of SS-2, a properly arranged meeting should not be adjourned without valid justification. In the event that the quorum is met, the Chairman may adjourn the meeting with the consent of the members in attendance or as directed by the members present in the meeting. The Chairman, possessing the authority to adjourn the meeting, may also adjourn it in instances of insufficient quorum or in the event of disorder that renders it impracticable to proceed. Para 15 of SS-2 additionally stipulates that the adjourned meeting’s proceedings should solely address the business that remains unfinished from the original meeting. Any resolution passed at the adjourned meeting is deemed to have been passed on the date of the adjourned meeting and not on any preceding date.
Can a single member present in the adjourned meeting constitute a quorum
It’s crucial to emphasise that even at the adjourned meeting, a minimum of two members must be present. The Ministry of Corporate Affairs has provided clarification that the presence of a single member in a meeting is insufficient to constitute a quorum for conducting business and passing resolutions. A minimum of two individuals is necessary to establish a quorum for the valid conduct of a meeting. Nevertheless, there exists a particular circumstance wherein a meeting can be convened with only one member present. As outlined in the Proviso to Section 97 (1) of the 2013 Act, in instances of default in convening an Annual General Meeting pursuant to Section 96 of the Act, the Company Law Board or the Tribunal, while instructing the convening of the meeting, may specify that a single member, either present in person or represented by proxy, constitutes the quorum. Another exception arises when an individual holds all the shares of a specific class; in such cases, that individual may convene a class meeting alone. This exception to the general rule prohibiting one-person meetings is further substantiated by judicial rulings.
In the case of Sharp vs. Dawes (1876), the question before the Court of Appeal was if only one member attends the meeting after it is adjourned, whether such a meeting be considered valid. In this particular case, the business to be transacted in the meeting was related to making a financial call. Only one shareholder attended the meeting and he also held proxies from other shareholders. Despite being the sole member present at the meeting, he proceeded to pass a resolution for the financial call and proposed and passed a vote of thanks. In the court of appeal, lord Coleridge stated that the ‘meeting’ implies the accumulation of more than one person and therefore he concluded that the meeting with only one member present did not meet the criteria of a meeting as prescribed under the law.
On the basis of the decision as provided in the above-mentioned case, it follows that even in the case of a meeting adjourned due to a lack of quorum, having only one member present at the re-assembled meeting might not be sufficient. The usage of the term ‘members’ in Section 103(3) connotes that at least two members should be present to form a quorum. However, there are some exceptions to this rule. Such an exception has been aptly dealt with in the case of East v Bennet Bros Ltd. (1911) 1 Ch 163, where all the preference shares in a company were held by a single shareholder, and a meeting attended by only that shareholder was deemed appropriate.
Appointment of chairman for an Annual General Meeting (AGM)
For the effective functioning or conducting the business at the meeting the presence of a Chairman is necessary. According to Section 104 of the Act of 2013, the procedure for appointing the Chairman of the company is usually provided under the Articles of the Company. However, where no such procedure is outlined in the company’s article, the members present in person in the meeting are required to collectively choose one of themselves to act as the Chairman.
The procedural requirement for conducting business in the meeting by the Chairman is provided under Para 5 of SS-2. As per para 5 of SS-2, the Chairman of the company is entrusted with the authority to preside over and manage the meeting. If within fifteen minutes from the scheduled time of the meeting, the Chairman is not present or is unwilling to act or if the director is not designated to act as a Chairman in his absence, then in all such scenarios the directors present in the meeting shall elect one of themselves as the Chairman. In the case where no director is present or is not willing to act as a Chairman within the specified time, then the members present will elect one of themselves as the Chairman through the show of hands unless the Article specifies otherwise.
In the circumstances where the election of a Chairman is requested to be made by way of a poll, it shall be conducted immediately. The Chairman earlier appointed by show of hand shall conduct the poll and when the new Chairman is elected after the conclusion of voting by poll, such a Chairman shall resume the position for the rest of the meeting. The responsibility attached to the position of a Chairman is to ensure that the meeting is properly constituted before the proceedings of the meeting start. He is also responsible for seeing that the meeting is conducted without any impartiality or biasedness and the meeting discusses only those matters that have been part of the agenda. He should also ensure that the voting process is undertaken as per the legal provisions.
The responsibilities of the Chairman are outlined in detail under Para 5.2 of SS-2, wherein it emphasises that the Chairman must explain the purpose and implication of particular resolutions before they are put to vote. Moreover, the Chairman shall be obligated to offer the members who are entitled to vote an opportunity to seek clarification or provide comments on any business item.
According to the provision outlined in Para 5.3 of SS-2, concerning public companies, if the Chairman has an interest in any business to be transacted in the meeting, then such a Chairman cannot propose a resolution and they cannot take part in conducting the proceeding related to that specific business item. Where a Charman has an interest in any of the business items, he can entitle any other director who is disinterested or any other member with the consent of the present members and entrust him to conduct the proceedings of the meeting. Once that specified business is decided the Chairman can resume the chair.
Duties of chairman
The duties entrusted to the Chairman presiding over the meeting play a vital role in guaranteeing that the meeting is conducted properly. Before resuming the role of the Chairman, the Chairman must ensure that the meeting is constituted in accordance with the provisions contained under the Act of 2013, the Articles of the company, or any other relevant laws. Once it is established that the meeting is legally constituted, the Chairman’s obligation to oversee the proceedings of the meeting starts.
The Chairman is obligated to look at the proceedings of the meeting and consider whether the meeting is conducted in a fair and impartial manner. Such a responsibility entrusts the Chairman with an obligation to ensure that only the business items outlined in the meeting notice sent to every member are addressed. They are also responsible for regulating the procedure while voting is taken from the members. The Chairman has to ensure that the voting process adheres to the legal provisions provided in the Act of 2013.
The Chairman is further obligated to maintain complete order while the meeting is in process. This duty obligated him to manage and conduct the meeting in a manner that
upholds decorum and ensures proper, organised conduct of business. In essence, the Chairman’s role is like an organiser, who makes sure that the meeting is conducted in a way that follows prescribed rules and procedures, thereby respecting the rights of all the members participating in the meeting.
An exact description of the nature of the Chairman’s duty was provided in the case of Servopori Investments (P) Ltd vs. Soma Textiles & Industries Ltd, (2005), wherein it was observed by the Calcutta High Court that the Chairman’s role in conducting the meeting involves the amalgamation of both ministerial and judicial responsibilities. As an individual, he cannot be considered wholly a ministerial officer or purely a judicial officer. Resultantly, the Chairman cannot be held liable for any damages, if without any malice and mala fide intention, he does not allow a shareholder to cast his vote or in case he declares them ineligible as a director. In other words, a shareholder cannot bring any action against the Chairman for wrongfully denying voting rights and directorship, provided the Chairman acted in good faith and without malice.
Powers of Chairman
The powers and the authority that the Chairman enjoys while conducting the meeting were outlined by the Madras High Court in the case of Narayana Chettiar vs. Kaleeswara Mills (1950), wherein it was held that the Chairman may exercise his power to adjourn and postpone the meeting if any reasonable cause arises. The court further held that if the Chairman without any reasonable cause and without obtaining the consent of the members adjourns the meeting, then in such scenarios the members are authorised to elect a new Chairman and resume the business that was left to be discussed before such adjournment. The court asserted that the Chairman cannot by himself decide to postpone a meeting. For exercising such a right he has to follow appropriate procedures as provided under SS-2. The Chairman first has to commence the meeting and then adjourn it to a more suitable date only if it is necessary for the proper functioning of the meeting.
It was further emphasised by the court that the Chairman can only exercise his power of adjourning the meeting only when there are circumstances like disorder and while exercising this power it should be ensured that it does not exceed what is absolutely necessary. If the Chairman infringes upon this limited power, in such scenarios, the members forming a quorum have a right to proceed with the proceedings of the meeting and any business transacted shall be held legal.
In a situation where the Chairman, who has applied for the managing director position, adjourns the meeting prematurely, foreseeing a lack of support, and the members forming the quorum have subsequently appointed another Chairman, such an appointment was held valid by the court.
However, a contrasting opinion was expressed in the case of United Bank of India vs. United India Credit and Development Co Ltd. (1973). In this case, the Calcutta High Court recognised that the Chairman has the legitimate right to a bona fide adjournment provided such an exercise of power does not attempt to obstruct or delay business. In such a scenario, the adjournment shall be held invalid.
The power associated with the position of the Chairman was clarified by the court of appeal in the case Eying vs. Rondan Life Assn Ltd. (1988). In this case, the meeting was held to bring some changes to the company’s memoranda in order to facilitate amalgamation. A Large number of members came to attend the meeting and hence the venue got too small to accommodate all the members. In order to accommodate them, a provision was made to have them seated in adjoining rooms and a sound system was installed to enable them to hear and to participate. The sound system stopped working and there was a bewildering confusion amongst the members.
In such a scenario the Chairman decided to adjourn the meeting and to arrange for an alternate venue for the meeting to be held in the afternoon in the new venue. There was resistance to this decision. The evening session at the new venue was deemed invalid, and the Chairman’s adjournment of the morning meeting without gauging the sentiment of the participants was considered unlawful. The court recognized the need on the part of the Chairman to consider relevant factors before adjourning the meeting. Thus, the court concluded that the adjournment of the meeting by the Chairman was not fair as he failed to take into account the relevant factors, such as, member’s attempts at sine die (without specifying a date for a future meeting) adjournment, their objections to the temporary adjournment and that there was no such urgency, the final date of the merger being still off. The court underscored that for assessing the reasonableness of the Chairman’s conduct, the standard applied is similar to that of the general approach applied in judicial reviews. Specifically, it examines whether the Chairman arrived at a conclusion that no reasonable Chairman, considering the purpose of the adjournment power, could have reached.
In addition to the power of adjourning the meeting, the Chairman also has the power of casting votes. In case of a tie of votes, a Chairman can exercise a casting vote. This right can be exercised by anyone who is appointed as a Chairman on the day the occasion for exercising the casting vote arises. The Chairman does not need to be a regularly elected Chairman.
In short the powers associated with the position of the Chairman supervising the meeting includes adjourning the meeting to some later date when some reasonable cause arises. He also enjoys the power of casting vote in case there is a tie in the votes of the members present in the meeting.
Proxies for an Annual General Meeting (AGM)
The provisions regarding the proxy are contained under Section 105 of the Act of 2013. In the meeting, every member who is present has a right to vote on the matter that is presented for discussion. However, the situation may arise wherein some members are unable to attend the meeting in person and hence the provision for proxy has been incorporated under the company law, in order to give equal opportunity to every member of the company if they are not present physically.
Meaning of proxy
The term proxy has not been defined under the Act of 2013. However, it has been defined under the SS-2. According to the definition provided under the SS-2 the term “proxy” has two meanings. The proxy is defined as an agent who is appointed by the member to attend and take action in the meeting on his behalf. Additionally, the term proxy may also be described as an instrument or document signed by the member, through which an individual, whether or not he is a member, is appointed and authorised to attend and vote in the meeting on his behalf.
Who can be appointed as a proxy
Every member of the company who is eligible to vote and to whom the notice for the meeting has been sent can appoint a proxy to represent himself in the meeting. The provisions regarding who can appoint a proxy are contained under Section 105(1). According to this Section, all those members who have a right to vote in the business of the meeting have the authority to appoint the proxy who shall take action and vote on his behalf. It is essential that an individual who is not a member of a company can also be appointed as a proxy. Section 105 also outlines some of the exceptions to this rule, wherein only an individual who is a member can be appointed as a proxy.
Exceptions-
According to the second proviso to Section 105 (1), only the members of the company having a share capital are entitled to appoint a proxy. However, in the case of the company not having the share capital this right is only available if it is specifically provided by the Articles of the company.
According to the third Proviso to Subsection (1) of Section 105 of the Act of 2013, members of certain class or classes of companies as may be specified by the Central Government shall have the right to appoint only the member as a proxy and no one else.
As per the provisions contained in Rule 19(1) of the Companies (Management and Administration) Rules, 2014, an exception is created with regard to Section 8 companies. According to Rule 19(1), the company incorporated under Section 8 of the Act of 2013, the member is not entitled to appoint any other person as the proxy unless such person is also a member of the company.
Number of proxies
According to the provisions contained in the fourth proviso of Subsection (1) of Section 105 read with Rule 19(2) of the Companies (Management and Administration) Rules, 2014, a restriction has been imposed on the number of members and shares a proxy can represent. A proxy can act on behalf of the members, not more than 50 members, or hold more than 10 percent of the total share capital with voting rights. If a member holds more than 10 percent of the total share capital with voting rights, then such a member can appoint a single proxy representing such shareholding, but he can not represent any other member or shareholder.
A member has the option to designate one or more “alternate” individuals to serve as their proxy in case the initially appointed proxy is unable to attend the meeting. These alternates act as substitutes to fulfil the proxy duties in the absence of the primary proxy holder.
As per Para 6.1 of SS-2, if the proxy is appointed to represent more than 50 members, a proxy must select any 50 members and inform the company about this selection before the specified period for inspection begins. If the proxy is unable to select the 50 members he is willing to represent, then the company will consider the first 50 proxies received by them as valid.
Rights and restrictions of proxies
A proxy, appointed by a member to represent them at a meeting, holds certain rights and limitations. Firstly, a proxy has the right to physically attend the meeting on behalf of the member they represent, allowing them to participate in the proceedings. However, their voting rights are typically exercised only when a formal vote is conducted by way of a poll. If eligible under relevant regulations, a proxy can demand a poll. Despite their representation role, proxies do not possess the right to speak at the meeting and cannot vote on a show of hands. Additionally, they are not counted for the purpose of determining quorum, which refers to the minimum number of members required for the meeting to proceed.
Instrument of proxy
According to Para 6.2 of SS-2, the proxy shall be in the form as may be prescribed by the Articles of the company or as specified by the provisions of the Act of 2013. Section 105(6) of the Act of 2013 along with Rule 19(3) provides that the instrument of appointment of a proxy shall be in Form No. MGT.11. It further specifies that such an instrument shall be in writing and signed by the person appointing the proxy or the attorney duly authorised in writing by the person on whose behalf a proxy is appointed. In the case where the proxy is appointed by a corporate body, the instrument shall be signed under its seal, if available, or by an attorney authorised by the body corporate to appoint the proxy.
As per the provisions of Section 105(7), if the instrument appointing the proxy is in the prescribed form (i.e., Form No. MGT-11), it shall not be rejected on the pretext that it is not in compliance with the special requirement specified for such instrument as provided in the Articles of the company. This entails that the company may provide any other requirement or format for the form of proxy through its Articles, however, if the member appoints the proxy using Form MGT-11 and deposits with the company, the company shall not reject it of it being non-compliant with the specific requirement provided in the Articles of the company.
Proxy at the adjourned meeting
The SS-2 provides for the rules relating to the validity of the instrument through which a proxy is appointed in the case of adjourned meetings and also for the appointment of a fresh proxy in an adjourned meeting. As per the provisions contained in Para 6.2.2 of SS-2, an instrument appointing a proxy, if it is duly filled, stamped, and signed shall be valid not only for the original meeting but also for any adjournments of that meeting. Furthermore, Para 6.6.2 of SS-2, provides that if the member has not appointed any proxy in the original meeting, he can appoint a fresh proxy in the adjourned meeting, provided the articles of the company permit for such appointment. However, this appointment must be made no later than 48 hours before the scheduled time of the adjourned meeting.
Deposit of proxy
Section 105(4) together with Para 6.6.1 of SS-2 outlines the procedure for depositing the proxies with the company. The provisions provide that the proxies can be submitted either in writing or through postal services. Such a deposit has to be made not later than 48 hours before the meeting for which the proxy has been appointed. Section 105(4) provides that even if the last day falls on a holiday, proxies should still be accepted. It is further provided that if the article of the company provides for a longer period than 48 hours for depositing the proxy before the meeting of the company, such a time frame shall be deemed as if a period of forty-eight hours had been specified in or required for such deposit. In other words, the rules outlined in the Act take precedence over any conflicting provisions in the company’s articles.
The 48-hour timeframe allows the company to carefully review and verify proxies, ensuring their validity before the meeting. This period also gives the Chairman sufficient time to make informed decisions regarding the proxies. Additionally, it enables the company to compile a comprehensive list of proxies received, including the total number of votes they represent. This compiled list facilitates various processes during the meeting, such as checking proxies, conducting polls, and counting votes.
For the purpose of computing the time frame of 48 hours before the meeting of the company it was held in the case of K.P. Chackochan vs Federal Bank (1989) that Sundays are not excluded from the 48-hour calculation, meaning proxies delivered on a Sunday for a meeting scheduled 48 hours later, on Tuesday, would still be considered valid, provided the receipt of the proxy at the specified time could be verified.
Inspection of proxies
Every member of the company who is entitled to attend the meeting and vote on any proposed resolution also has a right to inspect the proxies deposited with the company. According to Para 6.8.1 of the SS-2, such a right can be exercised provided that they give the company at least three days written notice beforehand. Such a notice should be received by the company no later than three days before the start of the meeting. Para 6.8.2 provided that the inspection of proxy by the members shall be open 24 hours before the commencement of the meeting and shall end with the conclusion of the meeting. In the case where the meeting gets adjourned the request for inspecting the proxy shall have to meet the same requirement as provided for in the original meeting.
Revocation of proxy
This authority remains valid unless explicitly revoked. According to the ruling of the High Court inS. Rm. S.T. Narayana Chettiar vs. Kaleeswarar Mills Ltd. (1952), The relationship between a shareholder and their Proxy mirrors that of a principal and agent. A Proxy holds a position akin to that of an agent, and like an agent, their authority to act can be revoked in a similar manner.
Under Para 6.7 of SS-2 revocation can be done in two ways, impliedly and expressly. The implied revocation of the proxy happens when the proxy is automatically revoked by the operation of law. When the proxy is revocated by the operation of law, there is no need for the member to expressly notify the company about the revocation of the proxy. Certain examples have been provided under SS-2 to illustrate how the implied revocation of the proxy occurs. For instance, if the member decides to attend the meeting personally after appointing the proxy, the proxy appointed shall be revoked when the member attends the meeting. Another example of implied revocation would be if a Member appoints a new Proxy, any previously appointed Proxy is automatically revoked. If the proxy is appointed for the meeting and the meeting gets adjourned and for the adjourned meeting a new proxy has been appointed, then in such a case as well the proxy appointed for the original meeting shall be considered as revoked implicitly. However, in the case of express revocation, the member is required to expressly notify the company about their decision to revoke the Proxy.
Resolution
Every business of the company is determined by way of proposing the resolution and passing it by the prescribed majority of members present and attending the meeting. As per Section 114 of the Act of 2013, resolutions are of 2 types, i.e., ‘ordinary resolution’ and ‘special resolution’. Section 115 provides the third type of resolution in the form of a resolution requiring special notice.
Ordinary and special resolution
Ordinary and special resolutions are defined under Section 114 of the Act of 2013. As per the provisions of this Section, a resolution is considered ordinary if the votes in affirmation of the matter are more than the votes against it during the meeting of the company. In other words, an ordinary resolution is a resolution that is approved by a simple majority of shareholders who are present and participate in the voting process.
A special resolution, on the other hand, is one which requires a majority of at least three-fourths of the members present and entitled to vote at the meeting. In simple terms, the votes in favour of the matter must exceed three times the number of votes in opposition to votes against it. Moreover, for the resolution to be considered special it is important that the intention to consider the resolution as special is expressly stated in the notice for conducting the meeting provided to the members in accordance with the provisions of the Act of 2013.
The resolution passed in the meeting shall be deemed valid if the meeting is constituted and conducted properly. This implies that the validity of the resolution is dependent on several factors such as the notice for conducting the meeting was issued with proper authorisation and in accordance with legal requirements. Also, the quorum is properly and validity constituted and the meeting is preceded by the appropriate person. Lastly, for the resolution to be valid it is important that ample opportunity for reasoned discussion was provided and the motion was accurately voted upon.
A resolution requiring special notice
Section 115 of the Act of 2013 contains provisions regarding the resolution requiring special notice. According to this Section, the intention to move the resolution must be conveyed to the company by the members if such a requirement is mandated by any provisions contained in the Act of 2013 or the Articles of the Company. It is further provided that a notice shall be given by such a number of members who are holding not less than 1 percent of the total voting power or holding shares on which such aggregate sum not exceeding Rs 5,00,000, as may be prescribed has been paid. The notice should be given at least 14 days before the meeting where it is to be proposed. In computing the timeline of 14 days the day on which the notice is served and the day of the meeting itself shall not be included. When the company receives the notice, it is obligated to inform all other members about the resolution in the same manner as it notifies about the conduct of the meeting. However, in cases where it is impractical to notify the members about the resolution, the company must ensure that members receive a minimum of seven days’ notice through alternative means, such as publishing an advertisement in a newspaper with appropriate circulation or utilising other methods permitted by the Articles.
A resolution passed at an adjourned meeting
According to Section 116 of the Act of 2013, when the resolution is passed at an adjourned meeting, such a resolution shall be considered to have been passed on the date on which it was actually passed and not on the date it was proposed to be passed or on any earlier date.
Voting at the Annual General Meeting (AGM)
In a meeting, every business is transacted in the form of a resolution passed by the members in the meeting. Every shareholder present is entitled to discuss or suggest amendments to every proposed resolution. If an alteration is relevant to a proposed resolution and does not essentially oppose it, it must be accepted and presented to the meeting for consideration. After the resolution is discussed in the meeting, such a resolution is put to vote.
Voting is considered an important mechanism through which a meeting comes to a conclusive decision regarding the particular resolution that is put to vote, whether it is to be approved or rejected. It provides a structured procedure whereby the Chairman gets an accurate understanding of the collective sentiment of the members attending the meeting regarding the resolution under consideration. As per the provisions of the Act of 2013, only those members who are entitled to vote either physically present or through a proxy, wherever applicable, have a right to take part in the voting process.
Voting at the meeting can be done through various methods in order to serve the needs and preferences of the members of the meeting. Thus, voting can be done through the show of hand, the ballot process, e-voting, and voting by post. Each of these methods ensures that every eligible member has the opportunity to express their opinion and contribute to the decision-making process in a manner that is convenient and accessible.
Who is eligible to vote
Every member of the company is eligible to vote, thus, no member can be prohibited from exercising his right to vote in the meeting. However, there are certain grounds provided under Section 106 of the Act of 2013, in the presence of which the member can not exercise his voting right. According to the provisions contained under Section 106, the Articles of a company may stipulate that a member is prohibited from exercising their voting rights with respect to the shares registered in their name if any calls or other outstanding payments on those shares have not been settled, or if the company has exercised its right to impose a lien on them. The prohibition on exercising voting rights on these grounds safeguards the company’s interests by ensuring that shareholders fulfil their financial obligations before being entitled to participate in voting processes related to their shares. Proxies are not entitled to vote when the resolution is passed to vote by show of hands except in the case where a vote is to be taken by way of polls.
Voting by show of hands
According to Section 107(1), the voting on a resolution shall start with the show of hand unless specific conditions are present. Voting by show of hand may be avoided only if a demand for a poll in accordance with Section 109 is made by the member or if the decision to carry out voting electronically as per the provisions of Section 108 is approved. Under Section 109 of the Act of 2013, a demand for voting by poll can be made without the need to first conduct a show of hands, providing a streamlined process for invoking a poll if desired by the meeting participants.
Regarding the nature of voting by show of hand, it was held in the case of Mahaliram Santhalia vs. Fort Gloster Jute Manufacturing Company Ltd. (1955) that voting by show of hand is the traditional method for voting at meetings and thus is considered the common law of the country. Voting by show of hand entails that votes are initially counted through a visual display of raised hands by those entitled to vote.
Regarding the procedure to be conducted while taking votes by show of hands, it was held by the Supreme Court of India, in the case of M/s Amarjit Singh vs. Chanjiti Singh and Ors (2004), that voting by show of hands entails the counting of individuals present and eligible to vote, who indicate their choice by raising their hand. Any member attending the meeting can demand a poll at the conclusion of the show of hands vote, and it’s the chairperson’s prerogative to grant or refuse the poll, which serves as an appeal mechanism for dissatisfied parties. Modern parliamentary practices often see motions carried through acclamation or show of hands, where the presiding officer asks attendees to indicate their vote by raising their hands. Once the presiding officer tallies the votes and declares the result, it is considered final unless challenged by a demand for a poll. If no such demand is made, the Chairman’s declaration stands. Once a motion is voted upon and accepted, it becomes a resolution of the meeting, and the announced results are conclusive.
Thus, voting by show of hand is a mandatory process at the first instance. The Chairman is liable to initiate the voting process by show of hand unless there is a demand by the required number of members for the voting to be conducted through a poll, as outlined in Section 109(1) of the Act of 2013. Further, according to Para 7.5.1 of SS-2, it is a standard practice for every company, during a general meeting, to initially put every resolution to vote by a show of hands, unless the resolution has already been subjected to remote e-voting, or unless a poll is lawfully demanded.
Procedure for voting by show of hand
When the Chairman presents a Resolution for voting by a show of hands, the procedure entails initially inviting members in favour of the resolution to raise their hands, followed by those against it. Upon counting, if the number of hands raised in favour exceeds those against, in the case of an ordinary resolution, or if the number in favour is at least three times the number against, for a special resolution, the resolution is deemed passed. The Chairman must ensure that the resolution garners the required majority of votes in its favour, and if there’s any uncertainty, a poll should be conducted to confirm the outcome.
Once the voting by show of hands concludes, the Chairman declares the result, indicating whether the resolution has been passed by the requisite majority or not. As held by the court in the case of E.D. Sasoon United Mills, Re (1929) such a declaration by the Chairman is deemed conclusive evidence of the resolution’s outcome, and it should be recorded in the minutes of the meeting. Such a record serves as conclusive evidence of the resolution’s passage or rejection, obviating the need for further proof regarding the number of votes cast.
However, there are exceptions to this rule, as highlighted in the case of Dhakeshwari Cotton Mills Ltd. vs. Nil Kamal Chakravarthy and Others (1937) wherein it was held that when a poll is demanded, or when the Chairman’s declaration doesn’t include a count of the votes for or against the resolution, in either of this scenario, the Chairman’s declaration may not be conclusive.
It is also important to note that in case members or proxy holders with the necessary shareholding or voting power demand a poll, the Chairman must order the voting by poll.
Any objection to the result announced through a show of hands must be raised immediately. It’s imperative that challenges to the Chairman’s ruling on the Resolution’s passage during a show of hands occur promptly and cannot be raised afterwards.
Voting by poll
The rules regarding the voting process through the demand of poll are contained under Section 109 of the Act of 2013. Subsection (1) of Section 109 provides that the Chairman may on his own motion or upon the demand by the specified number of the members order the voting through poll. Such an order can be made before or upon the declaration of the voting result on any resolution through a show of hands. Such power to order a poll is discretionary when exercised suo motu. However, this discretion is removed once a demand for a poll is made by the specified number of members. As per the provisions contained in Section 109(1), the specified number of members required to make such a demand is different for companies having share capital and companies other than companies with share capital. For the company with share capital, the demand can be made by members present in person or by Proxy, where permitted, possessing not less than one-tenth of the total voting power or holding shares with a cumulative value of not less than five lakh rupees or any higher amount as prescribed. In the case of any other company, the demand can be made by the members possessing not less than one-tenth of the total voting rights, whether present physically or by proxy, where applicable.
It has been further provided under Section 109(2) of the Act of 2013, that the demand for a poll can be withdrawn by the individuals who made the request. Thus it can be ascertained that any business, except for the specific matter for which a poll has been requested, can be addressed without waiting for the outcome of the poll for the aforementioned matter.
Time for conducting the poll
According to Section 109 Subsection (2) after the poll has been demanded in accordance with Subsection (1) of Section 109, it must be conducted within 48 hours from the time the demand was made. In case the poll is demanded for the matter pertaining to the adjournment of the meeting or the appointment of the Chairman, then the poll is required to be conducted immediately.
Procedure for poll
According to Para 9.2 of SS-2, the Chairman has the authority to announce the date, venue, and time of the poll. Such an authority of stipulating the date, place, and time of the poll by the Chairman has to be exercised impartially and reasonably to ensure that members have ample opportunity to participate conveniently. Para 9.2 further provides that while determining the time and location for the poll, the Chairman should consider various factors, including the particular circumstances, the significance and nature of the agenda items up for vote, and the rationale behind the request for a poll. It is also to be taken care of that the day on which the poll shall take place is not a national holiday.
If the date, venue, and time of taking the poll cannot be announced at the meeting it is the duty of the Chairman to inform the members about the methods and timing of such communication, which should be more than 24 hours before the conclusion of the meeting.
During the poll, the Chairman shall also be responsible for appointing a suitable number of individuals, as he considers necessary, to scrutinise the poll process and votes given on the poll. These individuals appointed by the Chairman shall also be responsible for reporting their findings to the Chairman as may be prescribed.
Appointment of scrutiniser by the chairman
The Chairman has the authority to appoint the scrutiniser for the purpose of overlooking the poll process, monitoring the votes cast, and providing a report on their findings. There is no limit to the number of scrutinisers that need to be appointed. It is the discretionary power of the chair to appoint any many scrutinisers as he deems necessary as per the volume of the work involved. According to Para 9.4 of SS-2, any individual who is a company secretary in practice, a chartered accountant in practice, a cost accountant in practice, or a reputable individual like an advocate, who is not employed by the company can be appointed as a scrutiniser by the Chairman.
As it is provided above there is no limit to the number of scrutinizers to be appointed by the Chairman, however, while appointing the scrutiniser, at least one of the scrutinizers should ideally be a Member present at the meeting, provided such a Member is available and willing to take on the role. In case of the appointment of multiple scrutinisers, again it must be ensured that at least one of them is a Member, available, and willing to act as scrutinisers. The scrutiniser appointed during remote e-voting and ballot processes may also be appointed for the poll.
The Chairman is also responsible for removing the scrutiniser from his duties. However, such a right can only be exercised if necessitated by the circumstances and before the poll result is announced. It is also important to mention that the Chairman is expected to exercise such power judiciously and not arbitrarily. Further, the Chairman is required to fill the vacancy in the srutiniser’s position created by such removal or any other cause.
Results of poll
Section 109(7) of the Act of 2013 stipulates that the result of the poll serves as the definitive determination of the meeting’s stance on the particular matter that prompted the poll. As per the provisions contained in Para 9.5 of SS-2, the scrutiniser appointed by the Chairman needs to submit its report to the Chairman within 7 days of the poll. The Chairman or any person authorised by the Chairman has the authority to declare the result of the poll. Where the poll is conducted immediately, the Chairman may declare the result of the poll orally at the end of the meeting. After the scrutiniser submits the report, the Chairman shall declare the result of the poll providing details regarding the number of votes for or against the resolution, any valid votes, and whether the resolution has been passed or not, within two days after receiving the report from the scrutiniser.
The report submitted by the scrutiniser must be countersigned by the Chairman himself or by the authorised director to whom this responsibility has been delegated. Further, it is mandatory to display the detailed outcome of the poll, including the votes cast, invalid votes, and resolution status in a prominent place on the company’s notice board at its registered office. Such information related to the result of the poll is also required to be placed at the head office and the corporate office if situated elsewhere than the registered office.
Once declared, the result of the poll is considered conclusive and final. The decision announced by the Chairman must be duly recorded in the Minutes of the Meeting to ensure proper documentation and transparency in the proceedings.
Voting by postal ballots
A “postal ballot,” is defined as Section 2 (65), the process of casting one’s vote by post or any other electronic means, thus permitting shareholders to participate in voting without having to physically attend the general meeting. Each item intended for approval via postal ballot must be introduced in the form of a Resolution and this must be accompanied by an explanatory statement. This statement should provide shareholders with complete information to give them a full idea about the context, importance, and implications of the proposed business item. Such a requirement will enable them to make informed decisions.
Which company can conduct business by postal ballots
As per the provisions provided in Para 16.1 of SS-1, every company, excluding those with two hundred Members or fewer, is mandated to conduct specific business items as prescribed solely through a postal ballot instead of transacting such business at a meeting. One-person companies are also not allowed to conduct voting through postal ballots.
Business to be transacted through postal ballots
The list of matters that need to be transacted by way of postal ballots by the companies is provided under Sub-section (1) of Section 110 read with rule 22 (16) of Companies (Management and Administration) Rules, 2014. The list comprises various resolutions including modifications to the objects clause of the memorandum, amendments to articles of association, changes in registered office location, alterations in capital utilisation objectives, issuance of shares with differential rights, variation in share class rights, share buy-back, appointment of a ‘small shareholders’ director, sale of company assets, loans or guarantees exceeding specified limits, and any additional resolutions as mandated by applicable laws or regulations.
Business that can not be transacted by postal ballots
Section 110(1) of the Act of 2013, grants the companies to transact their business through the means of postal ballots. However, there are certain matters that can not be decided on the basis of votes taken by way of postal ballots. These include ordinary business and any matters where directors or auditors are entitled to express their opinions or be heard during a meeting.
Section 102(2) of the Act of 2013 provides a list of businesses, typically transacted during the meeting, that are considered ordinary business. Activities like reviewing financial statements, along with the board’s and auditors’ reports, determining any dividends to be declared, appointing directors to fill vacancies left by those retiring, and selecting and determining the remuneration of auditors are a type of business that comes under the category of ordinary business. Such business can not be transacted by way of postal ballots. Nevertheless, it’s worth noting that the aforementioned ordinary business matters are eligible for transacting via the e-voting process.
The procedure of postal ballots
The procedure regarding conducting business through postal ballots is contained in Rule 22 of the Companies (Management and Administration) Rules, 2014.
Dispatching of notice and advertisement
The company must send a notice to all the shareholders entitled to vote in the meeting. The notice must be accompanied by a draft resolution elucidating the reasons for it and requesting them to send their assent and dissent in writing on the postal ballot provided to them with the notice. Such a postal ballot, which means voting by post or through electronic means, must be conducted within a timeframe of 30 days from the date on which the notice was dispatched. According to Rule 22, the notice must be transmitted through Registered posts or speed posts, electronic channels, such as registered email IDs, or courier services. The notice sent to the shareholders shall also be required to be posted on the website of the company immediately after the notice has been dispatched to the members. Such notice shall remain posted on the website till the date which is stipulated as the last day for receiving the postal ballots from the members.
The company is required to publish an advertisement at least once in a vernacular newspaper, using the principal vernacular language of the district where the registered office is located, and once in an English newspaper with wide circulation in that district, announcing the dispatch of ballot papers. This advertisement must include several key details like it should contain a declaration about the business that is going to be conducted through postal ballots, including electronic voting. It must also contain the specific date on which the dispatch of notice was completed along with the date of commencement and end of voting through postal ballots and electronic means. The advertisement is required to contain details regarding the invalidity of ballots if received after the stipulated deadline, irrespective of whether they are received by post or electronically. Moreover, the advertisement must contain a clarification that the members can request duplicate postal ballots if they have not received them or for any other valid reasons. It is also required that the advertisement should provide information like contact details for the purpose of addressing grievances related to voting, inclusive of voting by electronic means. Lastly, it is mandatory to provide details regarding the day, date, time, and venue for declaring the results in the advertisement along with the website link which members can visit and view the results declared.
It is also provided that the notice as well as the advertisement published by the company must clearly indicate the record date for the purpose of determining the voting rights of the members. It also provided further that any person who is not recorded as a member on this date shall consider such notice for informational purposes only.
Appointment of scrutiniser
A scrutiniser is appointed to oversee the voting process through postal ballots. The Board of Directors is responsible for appointing the scrutiniser for this purpose. The scrutiniser appointed by the company should possess the necessary skills to oversee the process impartially. The scrutiniser must be an individual who is either a Company Secretary in practice, a Chartered Accountant in Practice, a Cost Accountant in Practice, an Advocate, or any other person of repute who is considered eligible to scrutinise the postal ballot in a fair and impartial manner in the opinion of the Board. It is important that the scrutiniser so appointed is not in the employment of the company. Moreover, the scrutiniser after being appointed and in the discharge of his duties can take assistance from an individual who is not in the employment of the company and who possesses expertise in the e-voting system, if required. It is also to be noted that before appointing a scrutiniser his consent of being so appointed shall be obtained in writing. Such consent must be presented to the Board for acknowledgement. This ensures transparency and accountability in the appointment process, aligning with principles of good governance.
Duties of the scrutiniser
Upon receipt, postal ballots returned by shareholders shall be securely stored under the care of the scrutinizer. Once shareholders have expressed their assent or dissent in writing on a postal ballot, it is strictly prohibited for anyone to tamper with or destroy the ballot papers or to disclose the identity of the shareholders. This protocol ensures the integrity and confidentiality of the voting process, upholding the trust and confidentiality vested in the scrutinizer.
The scrutiniser is obligated to submit his report immediately after the last date of receipt of the postal ballots from the members. However, the submission of such a report shall not be made later than 7 days from the receipt of the postal ballots. He is also required to maintain a register, either manually or in an electronic form, maintaining the record of the assent and dissent received by the members through postal ballots. The register shall also contain details regarding each shareholder, together with information regarding any postal ballots that were received in a defaced form or mutilated condition, as well as those considered invalid.
Every postal ballot and all other related documents associated with postal ballots, including electronic voting, shall be in the secure and safe custody of the scrutiniser. The scrutiniser shall be responsible for the safe preservation of such documents until the Chairman reviews, approves, and signs the minutes. After the Chairman approves and signs the minutes, all such documents including the register maintained by the scrutiniser shall then be transferred to the company, which will safeguard them diligently.
Declaration of result
In case any assent and dissent are received by the company from the members after the 30-day timeframe from the issuance of the notice, then such response shall be considered as no response has been received from the member.
The result of postal ballots shall be declared by posting it on the website of the company, together with a scrutiniser report. Thus, it ensures transparency and accessibility of the outcome to all stakeholders. The result shall also be displayed at the registered office of the company as well as at the head office and the corporate office if such offices are situated at any other place than the registered office of the company.
Minutes of the Annual General Meeting (AGM)
Minutes, in reference to the proceedings of the meeting refer to the official recording of the proceedings and business conducted during a meeting. The minutes include deliberations, decisions, and every action taken by the participants. Section 118 of the Act of 2013 requires every company to keep the minutes consisting of fair and correct details about the proceedings of the meeting and resolution passed by postal ballot. According to Section 118(1), the minutes have to be prepared and kept within 30 days from the conclusion of the meeting and the passing of the resolution by postal ballots.
Importance of minutes
Every company is mandated to keep the Minutes of all its meetings in strict compliance with the Act. According to Section 118(7), these Minutes act as legal evidence of the proceedings documented as part of the meeting. It has been provided under Section 118(8) that if the minutes are kept in strict observational of provisions contained under above mentioned Section, it is regarded that the meeting has been held in accordance with the required standards and has been correctly convened and conducted with all proceedings executed well, including the resolution passed in the postal ballots and any appointment made in the meeting. However, failure to adhere to these standards can render the Minutes inadmissible as evidence, as illustrated in the case ofMarble City Hospitals and Research Centre (P.) Ltd. vs. Sarabjeet Singh Mokha (2009). Consequently, Minutes hold significant statutory importance, serving as crucial evidence until proven otherwise.
Content to be included in the minutes
As per Section 118(2) the minutes shall provide fair and accurate information regarding the proceeding and business conducted in the meeting. In addition to this, according to Section 118(3), if in the proceedings of the meeting any appointment has taken place, the minutes shall also contain a detail regarding such an appointment.
Content that shall not be included in the minutes
The Chairman of the meeting has been entrusted with the discretionary power under Subsection (6) of excluding and including the matter on the grounds provided under Section 118(5). This Section provides that if in the opinion of the Chairman, the matter to be included in the minutes is defamatory, irrelevant, or immaterial, or which are detrimental to the interests of the company, such matter shall be excluded from being recorded in the minutes.
Maintenance of minutes
According to Section 118(10), every company is required to observe the standard provided under SS-2 regarding meetings held by the company. Para 17.1 of the SS-2 provides provisions regarding the maintenance of the minutes of the meeting. Minutes for every meeting shall be recorded in the books maintained for that purpose. Companies are required to maintain separate minutes books for different meetings namely General Meetings of the Members; Meetings of the Creditors; Meetings of the Debenture Holders; and Meetings of a class of Members. The minutes for recording resolution passed by postal ballots shall be recorded in the minutes maintained for the general meeting of the members.
According to Rule 27(1) of the Companies (Management and Administration) Rules, 2014, a company is afforded the flexibility to maintain its Minutes in either physical or electronic form. For companies listed on stock exchanges or those with a significant shareholder base exceeding one thousand individuals, debenture holders, or other security holders, this regulation grants such entities the option to maintain their records electronically.
Content of the minutes
Minutes of a meeting serve as a vital record of proceedings and must meticulously capture essential details to ensure accuracy and transparency. The contents of the minutes are classified into two categories, i.e., general and special content. Such a classification of the contents of the minutes is provided under Para 17.2 of SS-2.
General content
At the outset, the Minutes must contain pertinent information, including the name of the company, along with the date, time, venue, and duration of the Meeting’s commencement and conclusion. If a Meeting is adjourned, the information regarding both the original and adjourned sessions must be meticulously documented within the Minutes.
In instances where a Meeting is convened but subsequently adjourned due to a lack of Quorum, the Chairman or any attending Director must expressly note this occurrence in the Minutes. Furthermore, the Minutes should meticulously list the names of the Directors and the Company Secretary present at the Meeting, ensuring a comprehensive record of attendance.
To streamline readability and organisation, the names of the Directors should be presented in either alphabetical order or any other logical sequence. Regardless of the chosen order, it should commence with the individual presiding over the Meeting.
Specific content
As per Para 17.2.2 of SS-2, the specific content of minute included the following:
The record of the election, if conducted, of the Chairman of the Meeting, ensuring clarity regarding the individual presiding over the proceedings.
Confirmation that prescribed registers, documents, the Auditor’s Report, and the Secretarial Audit Report were available for inspection, demonstrating compliance with statutory requirements.
Documentation of the presence of a Quorum is essential for the validity of the Meeting.
Enumeration of the number of Members present in person, including representatives, along with the proxies and the shares represented by them, providing a clear picture of attendance.
Notation of the presence of Committee Chairmen or their authorised representatives, ensuring proper representation from key governance bodies.
Inclusion of the presence of external parties such as the Secretarial Auditor, Auditors, or their authorised representatives, as well as any Court/Tribunal-appointed observers or scrutinizers, if applicable.
Summary of the opening remarks made by the Chairman, outlining the initial discussions and context of the Meeting.
Reading and discussion of qualifications, observations, or comments on financial transactions or matters impacting the company’s functioning, as noted in the Auditors’ Report.
Summary of qualifications, observations, or comments from the Secretarial Auditor’s report, shedding light on compliance and governance issues.
Overview of the clarifications provided on various Agenda Items, ensuring transparency and understanding among attendees.
Detailed documentation of each Resolution proposed, including the type, names of proposers and seconders, and the majority with which it was passed. Any modifications to proposed Resolutions and the voting outcomes for such amendments should also be recorded.
In cases of a poll, the names of appointed scrutinizers and the voting results, including the number of votes for and against the Resolution, as well as any invalid votes.
Notation of any instances where the Chairman vacated the Chair, specifying the Director or Member who assumed the role in their absence.
Documentation of the time of commencement and conclusion of the Meeting, providing a clear timeline of proceedings.
By meticulously recording these details, the Minutes serve as a comprehensive and reliable reference, ensuring accountability and adherence to regulatory requirements.
Recording of minutes
The practice with regard to the recording of minutes varies by company. For instance, one company will only record the decisions while the other will only record the resolution that encapsulates those decisions. There are some companies that would meticulously transcribe the entire proceedings, providing a comprehensive account of the Meeting. Thus, there are no fixed criteria for recording the minutes of the meeting. Therefore, with an aim of providing consistency and clarity in the practice of recording minutes of the meetings by the company, SS-2 has provided a standard for recording minutes to streamline these diverse practices.
As per the standard provided under SS-2, minutes should be structured to make sure that any reader can easily comprehend the information provided in the minutes relating to the discussions and decisions made during the meeting.
The minutes should record the proceedings of the meeting in a concise manner and it should be fair and accurate. It is not required to record every reason for the decision taken or everything that is said in the meeting. In other words, it should not contain all arguments given in favour of or against a resolution proposed to be decided. The minutes should present a clear synopsis of the proceedings in simple language.
In order to maintain clarity and consistency, Para 17.3.2 provides that the minutes should be written in plain and simple language and in the third person and past tense. The minute should maintain a formal tone throughout. It is further provided that in case of recording resolution, it shall be recorded in the present tense to accurately reflect ongoing actions or decisions.
According to Para 17.3.1 of SS-2, the Company Secretary is responsible for recording the proceedings of the meeting. In the absence of a Company Secretary, any other individual duly authorised by the Chairman or the Board of Directors shall be responsible for such recording on his behalf. The Chairman presiding over the meeting is obligated to ensure that the proceedings of the meeting are recorded properly.
The inspection of the minutes of the meeting
The provisions regarding the inspection of minutes of the meeting are stipulated by Section 119 of the Act of 2013. The Section specifies that the minutes must be kept at the company’s registered office. It further provides that access to the minutes book should be granted to members during business hours without any charge, adhering to restrictions imposed by the company, which could be outlined in its articles or decided upon in a general meeting. However, the company must allow for a minimum of two hours each business day for inspection.
Section 119 Subsection (2) mandates the company to furnish a copy of the minutes of the meeting within seven working days upon request by an individual. A fee may be charged for furnishing a copy of the minutes, however, such a fee shall not be more than 10 rupees for each page or part thereof. In case soft copies of the minutes of the meeting from previous general meetings held in the past three financial years are requested by the member, such copies shall be provided by the company free of cost.
It has been further provided under Subsection (4) of Section 119, that the Tribunal has the authority to order an immediate inspection of the minutes of the meeting or direct a forthwith delivery of the copy of the minute to an individual as requested by him. Such authority of a Tribunal is in addition to his power of penalising the company in the event of any default with regard to the provisions contained in this Section.
Penalties
Section 118(11) and Section 118(2)and Section 119(4) contain penalties regarding default in complying with the provisions related to minutes of the meeting, found tampering with the minutes, and refusing to furnish the minutes when requested by the members respectively.
As per Section 118 (11), if the company defaults in complying with the provisions of this Section and the minutes are not recorded or maintained properly, the company and every officer in default shall be liable to pay Rs. 25000 and Rs 5000 respectively. In addition to this and as provided by Section 118(12), any individual who tampers with the minutes of the meeting shall be punished with imprisonment for a maximum term of 2 years and shall also be liable to pay a fine of a minimum Rs. 25,000 that may extend to Rs. 1,00,000.
Report on annual general meeting
It is mandatory to prepare a report on each general meeting conducted by the company, which is then required to be submitted to the registrar of the company. The provisions regarding the report on the general meeting are provided under Section 121 of the Act of 2013. Subsection (1) of Section 121 outlines that every public company is required to prepare a report and such a report must contain a confirmation that the general meeting was convened, held, and conducted in accordance with the provisions of the Act and the rules therein.
Thereafter, the listed company is required to file a copy of the report in the form as may be prescribed, by the Registrar. A report has to be filed within 30 days from the conclusion of the general meeting as provided in Subsection (2). Further, the filing must be accompanied by the prescribed fee or any additional fees as prescribed, within the timeline specified under Section 403 of the Act of 2013.
Filing a report on a general meeting constitutes an important aspect with regard to ensuring transparency and fairness, therefore any failure to comply with such a requirement is penalised. As per Section 121(3), failure to adhere to the filing requirement within the timeframe as provided under Section 403 of the Act of 2013 shall result in imposing fines that may range from 1 lakh rupees to five lakh rupees. In addition to this, any officer who is found to be in default shall also be fined with a minimum of Rs. 25,000 which may go up to one lakh rupees.
The provisions regarding a report on the general meeting are also contained in the Companies (Management and Administration) Rules, 2014. According to Rule 31, the report shall be prepared in addition to the minutes of the general meeting, providing an additional record of the proceedings of the meeting. Similar to the minutes of the meeting, the report shall also contain brief details regarding the proceeding of the meeting which should be accurate and fair.
As per Para 19 of the SS-2, the report shall be signed by the Chairman and in his absence by two directors, one of whom should be the managing director and the other one should be a Company Secretary. The report must contain details such as the date, time, venue of the annual general meeting, confirmation of the Chairman’s appointment, the number of attending members, confirmation of quorum, adherence to legal and regulatory requirements, business transactions and outcomes, summary of discussions, information regarding any adjournments, postponements, or venue changes, and any other relevant points deemed necessary for inclusion
Applicability of the provisions to one person company
Section 122 of the Act of 2013, specifies that certain provisions, including Sections 98 and sections 100 to 111, do not apply to one-person companies. In the case of a one-person company, any business that necessitates resolution at a general meeting can be handled differently. Instead of convening a physical meeting, the member of the one-person company can communicate the resolution directly to the company. This communication should be duly recorded in the minute book maintained by the company. Upon recording the resolution, the member is required to sign and date the minute book entry. The date of entry in the minute book is deemed to be the date of the meeting for all practical purposes concerning the resolution communicated by the member. This provision simplifies the process for OPCs, allowing them to handle resolutions without convening formal meetings, thereby streamlining administrative procedures.
Conclusion
The Annual General Meeting serves as a cornerstone of corporate governance under the Act of 2013, providing shareholders with a crucial platform to exercise their rights, engage with company leadership, and oversee key decisions. Ensuring compliance with legal requirements, such as timely convening and proper conduct of the meeting, is essential for maintaining transparency, accountability, and trust between companies and their stakeholders. By adhering to statutory provisions, including those outlined in the Act of 2013 and related regulations such as SS-2, companies can foster effective communication, address concerns, and uphold the principles of corporate democracy. It is the responsibility of the Board of Directors of the company to follow the procedure of conducting the meeting as provided under the Act of 2013, as such noncompliance will render the meeting invalid and lead to the imposition of penalties on the company for such non-compliance. Annual general meetings, therefore, play a pivotal role in shaping the direction and governance of companies, contributing to their long-term sustainability and success in the business landscape.
Frequently Asked Questions (FAQs)
What is the provision related to the first Annual General Meeting?
As per the provisions of Section 96 of the Act of 2013, the first meeting of a newly incorporated company shall be held within the period of nine months from the date of the closing of the first financial year of a company.
What is a quorum and why is it required?
The term “quorum” refers to the minimum number of members that is required in order to start with the proceedings of the meeting. It is required for a meeting to be constituted appropriately and the proceedings to be considered valid.
What is a resolution?
Every business of the company is determined by way of proposing the resolution and passing it by the prescribed majority of members present and attending the meeting. As per Section 114 of the Act of 2013, resolutions are of 2 types, i.e., ordinary resolution and special resolution.
How many members can a proxy represent?
A proxy can act on behalf of the members, not more than 50 members, or hold more than 10 percent of the total share capital with voting rights. If a member holds more than 10 percent of the total share capital with voting rights, then such a member can appoint a single proxy representing such shareholding, but he can not represent any other member or shareholder.
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Amongst various ways that the word ‘Will’ is understood, the one which means an instrument by which one gets to exercise his authority even beyond one’s lifetime surely is the most powerful usage of the word. In our quest to live life, we often fail to account for the time when we will live no more. The wealth that we accumulate to secure the lives and comforts of our dear ones will one day be disposed of by the law of the land and if not for will, there would be no means to fairly disburse our wealth to those for whose future we care.
If not for a will, the person is said to have died intestate, and her/his property devolves upon her/his heir and legal representatives by virtue of the law of the land.
“Will” means the legal declaration of the intention of a transfer with respect to his property that she/he desires to carry into effect after her/his death.
A will is an instrument that becomes operative only upon the death of the testator, i.e., the one who has executed the will. Thus, it follows that when a person owning a certain property wants to enjoy that property during her/his lifetime and further bequeaths the same to some specific person/s in a specific manner, she/he has the option of doing so in a way that would be enforceable.
What can be the subject-matter of a will
All property, whether tangible or intangible, that is owned by the testator and is transferable can be the subject matter of a will. This includes one’s share of ancestral property. Tangible property refers to physical objects that can be seen and touched, such as vehicles, furniture, and jewellery. Intangible property, on the other hand, refers to non-physical assets, such as stocks, bonds, and intellectual property. Both types of property can be devised to beneficiaries through a will.
Ancestral property holds special significance in many cultures and legal systems. It refers to property that has been passed down from generation to generation within a family. In some jurisdictions, ancestral property may be subject to specific rules and regulations regarding its inheritance and disposition. However, unless there are legal restrictions or customary practices that prohibit it, a person’s share of ancestral property can generally be included in their will and distributed according to their wishes.
It is important to note that the laws governing the disposition of property will vary from one jurisdiction to another. Therefore, it is advisable to consult with a qualified legal professional to ensure that the will is drafted in accordance with the applicable laws and that the testator’s wishes are carried out as intended.
Who need not make a will
If the person in question has no property, either moveable or immovable, nor expects to earn any during his lifetime, there is no question of having to make provisions for its devolution.
If the person wishes that the property, whether movable or immovable, devolves upon his/her heirs and legal representatives as per the provisions of the succession laws that he/she is governed by.
Who cannot make a will
A person who has not attained a majority.
A person who is of unsound mind or, by reason of any disability, unable to comprehend the substance of the will.
Who can be a witness
Although some personal laws like Hindu, Buddhist, Sikh, Jain or Mohammedan laws allow even legatees to be attesting witnesses, it is highly recommended that where there are options available, legatees may not be made a witness.
Note: If the will is being drawn at the behest of a Parsi or a Christian testator, the witnesses cannot be legatees.
Checklist for a valid will
The checkpoints that need to be observed while making a valid, enforceable (unprivileged) will be enumerated as follows:
The testator must be a major and have a sound mind. To ensure this, it is recommended that a doctor’s certificate accompany the will.
In the landmark case of Kishan Singh vs. Nichahattar Singh (1983), the court delved into the complex legal issue of testamentary capacity and its relation to physical and mental impairments. The case centred around the validity of a will executed by an individual suffering from cancer of the back and head, as well as being deaf and dumb.
The court recognised that the testator’s physical and sensory impairments raised questions about their ability to comprehend the nature and consequences of their actions when executing the will. However, the court carefully examined the evidence presented and found that, despite the testator’s disabilities, they possessed sufficient mental capacity to make a valid will.
The court reasoned that the testator’s ability to communicate and understand through sign language, along with other forms of nonverbal communication, demonstrated a level of comprehension that was adequate for testamentary purposes. The court also considered the testator’s interactions with family members, friends, and medical professionals, finding that they exhibited a consistent understanding of their property and wishes.
The court’s decision in this case highlighted the importance of assessing testamentary capacity on an individual basis, taking into account the specific circumstances and abilities of the testator. It established the principle that physical and sensory impairments, while potentially affecting communication and understanding, do not automatically render a person incapable of making a valid will.
The case of Kishan Singh vs. Nichahattar Singh serves as a precedent in Indian law, guiding future determinations of testamentary capacity in cases involving individuals with disabilities. It underscores the need for a balanced and individualised approach, ensuring that the rights and wishes of all individuals are protected in the context of estate planning.
The property that is the subject matter of the bequeath should be her/his own property, which she has/would have a right to transfer if alive.
The manner of bequeathing, as desired by the testator, should be reduced to writing. The writing should clearly and unambiguously instruct the manner of bequeath. It is further recommended that the rationale of distribution/bequeath be also narrated.
The testator has to sign or affix his marks to the will (or, in certain exceptional cases, it may be signed by some other person in the presence and under the direction of the testator) in a way that it shall appear that it was intended to give effect to the instrument of the will.
The will so made needs to be attested by two or more witnesses who have seen the testator sign or affix his mark to the will.
Section 63 of the ISA provides in detail the rules to be followed for the execution of unprivileged wills, which are ordinarily the ones that an ordinary person executes.
The other kind of will is the privileged will governed by Section 65 of the ISA, which is meant to govern a testator who, by reason of expedition or being engaged in actual warfare, is entitled to bequeathing property by oral will.
Multiple wills by a testator
As observed in Vimla L. Rajani & Anr vs. Asha Kanayalal Bajaj & Anr (2012). It is permissible for a person to make two or more distinct wills or codicils for different parts of his property. The testator may execute different wills with respect to different properties. As long as each of the wills can be read independently of each other and whose contents do not affect each other, each such will is a valid will and can be enforced upon the death of the testator.
In cases where the subject matter of the wills is the same property, the will of a later date will be enforceable, provided the intention to revoke the former will is clear. Therefore, a general revocatory clause revoking all the former wills and codicils is incorporated in wills and codicils.
What is a codicil
Where a will is already executed and the testator wishes to make any changes by way of addition, deletion, or alteration, the same may be done by way of executing another instrument following the same checklist as recommended for execution of the will, except that there will be a mention of the previous will in the context whereof the changes are proposed to be incorporated. Once executed, the codicil has to be read together with the will, in respect of which it is said to be the codicil. Thus, in cases where the will is revoked and the codicil is still operative, the contents of the revoked will may still be relevant for the purpose of reading and giving meaning to the codicil.
Revocation of will
The testator at any time may revoke the will by writing a declaration of intention to revoke, in which case such writing shall be signed by the testator and attested by two witnesses who acknowledge its execution before them. Alternatively, a will may be revoked by burning, tearing, or destroying it either by the testator or by a third person in the presence of the testator. (Note: In case where such act of burning, tearing, or destroying the will is done by a third person, such act of burning, tearing, or destroying the will must take place in the presence of the testator and must be under his instructions.)
Status of codicil when the will is revoked
A codicil shall be deemed to be revoked only if it can be shown that the testator, while revoking the will, also intended to revoke the codicil.
Registration of will
The registration of a will, while not legally required, is strongly recommended for several compelling reasons. By registering a will with the appropriate authorities, such as a court or government agency, it gains increased legal standing and validity. This process involves the official recording and authentication of the document, making it more difficult to challenge or contest its authenticity in the future.
Enhanced legal recognition
A registered will is recognised as a legal document and is given greater weight in court.
It provides a higher level of proof of the testator’s intentions and wishes.
Protection against fraud and undue influence
Registration creates a public record of the will’s existence, making it more difficult for unscrupulous individuals to alter, forge, or destroy the document.
It serves as an additional safeguard against fraud and undue influence, ensuring that the testator’s true wishes are respected.
Facilitated probate process
A registered will simplifies the probate process, which is the legal procedure for validating a will and distributing the testator’s assets.
Since the will’s authenticity and validity have already been established, it reduces the likelihood of legal challenges and complications during probate.
Streamlined transfer of assets
A registered will enables the smooth and efficient transfer of assets to the intended beneficiaries.
It provides clear and legally binding instructions regarding the distribution of the testator’s property, reducing delays and disputes among heirs.
Peace of mind for testators and beneficiaries
Registering a will gives testators peace of mind, knowing that their final wishes are properly documented and legally enforceable.
It also provides comfort to beneficiaries, who can be confident that the testator’s intentions will be carried out as intended.
Adherence to legal requirements
While registration may not be mandatory in all jurisdictions, complying with this formality demonstrates the testator’s adherence to legal requirements and their commitment to ensuring the validity of their will.
Procedure for enforcement of will
In cases where an executor has been appointed in the will, such executor may make an application before the appropriate court for the issuance of a probate.
Probate is defined under Section 2(f) of the Indian Succession Act. It means the copy of a will certified under the seal of a court of competent jurisdiction with a grant of administration to the estate of the testator.
where the will is not in English, an English translation of the will;
The death certificate of the testator (and also identity and last residence proofs);
a schedule of the property and credits which have or are likely to come to the petitioner’s hands;
a schedule showing debts of the deceased;
a schedule of the property, if any, held by the deceased in trust for another and not beneficially or with general power to confer a beneficial interest.
The procedure for enforcement of a will involves several steps to ensure the proper execution and distribution of the deceased’s assets according to their wishes.
Probate process:
The will must go through the probate process, which is the legal procedure of authenticating the will and administering the estate.
The court appoints an executor, who is responsible for carrying out the terms of the will.
The executor files the will with the probate court, along with a petition for probate.
The court reviews the will to determine its validity, including whether it meets the legal requirements and was executed properly.
The court issues an order admitting the will to probate, which officially recognizes it as a legal document.
Notification of heirs and beneficiaries:
The executor notifies the heirs (family members and other individuals named in the will) and beneficiaries (those who inherit property or assets from the will) of the deceased’s passing and the existence of the will.
The executor provides copies of the will to the heirs and beneficiaries or their legal representatives.
Inventory and valuation of assets:
The executor creates an inventory of all the deceased’s assets, including real estate, bank accounts, investments, personal property, and any debts or liabilities.
The executor determines the value of each asset, either through appraisals or established market prices.
Payment of debts and taxes:
The executor pays off any outstanding debts and taxes owed by the deceased.
Priority is given to secured debts (such as mortgages) and taxes, followed by unsecured debts (such as credit card balances).
Distribution of assets:
After debts and taxes are paid, the executor distributes the remaining assets to the beneficiaries according to the terms of the will.
The executor may use cash, transfer titles, or distribute specific assets as outlined in the will.
If there are any disputes about the distribution, the executor may seek guidance from the prrobate court.
Accounting and reporting:
The executor is required to keep detailed records of all financial transactions related to the estate.
Periodic accounting reports are provided to the beneficiaries and probate court.
Closing of the estate:
When all debts, taxes, and distributions have been handled, the executor files a final accounting with the probate court.
The court reviews the accounting and, if satisfied, issues an order closing the estate.
Post-probate matters:
After the estate is closed, the executor may assist beneficiaries with transferring assets into their own names, updating titles, and handling any ongoing legal or financial matters related to the inheritance.
It’s important to note that the procedure for enforcement of a will may vary depending on the specific circumstances, local laws, and the complexity of the estate. Seeking legal advice from an estate attorney is recommended to ensure compliance with legal requirements and proper administration of the estate.
Letter of administration
In cases where an executor has not been nominated under the will or where executor/s though nominated, have expressed their disinterest in acting as the executor of the will, the proponent of the will may apply for the letters of administration in the same manner as the executor could have applied for probate.
Whether probate or letters of administration, the court will only, upon verifying the claims, grant a[ certificate thereto. A letter of administration can also be applied for in the event of an intestate death. It is this probate or letter of administration which lends the executor/ administrator the right to legally deal with the property in question
Anyone who owns any valuable property and is desirous of ensuring that the same devolves in a specific way, not being the same as it would if he should die intestate, may do so by drawing a will in a manner that expresses his such desire. Whether by reason of estate planning, differentiating a nominee from the beneficiary, choosing a guardian for minor beneficiaries, or donating for some social cause, a will is the way to go. Clearer the terms of the will, less hassle for those who inherit.
Tea is one of the most popular and widely consumed beverages in the world. The major tea growing countries in the world are India, China, Sri Lanka, Kenya and Indonesia. These five countries manufacture 77% of world tea and 80% of global export. Today, India is the world’s largest producer of tea, with two primary regions, Assam and Darjeeling. In the mid-19th century, the British introduced tea plants from China, and since then, tea has been the most significant industry in India, Nepal and Sri Lanka.
Supply chain of tea
India is the largest consumer of tea. Indian tea manufacturing is a lengthy process that starts with tea producers in tea gardens. The tea processors are tea factories where withering, rolling, fermenting, drying, blending and packaging are carried out. The tea is then sent to auctions, logistics and finally the retailers. The tea growing states in India are Assam, West Bengal in the north east and Tamil Nadu and Kerala in the south.
Three firms control one-fifth of the tea market. Unilever 12%, Tata Global Beverages 4% and Twinings 2% constitute a fifth of the global market. These firms source their products through a complex set of intermediaries, from producer to processor to blender. These inter-firm relationships contain significant degrees of power asymmetry, with implications for the capture of value at each stage of the production process. The Tea Board of India plays a crucial role in promoting and marketing Indian tea, both domestically and internationally. The supply chain of tea on the Indian subcontinent is a complex and fascinating process. It begins with the cultivation of tea plants in the lush, verdant hills of the region. The tea plants are carefully tended to and nurtured by skilled farmers who use traditional techniques passed down through generations. Once the tea leaves are mature, they are harvested by hand and transported to processing facilities.
At the processing facilities, the tea leaves undergo a series of steps to transform them into the finished product. First, the leaves are withered, which removes excess moisture. Then, they are rolled, which helps to release the tea’s flavour and aroma. The rolled leaves are then oxidised, a process that gives tea its characteristic colour and taste. Finally, the tea is dried and sorted into different grades.
The finished tea is then packaged and shipped to distributors and retailers around the world. Along the way, it may pass through several intermediaries, such as wholesalers and brokers. Each intermediary plays a vital role in ensuring that the tea reaches consumers in a timely and efficient manner.
The supply chain of tea in the Indian subcontinent is a global network that connects farmers, processors, distributors, and consumers from all over the world. It is a testament to the enduring popularity of tea and the ingenuity of the people who bring it to our cups.
Here are some additional insights into the supply chain of tea in the Indian subcontinent:
Cultivation: Tea is grown in a variety of regions across the Indian subcontinent, including Assam, Darjeeling, and Nilgiri. Each region produces tea with its own unique flavour and aroma.
Processing: The processing of tea is a delicate and time-consuming process. It requires skilled workers and specialised equipment.
Distribution: Tea is distributed to consumers through a variety of channels, including supermarkets, specialty stores, and online retailers.
Sustainability: The tea industry in the Indian subcontinent is facing a number of challenges, including climate change and the rising cost of labour. However, there are a number of initiatives underway to promote sustainable tea production.
Assam tea value chains
There are two supply chains of Assam Tea. One is that tea from large tea estates or small tree growers goes either to warehouses or to private factories. Tea factories process tea leaves and from the warehouse, the teas go to auction for blending or to national buyers for export. These are further sent to distributor/wholesaler wholesalers, retailers smaller retailer and then consumers.
The second supply chain of Assam tea is small tree growers who sell tea leaves to bought leaf factories and co-operative factories. The processed tea from the factories is then sent to national and international buyers. The tea from here either goes to branded teas or to retailers for loose tea and branded teas.
Supply chain Darjeeling tea
Darjeeling tea is also called Champagne tea and is a high grade tea that is an important contributor to Darjeeling’s economy. Darjeeling tea manufacturing follows sustainable farming, which has resulted in organic farming and biodiversity conservation and the hilly tea farms have led to scenic beauty that promotes tourism in Darjeeling. The tea from gardens is sent to factories/warehouses. The factories, too, are major tourist attractions. The tea from the farms goes to auctions or private players and then to exporters.
One major issue with Darjeeling tea plantations is that the tea bushes have aged and replacement needs to be carried out in a scientific manner.
Supply chain Nilgiri tea (Ooty)
The Nilgiri tea goes to factory managers/garden managers, where it’s taken to the factory and then to consumers. India exports a significant portion of its tea production, with the United Kingdom, Russia, and the United States being major importers.
Diagram 1: Vertical Integration of Indian Tea
Indian green tea is exported to Germany, the USA, the UAE, Australia, the United Kingdom and the Netherlands. Indian black tea is exported to Iran, Russia, USA, UAE, Kazakhstan, UK and Germany.
Challenges
By 2013, 90% of the tea manufactured in India was consumed domestically. The growth in the domestic market is correlated to the changing consumer preferences of Indian consumers. As disposable income has risen, consumers have switched from loose leaf teas towards premium, branded categories. The Indian tea industry continues to evolve, with a focus on quality, sustainability, and innovation. Small-scale producers are now focusing on crafting high-quality loose leaf tea, offering a variety of green, white and oolong teas, with direct sourcing of high quality organic loose leaf teas, thus eliminating the complex structure of the tea industry, empowering Indian tea producers and connecting them with global buyers.
Sri Lankan tea industry
Sri Lankan tea contributes to 14 % of the total export earnings of the country. Ceylon tea has a global reputation for its taste and aroma. However, increasing competition from countries like India, Kenya and Indonesia has resulted in low market share and lower prices in international markets. Also, the importer-exporter relationship, value addition and relationship quality between the exporter and importer affect the competitive advantage in the Sri Lankan tea business.
Marketing Sri Lankan tea in developed countries is not managed by exporters due to reasons of conflict, control and power. Value creation, like marketing and packaging, in Sri Lankan tea is dependent on the characteristics of supplier – buyer relationship.
Sri Lankan family owned tea companies successfully export their own brand to developed countries, have direct contact with the buyers and thus have a competitive advantage. Presently, price is the most important factor in exporting Sri Lankan tea. The supply chain inefficiencies are due to short term individual stakeholder interests.
The highest grade for Western and South Asian black tea is ‘orange pekoe’, and the lowest is ‘fannings’ or ‘dust’. Sri Lanka produces tea throughout the year due to its climatic conditions. Sri Lankan tea exports have declined due to currency depreciation due to the politics of the country.
There are two types of tea cultivation. One is the smallholder sector, which is owned by private owners and the second is the estate sector, which is managed by tea cultivators. 41% of Ceylon tea is exported in bulk and blended with others, so new product benefits do not come to the country. Export companies have wide knowledge of overseeing customer preferences, but a gap between manufacturers and exporters has resulted in a lack of knowledge flow in the tea value chain.
Sri Lankan Orthodox tea appeals to the world market for its aroma, texture and flavour. The major reason for the low production of value added tea is a lack of technology.
Opportunities
There are multiple opportunities for tea business expansion in Sri Lanka. The tea tourism concept can be introduced. Many teas are unique to Sri Lanka and are not found anywhere else in the world. Ceylon tea is the cleanest tea in the world and has a good reputation in the world market. Nuwara Eliya, Dimbula, Uva and Uda Pussellawa, Ruhuna and Sambaragamuwa are types of Ceylon teas only found in Sri Lanka. Organic tea, and healthy tea marketing can boost Sri Lanka’s GDP. Thus, we see that women’s empowerment, decreasing time from farmers to exports, and enhancing mobile applications and technology will help Sri Lanka achieve increased profitability and overall sustainability in the tea industry.
Nepal tea industry
Nepal contributes to 0.2% of the global tea. 12-15% Orthodox tea is grown here, Nepal CTC tea is of low quality; and green tea grown here is export quality. Initially, Nepal tea leaves were sent to Darjeeling for processing, but Nepal has made tea a fully commercial industry.
The expensive Orthodox is exported to Europe, Germany, and the USA, and the cheaper CTC is exported to India & Pakistan to meet local demand. Green tea is exported to India, Germany and other developed countries.
One challenge in the supply chain of Nepal tea is that it is sold in small portions. The developed countries need tea of larger quality and in single consignment. These initiations have been taken by tea growers in Nepal to meet the bulky demands. Nepal is planning to increase the exports of green tea, which has higher demand and is also marketed for health benefits.
Issues tea industry will face in the future
Climate change, like change in weather patterns, leads to decreased quality of tea leaves; labour shortages in tea growing regions can impact the cost of tea, sustainability concerns the growing demand for conserving natural resources and reducing climate impact; and transport and logistics challenges.
As tea is a commodity, any natural disasters and trade policies like those in Sri Lanka lead to logistical issues affecting the availability and price increase for consumers. Increased transportation costs, labour costs, and fuel costs lead to an increase in consumer demand. Food and safety regulations can lead to an increase in costs, and non-compliance can lead to penalties and fines. Competition from other beverages is one of the issues the tea industry will face in the coming years.
In order to stay competitive, the tea industry needs innovation, unique blends, and marketing to attract retail customers.
Conclusion
Tea is a cash crop that is presently in high demand in developed countries. The tea drinking choice is shifting from local CTC to luxury flavoured Orthodox and spiced green teas.
As the Indian subcontinent, with countries like Nepal, India, and Sri Lanka having their own advantages, we see that the main changes done in the supply chain are reducing the time from farmers to consumers and this has benefited the entire vertical supply chain. The tea available to the consumer is fresher and valued for its spices and blends. Also, the lead time reduction has helped the manufacturers with cash flow.
The challenges included value addition at the manufacturer level, which can be advanced with information sharing using apps and customer feedback through exports and importers.
This article has been written by Jay Vyas and has been further updated by Syed Owais Khadri. This article provides a comprehensive study of the ruling rendered by the Hon’ble Apex Court in Lalita Kumari v. Govt. of U.P. It delves into the facts, arguments and the judgement and its reasoning in detail. It also sheds light upon the point of law involved in the case. Additionally, the article also attempts to provide a detailed analysis of the judgement.
Table of Contents
Introduction
On 13th November 2013, a five Judge bench of the Hon’ble Supreme Court of India passed a landmark judgement which is cited even today amid the Rafale case. The Apex Court in this judgement ruled that a police officer must mandatorily register an FIR under Section 154 of the Code of Criminal Procedure, 1973(Hereinafter referred to as CrPC) if the information received discloses the commission of any cognizable offence.
The author discusses the ruling of Lalita Kumari v. Govt. of U.P. (2013) in a detailed manner. The article begins with a brief note of the facts of the case, followed by the pertinent issues that were adjudicated upon in the ruling. It then sheds light on the important legal provisions that are discussed in the case and proceeds with understanding the contentions from both sides. This is followed by briefly looking into the judgement and the ratio decidendi of the ruling. The article concludes by touching upon the likely consequences of an FIR registration against a citizen and the social stigma attached to it, which poses a major concern.
Details of Lalita Kumari v. Govt. of U.P
The following are some of the important details of the case discussed in this article-
Case Name – Lalita Kumari v. Govt. of Uttar Pradesh and others.
In the instant case, Ms. Lalita Kumari, a minor, filed a writ petition under Article 32 of the Indian Constitution, with the Supreme Court of India, through her father, Bhola Kamat. In the current case, the petitioner asked the Hon’ble Apex Court to grant a writ of habeas corpus, directing the police to find, produce, and protect the minor child who was kidnapped.
The petition stated that the police did not take any action when the petitioner approached the concerned police station by submitting a written complaint on 11th May 2008. It further stated that the FIR was only registered after moving the complaint to the Superintendent of Police but no further action was taken after registration of FIR to locate the minor girl child or to apprehend the accused in the case.
Following the admission of the instant petition, a two-judge Supreme Court bench issued notices to the relevant authorities directing them to approach the concerned magistrates for the issuance of appropriate directives to the police, asking them to file a formal complaint and begin an investigation if they refuse to do so right away and provide the complainants with a copy of the file. The Court stated that if the police officers disobeyed the orders, contempt charges would be brought against them.
In furtherance of the above directions in the case, upon hearing arguments from both sides, the two-judge bench of the Apex Court referred the case to a larger bench due to the inconsistent rulings made on the current issue over multiple judgements.
The three-judge bench, upon hearing the arguments from the petitioners as well as the respondents, noted the divergent rulings in numerous cases and held that it would be appropriate to refer the case to a five-judge Constitution bench for laying down a clear law on this issue to avoid contradicting opinions.
Therefore, the instant petition is before a five-judge Constitution bench for consideration of the issue of registration of FIR under Section 154 of the Code of Criminal Procedure, 1973.
Issues
Whether the victim’s or complainant’s entitlement to a speedy investigation of their complaint following allegations, can be compromised by the police’s potential for manipulation as a result of the refusal to immediately register an FIR?
Whether the police officer should mandatorily register an FIR under Section 154 of the Code of Criminal Procedure, 1973 relating to a Cognizable offence or the police officer, to check the authenticity of the complaint and conduct a preliminary inquiry before registering an FIR?
Whether obligatory registration of FIR under Section 154 of the Code of Criminal Procedure, 1973 without preliminary inquiry violate the right to life of the accused under Article 21 of the Constitution?
Laws involved in Lalita Kumari v. Govt. of U.P
Code of Criminal Procedure, 1973
Section 154 – Provides for the procedure to be followed or steps to be taken by a police officer on receipt of any information disclosing the commission of any cognizable offence. Section 154(1) provides for registration of FIR and the remaining portion of the Section lays down the procedure in which the registration must take place. Section 154(3) provides a remedy if any police officer refuses to register an FIR under sub-section (1). Such a person under this subsection can forward such information to the concerned Superintendent of Police. Some of the important mandates that are to be followed according to this provision include the following.
Reading out the information that has been reduced to writing to the person providing it.
Signature of the informant on the information reduced in writing (FIR) or written complaint.
Recording of information of offences relating to sexual offences by a woman officer.
A copy of the FIR (recorded information) shall be given to the informant.
Section 156 – Sub-section (1) empowers the police to investigate any case relating to the cognizable offence even without any order from the magistrate whereas sub-section (3) provides for such investigation by the order of a magistrate.
Section 157 – It lays down the procedure for investigation by police empowered under Section 156. This section mandates the reporting to the magistrate whenever any police officer suspects the commission of any offence which such officer is empowered to investigate under the previous Section. It also requires the police officer to go in person or direct any subordinate to go to the crime spot for investigation.
The proviso exempts the requisite of going to the crime spot when the case is not of a serious nature. The second proviso bars entering into an investigation if there is no sufficient ground to investigate. The police officer must nevertheless state reasons in the report in case of both the instances provided in the proviso.
Section 159 – The discretion to conduct an investigation or a preliminary inquiry is only given to the Magistrate under this provision. According to this provision, after a report is submitted to the Magistrate under Section 157 of the Code, he may order an investigation or if he thinks fit, he may direct a Magistrate subordinate to him to hold a preliminary inquiry. However, it is important to note that, this discretion, which is available to the Magistrate is also after the registration of FIR.
FIR under CrPC
FIR refers to the First Information Report that is registered by a police officer upon receiving a complaint. It can be understood as a formal written complaint for the initiation of the investigation. The Hon’ble High Court of Rajasthan, in State of Rajasthan v. Shiv Singh (1960)described FIR as “the first information report is nothing but the statement of the maker of the report at a Police Station before a Police officer recorded in the manner provided by the provisions of the Criminal Procedure Code.”
Although the term FIR is used widely in this case or as a general notion for any formal written complaint, it is important to note that the term FIR has not been defined in any of the provisions of CrPC. It has neither been used nor mentioned in any provisions of CrPC except in Section 207 of the Code. Section 207 provides for the supply of a copy of the police report or other legal documents to the accused. The magistrate according to Section 207 has to furnish certain documents to the accused without any delay. These documents include the ‘First Information Report’ recorded under Section 154 of CrPC.
Section 154 of CrPC does not expressly mention or use the term ‘FIR’. It instead uses the term “information reduced in writing”. This written information is addressed as the First Information Report (which is generally abbreviated as FIR) under Section 207 of the Code (CrPC).
Therefore, FIR under CrPC can be understood as the information that has been reduced in writing by the officer in charge of a police station under Section 154 of the Code, after receiving information relating to the commission of a cognizable offence.
Constitution of India, 1950
A few of the important Constitutional provisions that were dealt with in this case include the following –
Article 21 – Guarantees the right to life and personal liberty as a fundamental right to every individual. It states that an individual can be deprived of his/her personal liberty only according to the procedural established by the law and not otherwise
Article 21 of the Constitution was under discussion since it was contended that the mandatory registration of FIRs under Section 154 of CrPC without any preliminary inquiry by the police would result in arbitrary arrests and therefore violate the right to life.
Article 32 – Guarantees the fundamental right to approach the Hon’ble Supreme Court by filing a writ petition for the enforcement of other fundamental rights guaranteed under Part III of the Constitution.
Indian Penal Code, 1860
Section 166-A – It provides for the punishment for disobedience of direction under the law by a public servant. It prescribes a punishment of rigorous imprisonment for a term extending from 6 months to 2 years. Clause (c) of this provision considers the failure to record information disclosing the commission of sexual offences under various provisions of the Indian Penal Code, 1860 under Section 154(1) of CrPC as disobedience of direction under law.
Arguments/ contentions of the parties
Petitioner
Petitioner’s counsel argued that Section 154(1) of CrPC requires the filing of a First Information Report (FIR) and does not allow for optional filing because the word “shall”, in the text of the provision, indicates the legislators’ intention. Therefore, he contended that police officers have no discretion other than to file a formal complaint (FIR) after receiving information disclosing the commission of any offence.
The Petitioner also argued that the police officer need not necessarily get into the reasonableness or credibility of the information to register an FIR. The counsel for the petitioner contended that the language of the provision by the words ‘Every information’ and the absence of prefixes such as ‘reasonable’ or ‘credible’ in Section 154(1) clearly reflects that it is obligatory to register an FIR and any kind of preliminary inquiry was not a requisite to determine the reasonableness or credibility of the information received before registering an FIR.
The Counsel supported the preceding contention by relying upon various decisions such as State of Haryana v. Bhajan Lal (1992)where the Hon’ble Supreme Court had ruled that a police officer cannot refuse to register an FIR under Section 154(1) of CrPC because the information is not reliable or credible as the officer is statutorily obliged to register an FIR and proceed with the investigation under Section 156 and as per Section 157 of CrPC.
The counsel further quotedRam Lal Narang v. State (Delhi Admn.) (1979)where the Court had made similar observations that a police officer is required to enter the information received concerning the commission of any cognizable offence in the book in the prescribed form.Furthermore, the Counsel also quotedLallan Chaudhary v. State of Bihar (2006) in which the Hon’ble Apex Court had made observations on a similar note.
Moreover, The counsel for the petitioner also pointed out the likely adverse effects of allowing the police to conduct a preliminary inquiry before registering an FIR or of leaving scope for discretion.
Respondents
There were various arguments put forth by counsels for different respondents, most of them directed more or less towards a similar opinion. The contentions made by the respondents are as follows.
Union of India
The Union of India’s counsel acknowledged that if any information reveals the commission of a crime that is punishable, the police officer has no discretion to verify the accuracy of such information before registering an FIR. The Counsel went on to state that if an officer receives any cryptic information, rumours, or source information, they must visit the location as per Sections 156 and 157 to obtain information about the commission of a cognizable offence, they must then submit a report to the police station right away to file a formal complaint.
The counsel relied upon the rulings of the Supreme Court in Ramesh Kumari v. State (N.C.T of Delhi) (2006), wherein it was held that the provision of Section 154 is mandatory and hence the police officer is duty-bound to register an FIR and Aleque Padamsee v. Union of India (2007), wherein the Court had made similar observations, to support his contentions.
CBI
The counsel for CBI completely agreed with the contention of the petitioner upon the presence of the word ’shall’ in Section 154(1) of CrPC and the nature of the provision. The counsel clarified that the information received must reveal the commission of a cognizable offence and that is the only requirement in the clause mentioned above.
He added that in some situations, the preliminary inquiry carried out by the CBI is of a different nature as per the provisions of the Delhi Special Police Establishment Act, 1946.
State of West Bengal and State of Rajasthan
The counsel for the State of West Bengal and Rajasthan agreed with the contention of mandatory registration of FIR under Section 154(1) of CrPC. The counsel for the state of Rajasthan further pointed out that the cases under the Prevention of Corruption Act, 1991 are an exception to the mandate as a sanction is necessary in such cases to prevent harassment of public servants by the filing of false cases.
State of Chattisgarh
The counsel of Chattisgarh brought to the notice of the court, the decisions of both instances where the court held that the police have discretionary power to conduct a preliminary inquiry before the registration of FIR and vice versa. He contended that every activity occurring at the police station is recorded in the General Diary or Police Diary and Preliminary inquiry should be permissible before registration of FIR to avoid misuse of process.
State of Uttar Pradesh
The counsel for the State of Uttar Pradesh initially argued that preliminary inquiry is desirable before the registration of FIR to check unnecessary harassment of innocents but later agreed that the registration of FIR must not be deferred if any information discloses the commission of any cognizable offence.
However, the Counsel concluded that it is not legally permissible to conduct a preliminary inquiry before the registration of FIR when the language of the provision is unambiguous and clear.
State of Maharashtra
The counsel for Maharashtra contended that immediate registration of FIR upon obtaining the information that discloses the commission of any cognizable offence should be a norm but not a mandate.
The counsel argued that the police officer must ordinarily register an FIR immediately upon the receipt of information but the police officer in certain cases in which the credibility or correctness of information is in doubt, should have the choice to hold a preliminary inquiry.
The counsel contended that this would provide a harmonious interpretation for two extreme conditions. The counsel also contended that the mandatory registration of FIR is contrary to the mandate of Article 21 of the Constitution.
The counsel contended that according to the changes brought by the Criminal Law (Amendment) Act, 2013, specifically the insertion of Section 166-A into the Indian Penal Code, 1860 indicates that the registration of FIR is mandatory only in the cases of offences provided under the provision mentioned above.
Therefore, the Counsel contended that it is the legislative intent of the lawmakers that concerning cognizable offences other than those mentioned in Section 166-A of the Indian Penal Code, 1860, the police have the discretion to conduct a preliminary inquiry prior to the registration of FIR.
Also, for the receipt and recording of information, the report is not a condition precedent to the setting in motion of a criminal investigation. The counsel explained that a provision for preliminary inquiry already exists in cases like Corruption, Medical Negligence and Matrimonial Offences.
The counsel submitted to the court that every statute should be interpreted while keeping in mind the provisions of Articles 14, 19 and 21 of the Constitution which protects an innocent person from baseless charges. In situations like these, a police officer needs to be equipped with the power of conducting a Preliminary inquiry.
Judgement in Lalita Kumari v. Govt. of U.P
The Hon’ble Supreme Court held that the registration of FIR is mandatory under Section 154 of CrPC and no preliminary inquiry is permissible if the information received discloses the commission of any cognizable offence. The court ruled that no police officer can abstain from the duty of registering an FIR if the commission of any cognizable offence is disclosed in the information. The court further directed that the police officer abstaining from his duty should be subjected to appropriate action.
Moreover, the Court noted that in certain situations when the information obtained does not reveal the commission of a cognizable violation, but suggests the need for an investigation, a preliminary inquiry may be carried out simply to determine whether any cognizable offence has been committed. The Court further ruled that an inquiry resulting in the disclosure of a cognizable offence should be followed by registration of FIR and any inquiry resulting in the closure of a complaint should be supplied, along with a copy of entry disclosing the reasons in brief for the closure of complaint, to the complainant immediately (maximum within a week and not beyond that). The Court clarified that the purpose of an inquiry is merely to ascertain whether any cognizable offence has been committed or not but not to check the veracity of the information.
The Court also mentioned the nature of cases in which a preliminary inquiry can be conducted depending upon the facts and circumstances. Some of the categories or illustrations of cases mentioned by the court include Matrimonial or family disputes, cases of medical negligence, cases of corruption, commercial offences, or cases with abnormal delay in reporting of cases without any justifiable explanation, etc.
A specified time limit for the preliminary inquiry to ensure the protection of the rights of the accused as well as the complainant was laid down by the Court. The court noted that the time period for preliminary inquiry should not exceed 7 days and reasons for such delay should be recorded in the general diary.
The Court concluded by ruling that the actions of the police and information relating to the cognizable offence in all of the above instances should be recorded in the general diary with every specific detail.
Ratio decidendi
The Hon’ble Supreme Court while deciding upon the mandate of registration of FIR, looked into the previous procedural codes or legislations and noted that the intent of the legislature has been clear even in the previous codes, that the registration of FIR has to be a compulsory procedure if the commission of any cognizable offence is disclosed in the information. The Court also ruled that Section 154(1) has to be construed by applying the literal rule of interpretation since the provision is unambiguous and clear. Therefore, the Court held that Section 154(1) has to be construed in its literal sense. The Court in this regard also stressed upon the presence of the word ‘shall’ in the provision ruling that its presence clearly reflects the legislative intent that it is obligatory to register FIR if the information received discloses the commission of any cognizable offence.
The Court further noted that Section 154(1) uses the expression ‘information’ unlike Section 41 which uses expressions such as ‘credible information’ or ‘reasonable complaint’. Therefore, the Court held that the absence of prefixes such as ‘reasonable’ or ‘credible’ in Section 154(1) denotes that the police officer need not necessarily get into the rationality or accuracy of the information received while registering the FIR and hence cannot refuse for registration of FIR on those grounds.
Moreover, the Court ruled that conducting an investigation after registration of FIR under Section 154(1) of CrPC is the “procedure established by law” and hence is in accordance with Article 21 of the Constitution. The Court noted that if the FIR is filed first and the inquiry is carried out in compliance with the law, the accused’s rights under Article 21 of the Constitution are safeguarded.
The Court observed that the mandatory registration of FIR ensures judicial oversight as Section 157 (1) mandates immediate reporting to the magistrate whenever the police officer suspects the commission of any offence which the officer is empowered to investigate. Therefore, a police officer is required to inform the magistrate by submitting a report, immediately after the registration of FIR under Section 154(1) either by receipt of information or otherwise about the commission of any cognizable offence. This ensures that the investigation after the registration of FIR is monitored or is under the oversight of a judicial officer.
Additionally, the Hon’ble Apex Court noted that the mandatory registration of FIR comes with certain inherent advantages which are the following.
Access to justice for a victim
Upholds rule of law
Facilitates prompt investigation and prevention of crime
Ensures less manipulation in criminal cases and reduces the incidents of deliberately delayed FIR
Precedents referred
While deciding the case, The Hon’ble Supreme Court referred to notable observations made in various precedents relevant to the issues or questions of law involved in this case. Some of the important precedents that were noted by the Hon’ble Court in this judgement include the following.
The Court, while discussing the significance of legislative intent, noted the observations made by itself in the cases of B. Premanand v. Mohan Koikal (2011) and Hiralal Rattanlal v. State of U.P. (1972) where the court held that “When the legislative intent is clear and provision is unambiguous, no aid of other rules of interpretation is necessary. The other rules of interpretation are taken into consideration only when the legislative intent is not clear and when the plain words of a statute are ambiguous. When the words of a statute are clear and unambiguous, recourse cannot be had to the principle of interpretation other than the literal rule.”
Additionally, the Hon’ble Supreme Court, while stressing the significance of the use of the word “shall” referred to the observations made in the ruling of Khub Chand v. State of Rajasthan (1966) where the Court had observed that the word “shall” ordinarily means mandatory and the Courts should interpret it in the same manner, unless such interpretation leads to any absurd or inappropriate consequence or such interpretation leads to diversion from the legislative intent.
Besides, the Hon’ble Court referred to the landmark ruling delivered in the case of State of Haryana v. Bhajan Lal (1992) where the Court had held that the police officer cannot go ahead with an inquiry to ascertain whether the information provided by the informant is reliable and genuine or not and refuse to register an FIR on the grounds of credibility or non-reliability. The Court further referred to the ruling in Lallan Chaudhary v. State of Bihar (2006) where the Court had held that the provision under Section 154 of CrPC imposes a statutory obligation upon a police officer to register an FIR. The Court also referred to the judgement of Ramesh Kumari v. State (N.C.T of Delhi) (2006) where the Court had made a similar observation.
The Court also referred to the ruling made in the case of Aleque Padamsee v. Union of India (2007), where the Court had held that police officers are supposed to register an FIR if the information communicated to them discloses the commission of a cognizable offence.
Although the Court ruled that the registration of FIR under Section 154(1) is a mandatory procedure that has to be followed by the police officer upon the receipt of any information disclosing the commission of any cognizable offences, it also noted that there are certain instances where a preliminary enquiry might be necessary. Some of the exceptions to the ruling of mandatory registration of FIR are as follows.
Medical Negligence
Matrimonial Cases
Corruption cases
Commercial offences
Cases of abnormal delay in reporting
The Court clarified that the list mentioned above is not an exhaustive one, but only provides an illustration of the nature of cases in which a preliminary enquiry may be conducted.
Analysis of the judgement in Lalita Kumari v. Govt. of U.P
The Hon’ble Apex Court through this judgment signified two main aspects of the mandatory registration of FIR. The first is the maintenance of records and the official assurance that the criminal procedure is initiated. The second aspect is that the Court stressed upon the significance of mandatory registration of FIR in preventing any kind of embellishment or any tampering of FIR. The Court noted that the immediate registration of FIR on the receipt of the information would ensure both objectives are served. The Court further noted that this process falls well within the procedure established by law under Article 21 of the Constitution and therefore doesn’t result in a violation of the right to life and personal liberty under the said provision. Instead, the Court opined that this process would protect the right under Article 21 of the Constitution.
One of the other important observations made by the Hon’ble Supreme Court, in this case, was in respect of the rules of interpretation. The Hon’ble Court reiterated that the literal rule of interpretation primary rule that must be resorted to interpret any provision. The Court clarified that the usage of any other rule of interpretation is not necessary when any provision can be interpreted in its literal sense or plain meaning. The Court while reiterating the application of the literal rule, applied the rule for interpreting terms like information and held that the word should be construed in its plain meaning and hence it is not necessary to get into the credibility or reasonableness of the information for registration of an FIR if the information discloses commission of any cognizable offence. The Court, in this case, adopted the theory of textualism according to which the words are interpreted in their ordinary meaning. This theory of textualism also helps the general public understand the judgements of the Court more easily.
The Court, in this case, has emphasized the necessity of considering the legislative intent behind the framing of any provision. The Court looked into the historical background of the provision and referred to the previous provisions dealing with the registration of FIR or information relating to the commission of a cognizable offence in the previous Criminal Procedure Codes and noted that the legislative intent of the lawmakers has been towards the compulsory registration of FIR without any preliminary inquiry, both in the old codes as well as the new one.
The Court, rather than merely looking into the text of the provision or merely interpreting it, focused mainly on the intention of the legislature to frame a provision in a particular manner. The Court noted that the legislative intent behind Section 154 of CrPC was to mandate the registration of FIR for every information that disclosed the commission of cognizable offence without getting into the credibility and reasonableness of the information. The consideration of legislative intent is of paramount importance as it assists in interpreting the provisions in a fashion which the legislators intended. It serves a great role in accomplishing the aims and objectives of a statute particularly for which it was formulated by the legislature.
The Court’s ruling in this case is also in consonance with the recommendation of the Justice. V.S. Malimath Committee on Reforms of Criminal Justice System, which had observed that the officer in charge of a police station, according to Section 154 of CrPC, is mandated to register every oral or written information relating to the commission of a cognizable offence. The Committee further observed that the non-registration of an FIR by any officer is a serious complaint against the police.
The Hon’ble Supreme Court in this case has attempted to limit the excessive discretionary power of the police. The Court has ensured the protection of the fundamental right guaranteed under Article 14 of the Constitution that protects the individual from arbitrary and unreasonable exercise of discretionary power.
Critique of the judgement
Although the ruling of the Hon’ble Supreme Court is now the precedent that has to be followed and the judgement has an overruling effect on the other earlier judgements where the rulings are contradictory, it is crucial to have a look at the earlier judgements relating to the registration of FIR to have a better understanding of the concept. Some of the notable rulings on this subject are as follows.
The Hon’ble Supreme Court, in this case, ruled in contrast to the jurisprudence laid down in its previous notable judgments. In Abhinandan Jha v. Dinesh Mishra (1967), the Hon’ble Supreme Court clarified and distinguished the powers of the police officers and the judiciary. The Court noted the duties of the police, in the matter of investigation of offences, as well as their powers. The Apex Court referred to the provisions contained in Chapter XIV of the Code- Section 154 to Section 176 and observed that there is no role of the judiciary in any of the aforementioned Sections. These provisions lay down guidelines to the police on how to proceed with the investigation, but there always remains an authority with the police officer to conduct a preliminary inquiry in case a complaint does not disclose a Cognizable offence.
In Binay Kumar Singh v. State of Bihar (1996), the Hon’ble Supreme Court categorically stated that an officer in charge of the police station cannot be expected to register an FIR on receiving information which does not disclose the commission of a cognizable offence. The court observed that it should be open to the officer-in-charge to conduct an inquiry to collect information to ascertain whether a cognizable offence has been committed.
In Sevi v. State of Tamil Nadu (1981), the court had expressly ruled that before registering the FIR under section 154 of CrPC, it is open to the Station House Officer (SHO) to hold a preliminary inquiry to ascertain whether there is a prima facie case of commission of a cognizable offence or not.
Lastly, the Bombay High Court in the case of Kalpana Kutty v. State of Maharashtra (2007), has laid down general principles governing preliminary inquiry which can be followed by the police officers-
When information relating to the commission of a cognizable offence is received by an officer in charge of a police station, he would normally register a FIhR as required by section 154(1) of the code.
If the information received indicates the necessity for further inquiry, preliminary inquiry may be conducted.
Where the source of information is of doubtful reliability i.e. an anonymous complaint, the officer in charge of the police station may conduct a preliminary inquiry to ascertain the correctness of the information.
Preliminary inquiry must be expeditious and as far as possible it must be discreet.
Preliminary inquiry is not restarted only to cases where the accused are public servants or doctors or professionals holding top positions. In which case preliminary inquiry is necessary will depend on facts and circumstances of each case.”
Malefits of FIR on the accused
While understanding the advantages, legal facets or significance of mandatory registration of FIR and agreeing to the fact that such a mandatory registration is necessary, it is also important to look into the concerns that have been disregarded in the judgement. One of the major concerns associated with the mandatory registration of FIR is the social or psychological impact of the FIR on the accused.
The consequences of a criminal case on the accused have far-reaching consequences. Irrespective of whether the accused has committed the offence or not, he is subjected to psychological anxiety, social stigma and probable economic impairment till proven innocent. Even though he is innocent, the delay shakes his confidence in the system of criminal justice and makes him cynical.
In Moti Ram v. State of M.P. (1978), Justice Krishna Iyer opined that there are grave consequences of pre-trial detention. He observed that the psychological and physical deprivation that comes along with being in jail, even though he is presumed to be innocent, is worse than that of a convicted accused. He noted that an accused loses his job if he has one and is prevented from contributing to preparing his defence. Moreover, the burden of his detention frequently falls heavily on the innocent members of his family.
In the case of the State Of West Bengal & Ors. Vs. Nazrul Islam (2011), the Hon’ble Supreme Court ruled that any person facing or convicted of a criminal offence, cannot be considered suitable for a government appointment. To be considered eligible, a person should either have no charges pending against them or have been acquitted of these charges by the court. However, this acquittal must not be out of a compromise between the accused and the victim, or due to the witnesses in the case turning hostile.
In the preceding 5 years, they have been convicted of an offence of moral turpitude and been sentenced to more than two years’ imprisonment.
Criminal proceedings are pending against them in India.
A summons to the court, warrant for arrest or order prohibiting departure from India has been issued against them.
The existence of a large number of undertrial prisoners is a concerning issue for India. In several cases, the time spent by the accused in jail before the commencement of trial exceeds the maximum punishment which can be awarded to them if found guilty of the offences charged against them, since the trials often do not commence for a period of 3 to four years. The mental torture and anxiety suffered by an accused for a long period of time is to be treated as sufficient punishment inflicted on him. Owing to the prolonged pendency of a case, individuals may suffer in various ways. In several cases, the accused is the head of a family and is the sole breadwinner, and holds responsibility towards the family left behind. It is not only the accused, but also the other members of his family who suffer because of delays in the trial. They would also suffer due to the social stigma attached to the arrest, during the trial and also from the loss of income during this period. They are likely to be compelled to borrow money to run the family and also to defend the accused.
The National Crime Records Bureau (NCRB) had released a report titled ‘Prison Statistics India 2015’ which stated that the overcrowding of prisons is the biggest problem the prisoners have to face. The occupancy rate of these prisons was at an all-India level of 114.4%. This subjects the prisoners to issues such as lack of sanitation and hygiene and lack of sleep. This goes against the human rights of the prisoners. Another disturbing fact that the report highlights is that 67% of people in prisons are under trial i.e. people who are not convicted of any crime and are facing trial in a court of law. On average, every day, four people die in prison.
Another report by the Delhi Government’s Central Jail revealed that the occupancy in the year 2019 has increased to 174.89%. If we break down this figure, a minimum of 82.02% of people are under-trial. Since it has been established that the consequences of an FIR have serious consequences on the accused, the mandatory registration of FIR can be seen as a drawback in certain instances, but as it has been noted by the Hon’ble Supreme Court in the instant case and in other cases, the police may be given the liberty to conduct an inquiry to collect more information to ascertain if any cognizable offence has been committed if the complaint received does not prima facie disclose commission of such offence.
Hence, while discussing the legal significance of FIR, it is essential to take into consideration the other aspects or impacts of FIR on the accused and his life. The probability of misuse of power against an individual who might be falsely implicated in an FIR cannot be ignored, especially when a good number of the country’s population lacks legal awareness. Therefore, it is important to note the concerns associated with the mandatory registration of FIR as well.
Conclusion
The Hon’ble Apex Court in the instant case, rendered a landmark ruling concerning the procedural law in criminal cases. The ruling is of great significance in ensuring access to justice, and in preventing delay or manipulation in registration of FIRs. The Court through this judgement ensured that the informant’s or victim’s rights as well as the rights of the accused are protected by the mandatory registration of FIR, which was previously not guaranteed. The ruling ensures that there is a check upon the police officer and there is the least misuse of power by the police officials. This ruling is of great significance when it comes to the protection of human rights, both the accused’s as well as the victim’s rights. The immediate mandatory registration of FIR leaves zero scope for any tampering with the FIR or any kind of embellishment. It also provides an assurance to the victim, of swift action for the victim’s concern or complaint.
Nevertheless, a delicate balance between the interest of the society and protection of individual liberties has to be maintained. Criminal procedural law must embody principles of natural justice, and the constitutional guarantees must be safeguarded. A balance has to be struck between speedy trial and fair trial, while not compromising the principles of natural justice.
Frequently Asked Questions (FAQs)
What is an FIR?
FIR or the First Information Report refers to a formal written complaint noted in a prescribed format, by the officer in charge of a police station after such officer receives any information relating to the commission of any cognizable offence.
What is the difference between a complaint and an FIR?
A complaint refers to any written or oral information given to a police officer regarding the commission of any offence, whereas FIR refers to a formal legal written document that is recorded by the officer in charge of a police station on the receipt of any information relating to the commission of any cognizable offence.
What is the difference between a General diary and an FIR?
FIR refers to a formal legal written document that is recorded by the officer-in-charge of a police station upon receiving any information relating to the commission of any cognizable offence, whereas a General diary is a book or diary that contains information or record of all the activities or incidents that take place in a police station on an everyday basis.
Which provision of CrPC mandates the registration of FIR?
The Hon’ble Supreme Court in this case (Lalita Kumari v. Govt of UP) ruled that Section 154(1) of the CrPC mandates a police officer to register an FIR if any information received by or conveyed to such officer discloses the commission of any cognizable offence.
What remedy is available if a police officer refuses to register an FIR?
If any police officer refuses to register an FIR under Section 154(1) of CrPC, then a remedy is available for the informant/victim under Section 154(3) of the Code.
According to Section 154(3), any person aggrieved by the refusal by the officer-in-charge of any police station to register an FIR under Section 154(1) may send such information in a written format and by post to the concerned Superintendent of Police who shall either order an investigation to be conducted by any police officer subordinate to him or shall investigate the matter by himself if the information provided discloses commission of any cognizable offence.
Besides, the aggrieved person can also approach the magistrate by filing a Complaint under Section 200 of CrPC, who is empowered under Section 190, to order an investigation under Section 156(3) of the Code
What are the rights of an Informant under Section 154 of CrPC?
Section 154 lays down the procedure relating to the registration of an FIR and in due course, also gives rise to certain statutory rights of the informant which are as follows.
Right to receive a copy of the FIR free of cost.
Right to approach the Superintendent of Police on the refusal by the officer-in-charge of the police station to register an FIR.
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This article was written by Sujitha S and further updated by Debapriya Biswas. This article deals with the landmark case of Rudul Sah v. State of Bihar (1983). Further, the article analyses the issues raised in the case and the principles established by the Supreme Court to address these issues. The article also clarifies the need for such principles, which include state liability and monetary compensation under constitutional law.
Table of Contents
Introduction
As time changes, the needs of society change and so does the law to accommodate such needs. In this process of development and evolution, the Judiciary plays a significant role in judicial activism. One such proactive approach of the Judiciary has been seen in the case of Rudul Sah v. State of Bihar & Ors. (1983). This case finds distinction in the matters of state liability in the light of writ jurisdiction and fundamental rights enshrined in the Constitution of India.
It is especially notable since the concept of awarding monetary compensation to individuals whose fundamental rights have been breached first emerged through this case in India. This award was an ancillary relief to the damages that would be awarded to the aggrieved party under civil law, making it an addition to the overall relief given to the victim. Let us discuss the case in further detail to learn more about the emergence of this supplementary relief in constitutional jurisprudence.
Details of Rudul Sah v. State of Bihar & Ors. (1983)
Rudul Sah v. State of Bihar & Ors. (1983) is one of the landmark judgments that laid down the precedent for many more cases to come in light of breaching the fundamental rights of the citizens by the State. It is the first case that introduced the concept of monetary compensation regarding constitutional law cases, especially those dealing with the breach of fundamental rights and other basic human rights. It also expanded the scope of the State’s liability in the context of tortious acts committed by the government or its personnel.
It is an undeniable fact that the Constitution of India empowers as well as obligates the State to protect the fundamental rights of the citizen. However, while the fundamental rights are specifically embodied in Part III of the Constitution, such is not the case for the remedy in case they are infringed. The Indian Constitution does not mention any monetary compensation for individuals whose fundamental rights have been infringed upon. The Rudul Sah case was the first case where this issue was addressed by the Supreme Court in 1983 along with the need for such compensation.
Legal background
As discussed earlier in the article, the Constitution of India does not provide for any remedy, rehabilitation or compensation for those whose fundamental rights are breached. Thus, it is left to the courts to interpret the constitutional provisions and provide for an appropriate relief to the aggrieved party by exercising their remedial powers.
The Rudul Sah case was filed as a Public Interest Litigation (PIL) in the Supreme Court of India under Article 32 of the Constitution, which empowers an individual to directly approach the Supreme Court when their fundamental rights are violated. The Article also provides for anticipatory reliefs in cases where there is a reasonable apprehension of violation of one’s fundamental right. The petition was filed regarding the illegal detention of Rudul Sah and the violation of his fundamental rights under Article 21 of the Constitution. The petition sought the release of the petitioner along with supplementary relief for such infringement, which included compensation and/or rehabilitation.
Before this case, the scope of relief under constitutional laws was limited, especially in the cases of breach of fundamental rights of the citizens by the governmental institutions. While Article 32 acted as a remedial provision which could be invoked in cases of violation of fundamental rights, the Constitution did not mention any specific remedy relating to compensation of victims of such infringement. The present case was the first case that addressed this issue and broadened the scope of relief and remedial powers of the Supreme Court under Article 32 by introducing the concept of monetary compensation.
The monetary compensation discussed here is supplementary to the damages that the victim can claim under civil law as their relief. In cases such as the Rudul Sah case, where the violation of fundamental rights was committed by the government authorities, the State was held liable to compensate the aggrieved individual for such violation. This was also the first case to hold the State accountable for the actions of its personnel and agents through vicarious liability. Here, the term ‘State’ refers to any authority which falls within the ambit of Article 12 of the Indian Constitution.
Before this case, the State could not be held liable for the actions of police officers or any other agents, making them immune from any tortious liability. Such immunity not only limited the scope of civilian rights and protection but also had the potential of being misused. The Supreme Court acknowledged as such in the judgement of the current case while considering the purview of Article 21 of the Constitution of India.
Social background
While the legal side of this case may seem simple, such was not the case for the social aspect of the current case. The petitioner, Rudul Sah, was arrested under the charge of murdering his wife — a crime of quite severe nature in itself. And while he was acquitted for the same by the Sessions Court, declaring him innocent of all the charges, Rudul Sah was still detained in imprisonment for over fourteen years without any legal cause.
As many may agree, no individual should be punished for more than what they did. In this case, the petitioner was declared legally free of all charges as well. Despite that, he was still detained illegally for fourteen years.
As such, the petition filed by Rudul Sah for illegal detention and false imprisonment for the extended fourteen years is completely justified and within his rights under Article 21 of the Constitution. Regardless of whether an individual is a criminal or not, they shall have the right to file a petition and demand compensation for the same when their fundamental rights are violated.
After all, the objective of law is to not only protect the citizens and award punishment for those who have broken the law but also to act as a means of restoration. In simpler words, the law of any nation should aim to act in a restorative and rehabilitative manner, allowing the criminals and lawbreakers to take responsibility for their actions through imprisonment and/or fines, while also giving them a chance to improve themselves and abstain from committing such acts in the future. Excessively harsh punishments would only make the law arbitrary and limit the scope of civilian rights. To allow the violation of the rights of an individual only because they were found guilty of a crime is equally arbitrary and harmful to the protection of civilian rights.
Facts of Rudul Sah v. State of Bihar (1983)
The petitioner of the present case, Rudul Sah, was arrested in 1953 on the charges of murdering his wife. However, on June 3, 1968, he was acquitted by the Muzaffarpur Sessions Court, releasing him from all the charges. Despite the acquittal, he remained incarcerated till October 16, 1982, leading to fourteen years imprisonment without any proper legal cause.
The petitioner filed a writ petition of habeas corpus in the Supreme Court on November 22, 1982, when he was not yet released from his unlawful detention. In his petition, he asked for his release from prison on the ground that it was a false imprisonment that was against constitutional freedoms.
The petitioner sought relief under Article 32 of the Indian Constitution, which consisted of ancillary reliefs like ex-gratia payment for his rehabilitation and reimbursement for the medical treatment that he may have incurred. He also sought compensation for his illegal imprisonment even after being acquitted as per the due procedure of law.
By the time the case was presented before the Supreme Court in November, the petitioner was already released from prison in October of the same year. Thus, the Court focused on the ancillary reliefs sought by the petitioner and issued a show-cause notice to the State for the same.
Going against the Court’s expectation for a prompt response, the State did not give any explanation for over four months due to which the Court passed another order demanding the reason for such delay. In pursuance of the subsequent order, the jailor of Muzaffarpur Central Jail filed an affidavit that recited the following two reasons:
The first reason offered was that despite the acquittal, the Additional Sessions Judge, Muzaffarpur had issued an order for the petitioner to be detained in prison till further orders were passed by the State Government and the Inspector General of Prisons, Bihar.
The second reason presented by the jailor was that the petitioner was of unsound mind and, thus, deemed incompetent to stand trial when the aforesaid order was issued.
Thus, following the procedure, the State detained the petitioner and the information of this detainment was sent to the Law Department of the Muzaffarpur Central Jail through the Muzaffarpur District Magistrate. It was not until the year 1977 that the petitioner was evaluated by a civil surgeon who declared him to be of sound mind and communicated the same to the Muzaffarpur Central Jail.
The affidavit submitted by the jailor also clarified that the petitioner, Rudul Sah, was treated according to the procedure established under the Jail Manual, Bihar, during this period. In October 1982, the petitioner was released in compliance with the letter issued by the Law Department of the Muzaffarpur Central Jail.
Issues before the Court
The issues that arose before the Supreme Court of India were as follows:
Whether the Court can grant monetary compensation for the infringement of fundamental rights under Article 32 of the Constitution.
Whether the scope of Article 21 includes the right to compensation for the violation of the right to personal liberty.
Contentions of the parties
Submissions by the petitioner
The counsel on behalf of the petitioner submitted that the petitioner was acquitted in 1968 from the crime of murdering his wife by the Muzaffarpur Sessions Court. Despite that, he was unlawfully imprisoned for an additional fourteen years, which is a violation of the petitioner’s fundamental right to life and personal liberty enshrined under Article 21 of the Constitution of India. Thus, in view of this, they put forth four prayers or relief in the petition:
To be released from unlawful imprisonment since it was violative of the petitioner’s fundamental rights. Since the petitioner was released almost a month before the hearing of the Court, this prayer became redundant.
To be awarded medical treatment at the expense of the State or at least be reimbursed for the medical treatment the petitioner may have incurred.
To be compensated for the petitioner’s rehabilitation.
Finally, to be compensated for the fourteen years-long illegal detention of the petitioner even after being acquitted of the crime.
The later three prayers were of ancillary or supplementary relief that the Court focused on since the first prayer became pointless after the release of the petitioner.
Submissions by the respondents
The submissions made by the counsel in support of the respondents were majorly through the affidavit admitted by the jailor of Muzaffarpur Central Jail, Shri Alakh Deo Singh. As per the affidavit:
The petitioner was detained in jail as per the order issued by the Additional Sessions Judge, Muzaffarpur. As per the order, the petitioner had to be detained in prison till further orders were issued or given by the State Government of Bihar or the Generals of Prisons, Bihar.
The petitioner was of unsound mind during the passing of the order and, thus, incompetent to stand for the trial.
Once a civil surgeon had declared him to be of sound mind, he was released in compliance with the letter issued by the Law Department of the Muzaffarpur Central Jail.
The respondents argued that they had followed and treated the petitioner in accordance with the provisions and rules of the Jail Manual of Bihar.
Thus, based on these submissions, the respondents argued that there was no negligence on their side and they acted as per the orders issued to them by the District Magistrate, Muzaffarpur.
Judgement in Rudul Sah v. State of Bihar (1983)
Ratio decidendi behind the judgement
The Court observed that the petitioner’s fourteen-year-long imprisonment, despite his acquittal, was both unlawful and unjustified. Additionally, not granting the current petition would only add to the misery of the petitioner while doing nothing but mere lip service to his fundamental rights. Thus, the Court allowed the petition under Article 32.
Despite the Constitution not mentioning any remedies for the violation of fundamental rights, the Court has the power to determine the same as per the circumstances of each case. The Court highlighted that Article 32 grants the Supreme Court the remedial powers to protect and enforce the fundamental rights enshrined in the Constitution of India. Thus, to enforce the same, the Court can grant monetary compensation for the infringement of fundamental rights as can be observed in the present case.
The claim for compensation or damages is a right for every aggrieved individual whose rights are infringed. If the State violated the fundamental rights, then the State shall be liable to compensate the victim for it. Dismissing such a right would be against the public interest and civilian rights.
Supposing that the petitioner indeed was of unsound mind during the trial where he was acquitted of all the charges, his imprisonment would still stand to be unlawful. Just because his State of mind was not stable does not strip him of his legal and fundamental rights. The State’s action in the present case was unjustified and completely devoid of any factual support.
The ancillary relief requested by the petitioner was justified and acknowledged by the Court. Since Article 21 of the Indian Constitution enshrines the right to life and personal liberty, only considering the social factor of the same and not the economic factors would restrict its enforcement. Thus, the relief as prayed by the petitioner was granted by the Court in the view that merely releasing the petitioner from his unlawful detainment would make the role of the Court insignificant in the current circumstances.
Observations by the Supreme Court
While the respondents claimed their actions to be in conformity with the rules, they failed to produce any evidence that may support their claims. No medical certificate or documents supporting the State of the petitioner’s mind during the trial were present, making the Court question the authenticity of the claims made in the affidavit admitted by the jailor of Muzaffarpur Central Jail and how the respondents could deduce the State of the petitioner without a professional opinion.
The court also observed that the affidavit admitted by the respondents failed to disclose the data on the basis of which the petitioner was evaluated to be of unsound mind and reason for further detention of the petitioner despite his acquittal. Neither the affidavit filed by the jailor nor the order passed by the Additional Sessions Judge, Muzaffarpur clarified either of the points. Furthermore, the affidavit also did not disclose what measures were taken to treat the unsound mind of the petitioner and why it took over fourteen years to do so. No medical records or opinions were produced by the respondents to support the diagnosis of the unsound mind of the petitioner either.
In the absence of any proper evidence as well as objections from the side of the respondents, the petition was allowed and the claims of the petitioner were granted to prevent a repetition of the same circumstances faced by the petitioner with another in future. The Court emphasised that the State, as a system, is trusted by the citizens and should be accountable for the actions of its agents, personnel or officials. Thus, the State must be held accountable for the damage done by its officials and compensate the petitioner for the infringement of his fundamental rights.
Supreme Court’s holdings
In the circumstances of the present case, refusing to provide the petitioner compensation would be merely lip service to his fundamental right to liberty, which the State Government had so flagrantly violated. Thus, as a temporary remedy, the government of Bihar was ordered to pay the petitioner an additional Rs. 30,000 in addition to the Rs. 5,000 it had already paid. The compensation was ordered to be paid within two weeks of the date of judgment.
The Court further held that the aforesaid order did not bar the petitioner from pursuing a further lawsuit against the State and its officials to obtain proper damages. Since Rudul Sah’s imprisonment was held to be unlawful, he had the right to seek damages under tort for the false imprisonment; thus, triggering a civil cause of action as well.
The Court also advised the State to re-examine the prison administration of Bihar and rectify any mistakes that may or have caused injustice to the prisoners. The Supreme Court also gave some directions to the High Court of Patna to help release the prisoners who are in unlawful detention like the petitioner in the present case. The directions from the Supreme Court included to call for statistical data regarding unlawful detentions in the State Jails of Bihar from the Home Department of the Government of Bihar along with a detailed statement from all the jails in Bihar that disclosed the number of prisoners staying in the jail for over ten years in a tabular form.
Once these directions are implemented, the High Court of Patna will be in a better position to help the prisoners who are in unlawful detentions. The Supreme Court also directed the High Court to ask the State government of Bihar to compensate the aforesaid prisoners for the injustice caused and take appropriate steps for rehabilitation.
Analysis of Rudul Sah v. State of Bihar (1983)
The Rudul Sah case acted as a cornerstone in the history of constitutional jurisprudence and State liability. With such a progressive judgement towards the compensation provisions, the Supreme Court established a baseline for constitutional compensation and relief for future cases of fundamental right infringement.
Furthermore, this judgement overturned the previous ruling of the Supreme Court in Kasturilal Ralia Ram Jain v. State of Uttar Pradesh (1964), in which the State was held to be immune from any tortious liability. In the aforesaid case, the Court held that the State was not accountable for any actions taken by the police officials during their exercise of any sovereign power, which included the power to arrest, search and seize property. Even if there is any negligence committed during the exercise of such power, the State shall not be liable since the power is conferred by statutes.
Due to this ruling, the State was practically immune from any tortious or vicarious liability if the actions committed by its personnel were somewhat covered by statutory provisions. It was a significant loss for civilian rights, which was overturned in the present judgement.
In addition to that, the ruling in the Rudul Sah case marked the beginning of compensatory jurisprudence in constitutional law. It gave a completely fresh angle to the relief that could be granted to the aggrieved individuals whose fundamental rights were violated by exercising its writ jurisdiction under Article 32.
The judgement itself highlighted not only the need for such compensation but also issues and misery faced by the aggrieved party upon being deprived of their basic rights. After all, the unlawful detention of the petitioner was not his own fault and, rather, it was the negligence of the State that led to the imprisonment of Rudul Sah, despite not being guilty of the offence for which he was incarcerated. The Supreme Court eloquently highlighted this legal proposition in the present judgement, thus, protecting the liberty of the citizens while also addressing the root of the issue, which is the State’s negligence.
Principles laid down in Rudul Sah v. State of Bihar (1983)
In this judgement, three principles were established that set a precedent for constitutional jurisprudence. These three principles are given as follows:
Remedial powers under Article 32
Article 32 of the Constitution of India empowers an individual to directly approach the Supreme Court of India when their fundamental rights are violated or are going to be violated. This right is available to everyone, regardless of their caste, race, gender, sex, nationality, etc. This includes the people imprisoned as well as arrested.
Thus, in the present case, Rudul Sah had the right to fight against his unlawful detention, especially given how the State was not able to produce any concrete evidence for the reasons presented behind his extended imprisonment. This case widened the scope of Article 32, expanding the remedial power of the Judiciary under the Constitution of India. This remedial power of the Supreme Court includes the power to issue directions or orders or writs, including the five writs habeas corpus, mandamus, prohibition, quo warranto and certiorari as per the circumstances of the respective cases for the protection and enforcement of the fundamental rights enshrined in the Constitution of India.
The present case was the stepping stone for the Judiciary to expand its remedial power and compensatory jurisprudence under Article 32, which was explored and defined further by the subsequent cases in the following years. Almost every case, after the present one, reiterated the view that if the Court was restricted to merely granting the release of the aggrieved party from illegal detention without any ancillary or supplementary relief, then it would make the role of the Court insignificant.
Thus, compensatory and remedial powers are also held to be a significant part of Article 32 along with the preventative measures against the possible violation of the fundamental rights of the citizen.
Monetary remedies for breach of fundamental rights
The Rudul Sah case paved the way in constitutional jurisprudence regarding monetary compensation in cases of violation of fundamental rights. Before this case, no additional compensation was considered except the relief that may be granted under civil law. Since the Constitution of India does not provide for any relief, only basic damages and relief as per the civil law were considered.
In the present case, the Supreme Court made the decision to award monetary compensation after carefully considering the rights conferred under Article 21 of the Indian Constitution, which constitutes the fundamental right to life and personal liberty. The social and economic rights within the purview of this Article needed to be addressed since, in the present case, the petitioner was imprisoned for fourteen years despite being acquitted of all the charges by the Sessions Court of Muzaffarpur, Bihar. It not only violated his fundamental rights but also affected his life and mental and physical well-being after being in jail for such a long time.
Furthermore, his unlawful imprisonment led to many years of his life being squandered despite not being guilty of committing the crime he was imprisoned for. No relief could recover the time and loss of reputation the petitioner faced when he was imprisoned illegally. It should also be considered how time can be crucial for someone who has been imprisoned and may need rehabilitation and social integration after being released.
Job opportunities decrease significantly for those with a criminal record and so does their reputation in society. Even after being acquitted of the crime, such unlawful imprisonment stains the reputation and work possibilities of an individual. To rebuild a life for themselves, many people need time for rehabilitation after imprisonment. Such unlawful detention curbs the chance for the petitioner to gain any type of economic stability after his release, especially when age is also to be considered.
Thus, in the present case, the monetary compensation awarded to the petitioner not only helped him gain economic stability after his release from imprisonment but also allowed the Court to bridge the gap in constitutional jurisprudence and protect the people against arbitrary actions of the State.
However, not all constitutional cases amount to monetary compensation for the victims. Only cases relating to the violation of fundamental rights regarding illegal detention, life and personal liberty were considered appropriate for monetary compensation by the Judiciary. It should be noted here that the monetary compensation discussed here is the supplementary amount that is to be given to the victim other than the relief under civil law.
State liability
Under the Constitution of India, Article 21 protects the right to life and personal liberty of an individual within the Indian territory regardless of their status, position, nationality, gender, caste, sex, etc. The only exception to such a right is unless the deprivation of such right is done according to the procedure established by law. In the present case, the petitioner was deprived of his personal liberty by being detained years beyond his punishment violating his fundamental right under the said Article.
The Rudul Sah case not only established compensatory jurisprudence in constitutional cases but also addressed the obligation of the State for the actions of its personnel and officials. As stated earlier, the State was not accountable for tortious liability, giving the State an unfair position that could lead to arbitrary actions.
In the present case, the Supreme Court reversed this position and expanded on the State’s liability for its agents. The negligence committed by the government officials cost the petitioner an additional seven years of his life that could not be recovered. In such a scenario, not holding the State liable for the inadequacy in following due procedure of law could lead to similar cases in the future. Keeping such reasoning in mind, the Supreme Court laid down these principles in the judgement of the present case.
The state liability established in the present case expanded the scope of constitutional torts and jurisprudence for future cases. Constitutional torts, in simple words, are an overlap of constitutional rights and torts where the State (through its agents, personnel or officials) has infringed upon the fundamental rights of the people. State liability holds the State, as well as the public authorities, involved accountable for the infringement.
This accountability previously extended up to only non-monetary relief and damages granted under civil law. However, after the present judgement, it also includes monetary compensation. In many cases, an official apology or even acknowledgement of the infringement is made to restore the reputation of the aggrieved individual.
Scope of state liability
While the State may be held accountable for its actions, the accountability should not be limitless. Thus, determining the extent of such liability also becomes a major necessity, when it comes to constitutional jurisprudence. While Article 294 of the Indian Constitution briefly mentions the rights, liabilities and obligations of the State arising from contracts or otherwise, it does not specify the types of liabilities or obligations so as mentioned. Thus, let us discuss the factors that usually determine the extent of state liability in detail as below:
Causation
The first and major factor to determine the scope of state liability is the causation of the wrongful act that resulted in the infringement of the fundamental rights of the individual. What the wrongful act was and whether the wrongful act committed was within the course of employment under the State is quite crucial in determining if it would be covered by State liability. It further expands whenever we consider the direct or indirect involvement of the State, or its agents, in causation and the resultant harm.
Resultant damages
The severity of the damages caused due to the infringement of fundamental rights is one of the major factors that the judiciary considers when addressing State liability. It is the duty of the State to protect its citizens and, if the actions of the State harm the public severely, then it shall carry the liability to compensate for the same.
In simpler terms, just as with any other penalties under the law, the severity of the damage caused would determine how high the liability of the State would be in the case. If the actions have resulted in unlawful deaths, then the penalties would be higher in comparison to cases of illegal detention.
Immunities
The State has certain immunities that limit the scope of State liability. These immunities can vary depending on the jurisdiction of the cause of action and the action itself. As stated in Section 86 of the Code of Civil Procedure, 1908, no foreign State, its ruler, ambassador, envoy, high commissioner or any such member shall be arrested under the Code unless the Central Government certifies such arrest in writing by a secretary to that foreign government. Hence, this section establishes sovereign immunity in India. The only exceptions to this are when the consent has been waived by the foreign nation or when the petitioner is the owner of immovable property within the foreign nation and the suit filed regarding the aforesaid property or money charged upon it.
Obligations under state liability
The obligations under state liability extend beyond the tortious liability established in the present. These obligations are elaborated further as follows:
Statutory liability
As the term suggests, this is the kind of state liability that deals with the violation of legal rights provided in the statutes and legislation. Any action by the State, public authorities or its representatives that leads to the violation of legal provisions and the rights prescribed under it, would be liable under this type of State liability. This includes legal provisions under Acts by the legislation as well as rules and orders given by the judiciary. Section 80 of the Code of Civil Procedure, 1908 provides the procedure for the two-month notice that should be given to the State or else the suit is liable to be dismissed. This section is enacted to ensure that the claims made against the State are legitimate and to avoid any unnecessary litigation. On the other hand, Order 27 of the Code states the procedural rules regarding the suit against the State itself.
Contractual liability
This type of state liability occurs when the State has a contract or an agreement with another party. Any violation of such agreement with a third party or individual would amount to state liability to the extent of the commitment given in the contract or the damages incurred by the third party due to such violation. The contractual liability helps promote fair contracts along with transparency between the public authorities with individual or private entities.
Article 299 and Article 300 under the Indian Constitution deal with the contractual liability of the State, with Article 299 stating that all the contracts with the government as a party shall be made in the name of the President of the country or the Governor of the State, depending on whether it is the Central Government or State Government that is in the contract. The President and the Governor are not personally liable for the contract; they only stand in as the representative of the government. Meanwhile, Article 300 clarifies that the State can be sued in a Court of law as the Union of India.
Tortious liability
As mentioned earlier, this is the type of State liability that arises when the State, through its representatives, violates the rights of another individual. These wrongful acts can include actions like arbitrary actions or abuse of power, negligence, illegal detention, etc., which may arise due to the failure of government officials to perform their duties or even sheer negligence on their part. Actions committed with malicious intent will also be accounted for under such liability.
Aftermath of Rudul Sah v. State of Bihar (1983)
As a landmark case, the Rudul Sah case set a precedent that helped bridge the gap left between civil rights and State obligations. The jurisprudence of state liability was expanded in the current judgement, giving more scope for State accountability and judicial activism.
This was the first case that led to the emergence of compensatory remedy for the violation of fundamental rights under the Indian Constitution, especially in cases where the harm is non-recoverable or irreplaceable. Since the Constitution does not provide for any remedies, this case set a precedent for such remedies and the discretionary power of the judiciary to provide for such remedies. The judiciary could not only design new remedies but also enforce the remedies to protect the rights of the people.
In a nutshell, this case paved the path for both monetary compensation for constitutional cases as well as judicial activism. Following the precedent set by this case, the Supreme Court awarded compensation in many cases, specifically the ones where an individual’s right to life and personal liberty was violated. As mentioned earlier, these remedies are to be awarded only in appropriate cases while the rest were provided with the relief granted under civil law.
Moreover, in the present judgement, the Supreme Court also mentioned the economic and social rights of an individual the fundamental rights enshrined within Article 21, which set a precedent for the subsequent cases to expand upon. The ideology that monetary compensation was a necessary remedy for the victims of the violation of fundamental rights was backed by many of the subsequent cases in the following years.
One such case was the case of Khatri & Ors. v. State of Bihar & Ors. (1980) in which the overall concept of awarding monetary remedies for constitutional violations was examined thoroughly by the Supreme Court. According to Justice Bhagwati in the aforesaid case, the role of the judiciary is to act as a guardian of the Constitution of India and, to act as such, they need to protect the rights of the citizens. The Court should be willing to create new tools and devise remedies as per the requirement of the case to protect the fundamental rights of the citizens.
The Supreme Court reiterated the above-mentioned view in its judgement of the case M.C. Mehta & Anr. v. Union of India & Ors. (1986), stating that Article 32 confers the Court with the power to design new remedies and appropriate strategies to implement such remedies. The Supreme Court can issue directions as per these strategies to protect the fundamental rights of the citizens and avoid any further breach of the same. The Court also held that powers conferred by the aforesaid provision of the Indian Constitution can act as both — preventive of further infringement of rights and compensatory for the victims who have suffered through the breach already occurred. Thus, as per the Supreme Court, it would be restrictive and ineffective of Article 32 to not issue compensatory orders in cases of a State infringing the fundamental rights of the individual.
Thus, in a nutshell, the State plays a vital role in a democracy with its function to maintain order and peace among the citizens by preventing them from abusing or harming one another. Sovereign powers conforming with such a role are also given to the State to maintain the same. However, that does not give the State immunity from any arbitrary actions or tortious actions leading to the violation of the fundamental rights of the citizens. Whenever such a violation happens, as seen in the present judgment, the State’s obligation should be identified and the aggrieved individual or party should be compensated for the injury.
Such circumstances would be much easier to address and make decisions on if proper legislation is enacted addressing the same. However, we currently do not have any statutory provisions that focus on the claims of the citizens for constitutional violations or compensation for actions coming under State liability. The only remedy currently available for the above is ruled by the Indian judiciary based on the precedents and its remedial powers enshrined in the Constitution.
Another level of checks and balances could also prevent the occurrences of such negligence or arbitrary actions. It would be especially beneficial for the States that have an unstable or inadequate administration system, including the prison system, as observed in the present case. However, all States may benefit from the same.
Currently, to minimise the cases of false imprisonment and delays in the release of prisoners, an official portal named ‘FASTER 2.0’ has been launched that can catalogue the Court orders of such releases and can be easily accessed by the jail authorities. The portal will allow immediate intimation to the concerned authorities regarding the release of a prisoner.
Conclusion
The incidents of illegal detention, custodial torture and death during imprisonment have risen alarmingly in the past decade. In such times, the need for protection other than what is enshrined in the Constitution is quite dire. Rudul Sah v. State of Bihar & Ors.(1983) disclosed this need, highlighting how a remedy for such a violation of rights is an urgent necessity. The Supreme Court not only stepped up to provide the remedy for the same but also highlighted the need for statutory protections for the liberty of the citizens.
As a landmark judgement, this case set an example for both the judiciary and the National Human Rights Commission, allowing them to exercise their remedial powers to grant monetary compensation to the aggrieved individuals. Since most of the victims of such procedural negligence and custodial torture come from the weaker sections of the society like people from scheduled castes, poor households or women, the need to address the issue becomes dire. After all, not everyone can afford legal protection and those who cannot suffer the most under these circumstances.
With the reversal of the Kasturilal case, the State lost its immunity against the tortious acts that its agents, personnel or officials may commit during their course of employment. This resulted in the scope of state liability expanding along with lowering the chances of arbitrary actions committed by the State significantly. This vicarious obligation of the State ensures that the aggrieved individuals can seek damages through a civil lawsuit or by a writ petition while also holding the State accountable for not following the procedure established or violating the same. And all this was made possible because of the present judgement laid down by the Supreme Court.
Frequently Asked Questions (FAQs)
What is State liability?
State liability, as the term suggests, is the obligation that the State incurs when any of its agents, personnel or officials violates the rights of another party during the course of their employment. In simpler terms, state liability is the State taking accountability for any wrongful act committed by the State or its representative that resulted in the infringement of the rights of another individual.
Is the State immune from tortious liability?
No, the State is not immune to tortious liability. After the landmark case of Rudul Sah v. State of Bihar & Ors.(1983), the State was held accountable for the actions of its personnel and officials regardless of their position in the government. The State is liable as the principal for any acts of commission or omission of their agents during their course of employment under the government. Even if the act was involuntary, the State would be held liable for violating the fundamental rights of the victims. This step was taken to prevent any arbitrariness and lower the chances of negligence of the State officials and representatives.
Is monetary compensation awarded for every constitutional right infringement?
No, monetary compensation or remedy is only awarded in the cases of fundamental right violation, specifically those of illegal detention, life and personal liberty. This monetary compensation is given in addition to the relief or damages provided under the civil law or torts.
Reference
M. Seervai, Constitutional Law of India, Universal Law Publishing Co., Reprint 2013.
M. Bakshi, The Constitution of India, Universal Law Publishing Co., 2014.
Dr J.N. Pandey, Constitutional Law of India, Central Law Agency, Allahabad, 37th edition, 2001.
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Every taxpayer wants to save tax on their income and reduce their tax burden; after all, they have put lots of effort into earning that income. Therefore, every taxpayer looks for a method to reduce their tax liability so that they can fully utilise that income and enjoy that hard earned money.
There are many methods to achieve that tax saving goal. But before applying any method, you have to be very careful, as selecting an illegal method can cause some serious trouble for you. Let’s understand the two methods to reduce your tax liabilities, i.e., tax avoidance and tax evasion and how a taxpayer can use these methods to minimise their tax burden in a legal and right way.
What is tax avoidance
Tax avoidance is a legal method used by taxpayers to reduce their tax liabilities, using the loopholes in the rules and regulations under the act. In other words, tax avoidance is a method to avoid payment of tax by taking advantage of a situation, where rules and regulations are not clearly defined or precise in the act. Although tax avoidance is legal, as there is no violation of the act, it is not advisable as a good practice because taxpayers try to gain an unfair advantage to avoid paying tax.
What is tax evasion
Tax evasion is an illegal method adopted by a taxpayer to escape the liability of paying taxes to the government. It is an unlawful and prohibited activity, and indulging in it can result in penalties, fines, criminal charges, and imprisonment for the taxpayer involved. It is deliberately done by overstating expenses, underreporting income, concealing sources of income and making offshore transactions.
Impact of tax evasion on the Indian economy
As per the Receipt Budget 2024-25, net tax revenue receipts were Rs. 2097785.82 crores out of total revenue receipts of Rs. 2383206.47 crores, which were 88% of total revenue receipts. That means a substantial part of revenue receipts comes from taxes but as per the various estimations, India loses trillions to tax evasion annually. As per the Annual Report of the Ministry of Economic Affairs, Ministry of Finance, Government of India 2016-17, the net estimated tax evasion in direct tax from 2000-01 to 2014-15 was Rs. 1,98,449 crores.
As a result of higher revenue loss in terms of tax evasion and tax avoidance, the government is facing problems of a larger budget deficit, higher borrowings, and increased public debt, subsequently leading to economic instability, which impacts the investment decisions of foreign investors.
Reasons for tax avoidance and evasion
Tax avoidance and tax evasion have become common factors in higher revenue losses for India. To curb this situation, it’s important to understand the reasons behind tax avoidance and evasion. Here are some points that lead to tax avoidance and evasion in India.
High rate of tax
No one wants to pay a higher income tax; to reduce tax liabilities, every taxpayer looks for legal or illegal ways. This high rate of taxation gives rise to emotions among taxpayers in terms of tax avoidance and evasion.
Complexity in tax laws
As we know, provisions under the acts are not easy to understand for common people. It is very difficult to understand and apply the provisions of the act without the help of professionals. As a result, to avoid the burden of professional charges, taxpayers indulge in tax avoidance and evasion.
Lack of strong tax policies
Failure to make strong tax policies may lead to loopholes and opportunities for taxpayers to misuse the provisions of tax laws to avoid paying taxes.
Weak administration
Tax authorities have limited resources, due to which they are not capable of watching or scrutinising each and every taxpayer. Also, the penalties and prosecution procedures are liberal, which result in gaps for tax avoidance and tax evasion.
Methods of tax avoidance and evasion
Here are some common methods used by taxpayers to avoid paying tax to the government:
Underreporting income
Taxpayers do not disclose their full income to escape payment of tax liabilities. Generally, taxpayers used to receive some part of their income in cash and the other through the banking channel and did not disclose their cash receipts to the department.
Concealment of income
This is the method where full sources of income are not disclosed by taxpayers. For example, a taxpayer has a trading business and also generates rental income from his house property. However, he used to collect his rental income in cash, disclose only trading business income in his return of income, and conceal income from house property.
Overstating expenses
Income is deliberately reduced by falsely claiming higher expenses to evade tax payments.
Offshore transaction
Tax evaders take advantage of loopholes in the provisions of the law in transactions between 2 countries. Vodafone International Holding vs. Union of India (2012) is the landmark caselaw of tax avoidance, where the Supreme Court held that Indian revenue authorities do not have jurisdictional authority to impose tax on transactions between two non-residents where the controlling interest of an Indian company was acquired by a non-resident company.
Creating shell companies
Shell companies are organisations without active operations and significant assets. Tax evaders used to channel their money through shell companies to escape tax payments.
Claiming deductions and exemptions
These are very common methods used by taxpayers to reduce their income in a legal way. There are various deductions and exemptions introduced by the Income Tax Department. By using these taxpayers, they can reduce their tax liabilities, like investments in tax saving instruments, take advantage of deductions under Chapter VI of the Income Tax Act of 1961 and claim all allowable allowances and expenses.
Tax shelters and tax havens
Both are strategies through which income can be reduced. Tax shelters are the instruments and entities where money is invested to generate losses and set-offs from another source of income. While in a tax haven, taxpayers enter into a transaction with a country where rates of tax are lower.
Consequences of tax evasion and tax avoidance in India
Tax evasion is an unlawful activity and is considered a criminal offence or crime. Therefore, consequences are more severe than tax avoidance, which covers penalties and fines, imprisonment, and criminal charges.
Legal provisions for tax evasion and tax avoidance
Penalties fines
As per Section 270A of Income Tax Act, 1961, there is a penalty of 50% of tax in cases of under-reporting of income and 200% of tax in cases of mis-reporting of income.
If you fail to keep, maintain or retain books of accounts as required by Section 44AA, penalty of Rs. 25000 can be imposed under Section 271A.
If undisclosed income is found during the search proceedings under the Income Tax Act, penalty of up to 60% of undisclosed income can be imposed under Section 271AAB.
As per Section 271B, failure to get accounts audited up to due date under Section 44AB can result in a penalty of 1.5% of gross receipts (subject to maximum of Rs. 1.50 lakh).
If you fail to furnish a report of CA under Section 92E, a penalty of Rs. 1 lakh can be imposed under Section 271BA.
If you fail to furnish information as required under Section 92D, a penalty of Rs. 5 lakh can be imposed.
Imprisonment
As per Section 276BB, imprisonment of 3 months to 7 years is imposed in case of failure to pay the tax collected under Section 206C.
As per Section 276C(2), imprisonment of 3 months to 3 years in case of willful attempt to evade payment of tax, penalty, and interest.
As per Section 275A, imprisonment up to 2 years in case of contravention of order made under Section 132(1) or 132(3).
Audit and investigation
Indulging in tax evasion and tax avoidance may lead to an audit and investigation by the Income Tax Department. The Income Tax Act, 1961, has given power to the authorities to initiate audits, investigations, and scrutiny of the assessee in default.
Search & seizure
The Income Tax Department has power to initiate search and seizure when the department has sufficient grounds and reasons for tax evasion and tax avoidance.
Tax laws in India
The tax laws in India are a complex and ever-changing landscape. They are governed by various statutes, rules, and regulations issued by the Central Board of Direct Taxes (CBDT). These laws cover a wide range of taxes, including income tax, corporate tax, and goods and services tax (GST).
The Income Tax Act
The Income Tax Act of India is a comprehensive piece of legislation that governs the levy and collection of income tax in India. Enacted in 1961, the act has undergone numerous amendments over the years to keep pace with changing economic and social conditions. The Income Tax Act is administered by the Central Board of Direct Taxes (CBDT), a statutory body under the Ministry of Finance.
The act applies to all individuals, Hindu Undivided Families (HUFs), companies, and other legal entities that earn income in India. It prescribes the various sources of income that are subject to tax, the rates of tax applicable to different categories of taxpayers, and the exemptions and deductions that are available. The act also provides for the assessment of income, the filing of tax returns, and the payment of taxes.
The Income Tax Act is a complex piece of legislation, and taxpayers are advised to seek professional advice to ensure that they are complying with all the requirements of the law. The CBDT has published a number of guidelines and circulars to help taxpayers understand and comply with the provisions of the act.
The Income Tax Act is an important source of revenue for the Indian government. In the 2022-23 fiscal year, the government collected over Rs. 14 lakh crore in income tax, which accounted for about 20% of the total tax revenue. The income tax collected by the government is used to finance various public services, such as education, healthcare, and infrastructure development.
The Income Tax Act is a vital part of the Indian tax system. It helps to ensure that the government has the resources it needs to provide essential services to its citizens. The act also promotes equity by ensuring that individuals and businesses pay their fair share of taxes.
Corporate tax
Corporate tax is a significant source of revenue for governments, and it is levied on the profits earned by companies. The tax rate can vary depending on the jurisdiction, but it is typically a percentage of the company’s net income. In addition to corporate tax, companies may also be required to pay other taxes, such as sales tax, property tax, and payroll tax.
The purpose of corporate tax is to generate revenue for the government, which can then be used to fund public services such as healthcare, education, and infrastructure. Corporate tax can also be used to discourage companies from engaging in certain activities, such as polluting the environment or exploiting workers.
However, corporate taxes can also have a negative impact on businesses. High corporate tax rates can make it difficult for companies to compete with their international rivals, and they can also discourage investment and job creation. In addition, corporate tax can be complex and time-consuming to comply with, which can be a burden for small businesses.
Despite the potential drawbacks, corporate taxation remains an important source of revenue for governments around the world. It is a way to ensure that companies contribute to the costs of public services and that they are held accountable for their actions.
Here are some of the key features of corporate tax:
It is a tax on the profits earned by companies.
The tax rate can vary depending on the jurisdiction.
Companies are also required to pay other taxes, such as sales tax, property tax, and payroll tax.
The purpose of corporate taxation is to generate revenue for the government.
Corporate taxes can also be used to discourage companies from engaging in certain activities.
High corporate tax rates can make it difficult for companies to compete with their international rivals.
Corporate taxation can also discourage investment and job creation.
Corporate tax can be complex and time-consuming to comply with.
Goods and Services Tax Act (GST)
The Goods and Services Tax (GST) is a comprehensive indirect tax levied on the supply of goods and services. It is a destination-based tax, which means that it is levied at the point of consumption. GST is a single tax that replaces multiple indirect taxes levied by the Central and State Governments.
GST was introduced in India on July 1, 2017, and it has brought about a significant change in the indirect tax landscape of the country. GST is a major step towards creating a unified common market for goods and services in India.
Here are some of the key features of GST:
It is a comprehensive tax that applies to all goods and services, except for a few exempt items.
It is a destination-based tax, which means that it is levied at the point of consumption.
It is a single tax that replaces multiple indirect taxes levied by the Central and state governments.
It is a self-assessed tax, which means that taxpayers are responsible for calculating and paying their own taxes.
It is a technology-driven tax with a focus on electronic filing of returns and payments.
GST has had a significant impact on the Indian economy. It has made it easier for businesses to do business across state borders, and it has led to a reduction in the cost of doing business. GST has also helped increase tax compliance and reduce tax evasion.
Overall, GST has been a positive development for the Indian economy. It has made the tax system more efficient and transparent, and it has helped to create a more level playing field for businesses.
Here are some of the benefits of GST:
It has made it easier for businesses to do business across state borders.
It has led to a reduction in the cost of doing business.
It has helped to increase tax compliance and reduce tax evasion.
It has made the tax system more efficient and transparent.
It has helped to create a more level playing field for businesses.
Landmark case laws on tax evasion
Commissioner of Income Tax vs. Ramkanth Mohanlal Gandhi: (1978) 113 ITR 266 (SC)
In the landmark case of Commissioner of Income Tax vs. Ramkanth Mohanlal Gandhi (1978) 113 ITR 266 (SC), the Supreme Court of India established the principle of “wilful tax evasion” as an essential element of the offence. This principle has had a profound impact on the interpretation of tax laws in India and has been cited in numerous subsequent cases.
The court, in its judgement, held that mere ignorance of the tax law or inadvertent errors would not constitute wilful tax evasion. The court stated that the term “wilful” in the context of tax evasion requires a conscious and deliberate act or omission with the knowledge that it is contrary to the law. The court further held that the burden of proving wilfulness lies with the prosecution, and it must be established beyond a reasonable doubt.
The principle established in the Ramkanth Gandhi case has been applied in numerous subsequent cases. For example, in the case of CIT vs. Hindustan Coca-Cola Beverages Pvt. Ltd. (2017), the Supreme Court held that the assessee’s failure to deduct tax at source from the payments made to its dealers was not wilful tax evasion, as the assessee had a bona fide belief that the payments were not subject to tax deduction at source.
The principle of wilful tax evasion has also been applied in cases involving the imposition of penalties under the tax laws. In the case of CIT vs. B.K. Birla (2008), 175 DTR 1 (SC), the Supreme Court held that the imposition of a penalty under Section 271(1)(c) of the Income Tax Act, 1961, requires a finding of wilfulness on the part of the assessee.
The principle established in the Ramkanth Gandhi case is important as it provides a safeguard against the arbitrary imposition of penalties and prosecution for tax evasion. It ensures that only those who have knowingly and deliberately evaded tax are held liable.
State of Gujarat vs. Rameshchandra Ramniklal Shah
In the landmark case of State of Gujarat vs. Rameshchandra Ramniklal Shah (1983), the Supreme Court of India clarified the meaning of “gross negligence” in the context of tax evasion. This case had a significant impact on the interpretation of tax laws in India and established important principles regarding the culpability required for imposing penalties for tax evasion.
The court held that gross negligence, in the context of tax laws, involves a “conscious and deliberate disregard” of the tax laws, amounting to a “wilful omission” of tax liability. This definition sets a high threshold for establishing gross negligence, requiring a level of culpability beyond mere carelessness or oversight.
The court reasoned that gross negligence requires a higher level of culpability than ordinary negligence because it involves a conscious and intentional disregard of the law. To constitute gross negligence, the taxpayer must have been aware of the tax laws and wilfully failed to comply with them.
This interpretation of gross negligence has been consistently applied by courts in India in subsequent cases. It has ensured that penalties for tax evasion are imposed only when there is a clear and deliberate disregard of the law, and not for mere mistakes or inadvertent errors.
The case of State of Gujarat vs. Rameshchandra Ramniklal Shah has also been cited as a precedent in other jurisdictions, demonstrating its influence on the interpretation of tax laws beyond India. It has contributed to the development of a consistent approach to gross negligence in the context of tax evasion, ensuring that penalties are imposed fairly and in accordance with the principles of justice.
Landmark case laws on tax avoidance
CIT vs. McDowell & Co.
The CIT v. McDowell & Co. case, decided in 1985, is a significant precedent in the realm of tax law. It established the crucial concept of “business purpose” in tax avoidance transactions. The ruling introduced the principle that a transaction cannot be deemed tax avoidance if it is undertaken with a genuine business purpose, even if it also results in tax savings.
The case involved the taxpayer, McDowell & Co., which purchased a series of life insurance policies for its key employees. The premiums paid for these policies were substantial and resulted in significant tax deductions for the company. However, the court found that the primary purpose of these transactions was to preserve the company’s business interests, not solely to obtain tax benefits.
The court reasoned that the insurance policies served a legitimate business purpose by providing financial protection for the company in the event of the death or disability of key employees. The court held that the tax savings were merely incidental to the primary business purpose and therefore did not constitute tax avoidance.
This decision introduced a crucial distinction between tax avoidance and tax planning. Tax avoidance involves engaging in transactions primarily aimed at reducing tax liability, often through artificial or contrived means. In contrast, tax planning involves legitimate business transactions that also result in tax savings as a secondary benefit.
The “business purpose” doctrine established by the CIT v. McDowell & Co. case has been influential in shaping tax law and jurisprudence in subsequent years. It has provided a framework for courts and tax authorities to distinguish between genuine business transactions and those primarily motivated by tax avoidance.
The concept of business purpose has also had implications for tax policy and legislation. It has influenced the development of anti-avoidance provisions and rules aimed at curbing aggressive tax planning strategies. Taxpayers and their advisors must carefully consider the business purpose of transactions and ensure that they are not primarily motivated by tax avoidance to avoid potential challenges from tax authorities.
In summary, the CIT v. McDowell & Co. case established the concept of “business purpose” in tax avoidance transactions. It held that a transaction cannot be treated as tax avoidance if it has a genuine business purpose, even if it also results in tax savings. This decision has had a significant impact on tax law and jurisprudence, shaping the distinction between legitimate tax planning and tax avoidance.
Azadi Bachao Andolan vs. Union of India
In 2003, the landmark case of Azadi Bachao Andolan v. Union of India had a significant impact on the taxation landscape in India. The case revolved around the validity of the General Anti-Avoidance Rule (GAAR) introduced in the Income Tax Act, 1961, which aimed to combat tax avoidance strategies.
The Supreme Court, in its judgement, upheld the validity of GAAR, recognising it as a necessary tool to prevent tax avoidance and protect the integrity of the tax system. Here are the key points of the judgement and its implications:
Broad interpretation of GAAR: The court interpreted GAAR broadly, stating that it was not limited to specific avoidance schemes but applied to any arrangement or transaction whose main purpose was to obtain a tax benefit that was not intended by the legislature. This broad interpretation provided the tax authorities with a wide scope to scrutinise transactions and assess their tax implications.
Tax avoidance vs. tax evasion: The court distinguished between tax avoidance and tax evasion, emphasising that GAAR was primarily concerned with tax avoidance, which involves legal but artificial arrangements to minimise tax liability, while tax evasion involves illegal means to evade taxes. GAAR was meant to target sophisticated tax planning strategies that exploited loopholes or ambiguities in the law.
Principle of substance over form: The court emphasised the principle of substance over form, stating that the true nature and substance of a transaction should be considered rather than its legal form. This principle allowed the tax authorities to look beyond the superficial structure of a transaction and examine its underlying purpose and economic substance to determine whether it fell within the purview of GAAR.
Safeguards against misuse: Recognising the potential for misuse or arbitrary application of GAAR, the court imposed certain safeguards to ensure that it was used judiciously. These safeguards included the requirement for the tax authorities to provide detailed reasons for invoking GAAR, the right of taxpayers to seek advance rulings, and the availability of an independent dispute resolution mechanism.
Impact on taxpayers: The Azadi Bachao Andolan judgement had a significant impact on taxpayers, particularly those engaged in complex tax planning strategies. It heightened the scrutiny of transactions and increased the risk of tax assessments and penalties for non-compliance. Taxpayers were advised to carefully review their tax planning structures and ensure that they were in line with the spirit and intent of the law.
Importance of tax compliance: The judgement reinforced the importance of tax compliance and discouraged the use of aggressive tax avoidance schemes. It sent a strong message that the government was committed to upholding the integrity of the tax system and ensuring that all taxpayers contributed their fair share of taxes.
Subsequent developments: The Azadi Bachao Andolan judgement has had a long-lasting impact on the Indian taxation landscape. It led to the introduction of additional anti-avoidance provisions in the Income Tax Act, such as the Minimum Alternate Tax (MAT) and the introduction of a specific GAAR regime in 2017. These measures further strengthened the government’s ability to address tax avoidance practices.
Overall, the Azadi Bachao Andolan v. Union of India case established a robust framework for combating tax avoidance in India, ensuring that the tax system remained equitable and efficient and that all taxpayers fulfilled their obligations responsibly.
Conclusion
Tax avoidance and evasion are both downgrading our Indian economy, which impacts our budget, borrowings, public debts, economic stability, and foreign direct investment. To curb this situation, the Government of India has taken some initiatives but as a citizen of India, it is also our prime duty to serve our nation and make some contribution to the stability of the Indian economy. Therefore, every taxpayer tries to escape tax evasion, which may sometimes lead to fines, penalties, imprisonment, and criminal charges. Taxpayers are advised to adopt the tax deduction and exemption provisions specified under the act for the benefit of reducing their tax liabilities and taking themselves away from the harsh provisions of the act.
In the past few decades, the financial services sector has been at the forefront of technological innovation, leading to ground breaking innovations like online banking, mobile payments, robotic investment advisors and algorithmic trading. As we venture deeper into the 21st century, a new paradigm where Artificial Intelligence (AI) partners with humans to redefine the future workplace will likely emerge. This synergy is in line with a trend that is increasingly observed across industries and is driven by the rise of AI. According to a report on the future of work by the World Economic Forum, around 85 million jobs will face displacement by 2025 as AI matures rapidly, while approximately 97 million new roles will also be created. This will create a division of labour between humans and AI and a partnership at the workplace that promises to enhance efficiency, drive innovation, and create unprecedented value for both customers and businesses alike.
Evolution of AI in financial services
The journey of AI in financial services has evolved from simple automation to complex decision-making. Early adoption saw the automation of repetitive tasks, but today, AI is making inroads into areas requiring cognitive abilities such as financial analysis, risk assessment, investment advice and customer service. The AI revolution in finance is driven by the need for ever increasing efficiency in the face of increasing volumes of data. The need for AI as a partner is also driven by the need for real time analysis and decision making as analysis in this sector has immense temporal value; one has only got to observe the domain of trading, where trillions of dollars are traded daily, to appreciate the value of real time analysis and action based on such analyses.
The potential of AI within the realm of financial services has been substantiated by researchers, who maintain that FinTech transcends mere e-banking and digital consumer interfaces; it pivots today on the advent of novel, technologically-facilitated instruments that cater to user demands. Within this framework, AI emerges as a dual-beneficiary agent, revolutionising the industry by meeting ever changing customer demands and propelling business value for firms.
Synergistic collaboration : enhancing human potential
The potential of AI as a collaborative partner lies in its ability to analyse vast quantities of data, recognise patterns, and provide actionable insights — tasks that would take humans significantly longer to perform. For instance, AI can help financial analysts by sifting through global economic data to identify investment opportunities or risks. This ability to analyse and take action in real time can also provide solutions to long standing issues in global finance, such as the timely prevention of fraud and curbing money laundering.
This partnership allows human employees to focus on strategic tasks, relying on AI for data-driven decision-making.
Payment systems that can amaze
Payment systems have evolved from the all too familiar Cash to Credit Cards and the Unified Payment Interface (UPI), which enable customers to make payments with ease. One of the latest developments in this domain is made possible only due to a combination of AI, Blockchain and other advances in computing and storage. An innovation by Ant Financials, China, in 2017, named “Smile to Pay,” leverages deep learning algorithms for facial recognition, allowing customers to execute payments with a mere smile at a vending machine. This technology, supported by robust security protocols and an enabling legislative framework, has the potential to revolutionize payment methods, positioning the consumer’s facial biometrics as a proxy for traditional payment instruments.
This will soon lead to a situation in the future where human tellers and cashiers manage payments side by side with fully automated AI agents.
Loan disbursement : revolutionary speed with AI
Fintech companies are already employing a synergy of technologies—Blockchain, AI, Security, Internet of Things (IoT), and Computing (BASIC)—to facilitate systems that can make near instantaneous decisions on lending with zero human interaction. Moreover, the default risk in such loans is relatively low, as they are underwritten based on data collected from social media, ordering and repayment patterns on e-commerce sites and order integrators.
It is likely that the underwriting and disbursement of small retail loans will be completely AI driven, while expert humans will work on larger, more complex loans. This partnership between humans and AI will likely benefit all stakeholders.
AI and customer experience : a new paradigm
In the realm of customer service, chatbots and virtual assistants have already made an impact. They provide the possibility of customer self-service as well as the feature of temporal and spatial independence, that is, the availability of service at any point in time, anywhere in the world where an internet connection is available.
Over the last couple of years, we have witnessed the advent of intelligent customer service agents leveraging the abilities of Large Language Models (LLM) such as Chat GPT, LLAMA and many other similar platforms. These agents have the potential to provide personalised financial advice round-the-clock, enhancing customer experience and satisfaction. Deep learning and Natural Language Processing (NLP) are integral to automating customer query handling, with an astounding 97% of such interactions occurring without human mediation. In 2017, the efficacy of such a system was recognised as surpassing human performance in terms of customer satisfaction.
In the future workplace, these AI systems will work in tandem with human advisors, with only the most complex requests being escalated to expert human beings, offering a composite of personal touch and machine efficiency.
Hiring, training and adaptation : preparing for an AI-driven workplace
The integration of AI in the workplace necessitates a shift in skills and training for the existing workforce. The process of working for a new-world human-AI partnership company will likely begin with candidates being assessed automatically for suitable aptitude.
Since relatively simpler decision making will be done almost entirely by AI, human professionals will, in general, need to have a higher level of expertise than that existing today. Financial professionals will not only need to acquire new competencies in data analytics and AI technology but will also need additional expertise in their specific domain of financial services. Human employees will need to learn to delegate tasks to AI agents and will need to “trust” decisions made by intelligent agents.
While AI excels at processing information, human judgement remains indispensable, especially when dealing with complex, nuanced situations. Financial professionals bring contextual understanding and emotional intelligence to the table—qualities that AI has yet to replicate. The interplay between AI’s analytical prowess and human judgement will define the future of financial decision-making, balancing efficiency with empathy.
The need for humans and AI to work in close partnership in the work-world will require changes in both human behaviour and the way AI operates today. Human-AI partnerships will form new socio-technical systems that can leverage the unique capabilities of either mentioned above.
Issues and bias mitigation
As AI becomes more prevalent, ethical considerations come to the fore. We have already witnessed and researched cases of bias against African Americans in underwriting loans. The financial services sector must take the lead in establishing ethical AI frameworks, focusing on transparency, accountability, and fairness. This involves training AI systems with unbiased data and regularly auditing algorithms to prevent discrimination in lending, hiring, and customer service.
Since the data required for training algorithms comes from human beings, who are both users and makers of AI systems, it may be that in the long term, AI agents will align with the same biases that human beings have. There are numerous studies being carried out and mechanisms being put in place that will help guard against this; however, the evolution of these can only be observed over a period of time.
Moreover, human-AI partnership systems are vulnerable to breakdowns due to humans not being able to understand the ‘Black-Box’ nature of AI algorithms, not being able to act as fast as AI systems or, sometimes, placing too much trust in decisions made by AI systems. Indeed, in the domain of autonomous cars, we have already witnessed fatal accidents due to human drivers placing too much trust in the AI based driver and it is not unlikely that the financial services sector too will see similar issues.
The future of employment
Concerns about AI leading to job displacement are prevalent, with recent studies by McKinsey suggesting that approximately half of current occupational activities are susceptible to automation, potentially resulting in up to 15% of the global workforce being displaced. The reality, however, is likely to be more nuanced. AI will automate certain tasks, but it will also create new roles and opportunities. Jobs will evolve, and a new cadre of financial professionals who can work effectively with AI will emerge. The human-AI partnership will not only redefine existing roles but also pave the way for new career paths within the financial sector. In the future workplace, human-AI partnerships are expected to play a crucial role in transforming the nature of work and creating new possibilities for businesses and employees alike.
Collaborative intelligence
Collaborative intelligence represents a paradigm shift in the relationship between humans and artificial intelligence (AI). Rather than viewing AI as a replacement for human workers, collaborative intelligence embraces the idea that humans and AI can work together to achieve greater outcomes than either could on their own.
In this collaborative model, AI augments human capabilities, enhancing strengths and compensating for weaknesses. Humans contribute their unique abilities, such as creativity, problem-solving, and strategic thinking, while AI provides computational power, data analysis, and pattern recognition.
The benefits of collaborative intelligence are numerous. For businesses, it can lead to increased productivity, innovation, and efficiency. In healthcare, it can enable personalised medicine and improve patient outcomes. In education, it can provide individualised learning experiences and support lifelong learning.
Enhanced productivity
The integration of Artificial Intelligence (AI) into various industries is revolutionising the workplace. AI’s ability to automate repetitive and mundane tasks has unlocked unprecedented opportunities for enhanced productivity. By taking over routine and time-consuming activities, AI frees up valuable human time and resources, allowing workers to focus on more strategic, creative, and fulfilling tasks.
This dynamic collaboration between humans and AI leads to several benefits. Firstly, increased productivity is achieved as AI streamlines processes, reduces errors, and optimises workflows. Secondly, efficiency is enhanced as AI automates tasks with precision and speed, leading to faster turnaround times. Thirdly, innovation is fostered as human workers, relieved from the burden of repetitive tasks, can dedicate their time and creativity to problem-solving, brainstorming, and developing innovative solutions.
Personalised experiences
Artificial intelligence (AI) is rapidly changing the way businesses interact with their customers, employees, and partners. One of the most significant ways AI is impacting the business landscape is by enabling the creation of personalised experiences.
AI can analyse vast amounts of data to understand individual preferences and needs. This data can come from a variety of sources, such as customer surveys, website behaviour, and social media activity. By analysing this data, AI can create a detailed profile of each individual, which can then be used to tailor products, services, and marketing messages to their specific needs.
There are many benefits to providing personalised experiences. For customers, it can lead to increased satisfaction and loyalty. For employees, it can lead to a more engaged and productive workforce. And for partners, it can lead to stronger relationships and collaboration.
Here are some specific examples of how AI is being used to create personalised experiences:
Retail: AI can be used to recommend products to customers based on their past purchases, browsing history, and social media activity.
Travel: AI can be used to create personalised itineraries for travellers based on their interests, budget, and travel preferences.
Healthcare: AI can be used to develop personalised treatment plans for patients based on their medical history, genetic data, and lifestyle factors.
Education: AI can be used to create personalised learning experiences for students based on their individual learning styles and needs.
As AI continues to develop, we can expect to see even more innovative and personalised experiences being created. Businesses that are able to effectively leverage AI to create personalised experiences will be well-positioned to succeed in the future.
Skill transformation
The advent of artificial intelligence (AI) is rapidly transforming the workplace, automating routine tasks and creating a demand for new skills. Employees who wish to remain competitive in this evolving landscape must embrace skill transformation, a process of acquiring new skills and adapting existing ones to meet the demands of the future workplace.
This skill transformation necessitates a proactive approach to ongoing learning and development. Organisations must invest in comprehensive learning and development programmes that equip their employees with the necessary skills and knowledge to thrive in the digital age. These programmes should focus on imparting skills such as critical thinking, problem-solving, creativity, adaptability, and emotional intelligence, which are less susceptible to automation.
In addition to formal learning programmes, organisations should also encourage a culture of continuous learning where employees are empowered to take ownership of their development. This can be facilitated through the provision of online learning resources, mentorship programmes, and access to industry experts.
Skill transformation is a collaborative effort that requires the active involvement of both organisations and employees. By investing in ongoing learning and development, organisations can prepare their workforce for the future workplace and ensure their continued competitiveness in the digital era.
Here are some specific examples of how skill transformation can be implemented in the workplace:
Upskilling: This involves providing employees with training to enhance their existing skills and knowledge. For example, a marketing professional may be trained in digital marketing and social media management to keep up with the changing landscape of marketing.
Reskilling: This involves providing employees with training in entirely new skills. For example, a manufacturing worker may be trained in robotics and automation to prepare for the increasing use of these technologies in the manufacturing industry.
Lateral skilling: This involves providing employees with training in skills that are transferable across different roles and departments. For example, a customer service representative may be trained in sales skills to expand their career opportunities.
By implementing skill transformation initiatives, organisations can create a workforce that is adaptable, resilient, and ready for the challenges of the future workplace.
Ethical considerations
The rapid rise of human-AI partnerships has introduced a complex set of ethical considerations that organisations must navigate. Ensuring the responsible use of AI is of paramount importance, and this requires the establishment of clear guidelines that address transparency, fairness, and accountability.
Transparency
Organisations must be transparent about their use of AI, including the purpose, limitations, and potential risks. This includes providing clear information to users about how AI-powered systems make decisions, the data they use, and any biases that may exist. Transparency builds trust and enables users to make informed decisions about their interactions with AI systems.
Fairness
AI systems should be designed and deployed in a fair and unbiased manner. This involves addressing potential biases in the data used to train AI models, ensuring equitable access to AI technologies, and mitigating any discriminatory outcomes. Fair AI systems promote social justice and prevent harm to vulnerable populations.
Accountability
Organisations must be held accountable for the actions of their AI systems. This includes establishing mechanisms for redress and recourse in cases where AI-powered decisions result in harm or unfair treatment. Assigning clear responsibility for AI systems ensures that organisations are proactive in addressing ethical concerns and mitigating potential risks.
Additional ethical considerations:
Privacy: AI systems often process sensitive personal data, so organisations must adhere to data protection regulations and ensure the privacy of individuals.
Safety and security: AI systems should be designed with safety and security in mind, preventing unauthorised access and ensuring the integrity of AI-powered decision-making processes.
Environmental impact: The development and deployment of AI technologies should consider their environmental impact, such as energy consumption and carbon emissions.
Addressing these ethical considerations requires a multi-stakeholder approach involving collaboration between organisations, policymakers, researchers, and civil society. By working together, we can ensure that human-AI partnerships are guided by ethical principles and contribute positively to society.
Conclusion
The partnership between humans and AI is set to be the cornerstone of the future workplace, especially within the financial services sector. As we embrace this partnership, it is essential to navigate the challenges thoughtfully, emphasising ethical practices, continuous learning, and adaptation. A number of challenges need to be overcome in order to embed a well-functioning socio-technological system of humans and AI agents working in a seamless fashion in financial services in the near future.
The human-AI collaboration holds the promise of a smarter, more efficient, and more personalised financial world. The future of finance is not just about technology; it’s about the synergy between technology and the people who wield it.
This article is written by Gauri Gupta. The article aims to provide a detailed analysis of the landmark judgement of Sukhpal Singh Khaira v. State of Punjab (2022). The article highlights and elaborates on the facts of the case, the issues presented before the Court, arguments of the Appellant and respondent, the laws and precedents laid down in the case, and the judgement put forth by the Supreme Court of India.
There has always been ambiguity regarding the nature and scope of Section 319 of the Criminal Procedure Code, 1973. In light of the same, the judgement of the Supreme Court in the case of Sukhpal Singh Khaira v. State of Punjab (2022) stands as a beacon of clarity. The landmark judgement of Sukhpal Singh v. State of Punjab (2022) was delivered by the five judge bench of the Supreme Court. It elaborates on the scope and application of Section 319 of the Code of Criminal Procedure, 1973. As per the said provision, while the trial is pending, the Courts of law are empowered to summon an additional accused during the proceedings. The same can be done on the basis of certain evidence that is presented before the Court of law while the proceedings are underway.
What is crucial in the judgement is the clarification given by the Supreme Court regarding the stage at which this power can be exercised. The Courts can summon an additional accused only before the judgement or order pertaining to the acquittal or conviction of the accused individuals has been rendered by the Court.
Furthermore, the judgement is crucial as it elaborates on the guidelines, which provide for different nuances of the provision and provide clarity on the crucial issues that arise when interpreting the provision.
Details of Sukhpal Singh Khaira v. State of Punjab (2022)
Title of the Case
Sukhpal Singh Khaira v. The State of Punjab
Date of Judgement
5th December, 2022
Parties to the case
Appellant
Sukhpal Singh Khaira
Respondent
State of Punjab
Represented by
Advocates on behalf of Appellant
Sr. Advocate P.S. Patwalia and Puneet Singh Bindra
Amicus Curiae
Sr. Advocate S. Nagamuthu
Advocates on behalf of the Respondents
Advocate General Vinod Ghai
Equivalent citation
Criminal Appeal No. 885 of 2019 with SLP (CRL.) No. 6960/2021, CRL. APPEAL NO. 886/2019 and SLP (CRL.) No. 5933/ 2019
Section 319 of the Code of Criminal Procedure, 1973
Corum
Justice S. Abdul Nazeer, Justice B.R. Gavai, Justice A.S. Bopanna, Justice V. Ramasubramanium, and Justice B.V. Nagarathna
Author of the Judgement
Justice A.S. Bopanna
Facts of Sukhpal Singh Khaira v. State of Punjab (2022)
The factual matrix of this case can be summarised in the following points:
On March 5th, 2015, a First Information Report was lodged against eleven accused persons for committing the offences under Sections 21, 24, 25, 27, 28, 29 and 30 of the Narcotic Drugs and Psychotropic Substance Act, 1985. They were also accused of committing offences under Section 66 of the Information Technology Act, 2000 and Section 25-A of the Arms Act, 1959.
However, as per the charge sheet dated September 6th, 2015, only ten of them were summoned and put to trial before the Sessions Court. The police filed another chargesheet but did not name the Appellant as the accused.
Furthermore, the name of the Appellant was not put forth by the witnesses when they were asked so during the trial, which was conducted before the Sessions Judge.
Following these events, the prosecution filed an application under Section 311 of the Criminal Procedure Code of 1973, wherein he recalled PW 4 and 5. The Court permitted the same. When these witnesses were examined in the Court of law, they named the Appellant, following which the prosecution filed an application under Section 319 of the 1973 Code, by the way of which he made the Appellant an accused in the case.
The learned Sessions Judge accepted the application and the Appellant was summoned under the said provision before the learned judge.
The Appellant raised questions regarding the validity of the order passed by the learned Sessions Judge to summon him before the Court. The Appellant disputed the order of the learned judge on the ground that he was summoned after the order in the case had already been passed.
The High Court of Punjab and Haryana dismissed the Revision Petition filed by the Appellant which challenged the order passed by the Sessions Judge. Thus, an appeal has been filed before the Supreme Court of India under Article 136 of the Constitution of India.
Issues raised
The following questions of law were raised before the Supreme Court after the Punjab and Haryana High Court dismissed the revision petition filed by the Appellant and upheld the decision of the Trial Court pertaining to summoning the Appellant as an additional accused in the case. The learned Sessions Judge did so by exercising the power under Section 319 of the 1973 Code.
Whether the Sessions Judge/ Trial Court had the power to summon the Appellant as an additional accused under Section 319 of the Code of Criminal Procedure when the trial had concluded and judgement had been rendered?
Whether the Sessions Judge is empowered to summon an individual as an additional accused when the trial of the other accused persons who were absconding was pending before the Court when bifurcated from the main trial?
What guidelines were laid down by the Supreme Court of India to be followed by the Courts while exercising their power under Section 319 of the Code of Criminal Procedure, 1973?
Arguments of the parties
Appellant
The learned Senior Counsel, Shri P.S. Patwalia, argued that the order passed by the Trial Court was in violation of Section 319 of the 1973 Code, as the same was passed at a stage when the trial had concluded and the judgement had been rendered by the learned Sessions Judge.
The counsel relied on the judgement of the Supreme Court of India in the case of Hardeep Singh v. State of Punjab (2014), wherein the Court observed that the power under the said provision has to be exercised before the judgement is pronounced by the learned judges. Further, the Hon’ble Court observed that such a power can be exercised while the trial is pending and the same is consistent with Section 353(1) of the 1973 Code. Section 353(1) provides that after perusing the evidence, the judgement is to be pronounced at the end of the trial. Therefore, the power under Section 319 is mandated to be exercised during the pendency of the trial and once the trial has concluded, the Court does not have the power under the said provision.
The learned counsel summarised his arguments by stating that an accused can be called an additional accused only while the trial is in process. Not abiding by the same is a procedural and substantive violation.
Respondent
The learned counsel, Shri S. Nagamuthu, appearing on behalf of the State argued that the purpose of the said provision is to ensure that the wrongdoer does not escape punishment. In order to uphold the objective of the provision, the Courts have the power to summon before itself anyone who is considered to have committed an offence. The same is also applicable when the accused is charged with an offence and his trial is pending before the Court of law.
The counsel further contended that when an application is made under the said provision and the same is decided simultaneously on the same day as and when the trial is concluded, the Court does not become functus officio and is competent to exercise the power granted under the said provision of the 1973 Code in view of Section 354. As per the respondent, Section 354 clearly provides that an order on the quantum of a sentence is an integral part of any judgement and the latter is incomplete without such an order.
Laws discussed in Sukhpal Singh Khaira v. State of Punjab (2022)
Section 319 of the Code of Criminal Procedure, 1973
The said provision provides for additional prosecution. It lays down a mandate wherein the Court can add any such person to a trial with the accused against whom there is a presence of strong evidence. In case there is sufficient evidence against the said individual and the Court of law is satisfied with his involvement, the individual becomes an accused in the case from the date on which the order has been passed by the Court.
The provision also provides that the magistrate has the power to take cognizance and add any such individual against whom there is sufficient evidence at any stage of inquiry or trial.
The essentials of Section 319 of the Code of Criminal Procedure, 1973 are:
The trial or inquiry of an offence must be conducted. As per Section 319(1) of the 1973 Code, the Courts can exercise this power only during the pendency of trial or when an inquiry of the offence is pending.
Section 319(2) provides that if such an individual is not attending Court, he may be arrested or summoned, depending on the circumstances of the case.
In cases where the individual in question is attending the proceedings before the Court, the Court has the power to detain him for inquiry under Section 319(3).
Further, Section 319(4) provides that if a Court proceeds against an individual as per sub-section (1), then in that case, the proceedings shall commence afresh and the witnesses shall be re-heard with respect to that person and the case may proceed in a way as if that person had been an accused person when the Court took cognizance of the offence upon which the trial or inquiry has commenced.
The Court has to be satisfied beyond question by the evidence presented that the individual has committed the offence.
Section 353(1) of the Code of Criminal Procedure, 1973
Section 353(1) of the 1973 Code provides that the judgement rendered in every Trial Court shall be mandatorily pronounced in an open Court by the presiding officer. The same has to be pronounced after the trial has terminated or at a subsequent time wherein the notice shall be given to the parties.
Precedents discussed in Sukhpal Singh Khaira v. State of Punjab (2022)
Hardeep Singh v. State of Punjab & Ors. (2014)
The Apex Court, in this landmark judgement discussed the issue pertaining to the power that can be exercised under Section 319 of the 1973 Code. The Court discussed its scope, procedure, and the stage at which this power can be exercised.
The Court observed that the provision is derived from the doctrine of judex damnatur cum nocens absolvitur (the judge is condemned when guilty is acquitted) and that the doctrine is useful in elaborating on the ambit of the provision.
The Court stated that it is the duty of the Court and the judges to ensure that justice is done by punishing the criminal. The Court further clarified that the power under Section 319 is only with the Court and the term “Court” has to be understood in the context of Section 6 of the Code of Criminal Procedure, 1973.
The Court further clarified the term “course” used in Section 319 of the 1973 Code and explained that the power under the said provision can be exercised only during the period of inquiry or the pendency of the trial. The term “course” connotes the continuous progress from one stage to another and does not refer to a fixed point in time. This implies that the power under Section 319 can be exercised only during the pendency of the trial or when the inquiry is being conducted. The same becomes redundant after the trial has been concluded and the judgement has been rendered.
Shashikant Singh v. Tarkeshwar Singh (2002)
The Hon’ble Division Bench of the Supreme Court in this case observed that the expression “could be tried together” under Section 319 of the 1973 Code implies that the accused who has been added additionally could be tried with the other accused under trial in the said case. It is pertinent to note here that the term “could be tried together” with the accused are directory in nature and not a mandatory provision.
Rajendra Singh v. State of U.P. and Another (2007)
In this case, the Supreme Court of India observed that the intention behind enacting Section 319 of the 1973 Code is to ensure that justice is served in society and that those who are guilty of an offence are punished. In recognition of the same, the Courts have been granted a special power under Section 319. Further, it was held that the Court must be satisfied beyond doubt that there is sufficient evidence that the individual has committed the offence before making him an additional accused in the case.
Manjit Singh v. State of Haryana and Others (2021)
In this case, the Supreme Court observed that the power of the Court under Section 319 of the 1973 Code can be exercised before the judgement and order has been pronounced by the Court. If the accused has been acquitted by the Court, the power should be exercised before the Court passes the order of acquittal. This implies that the summoning order has to precede the conclusion of the trial.
Judgement in Sukhpal Singh Khaira v. State of Punjab (2022)
The Constitution Bench comprising Justices S. Abdul Nazeer, B.R. Gavai, A.S. Bopanna, V. Ramasubramanium, and B.V. Nagarathna, delivered the judgement wherein they observed that a criminal trial is not complete on the pronouncement of judgement but when the convict is sentenced. They further discussed the scope of Section 319 of the Code of Criminal Procedure, 1973 and laid down certain guidelines on the same.
Issue-wise judgement
Whether the Sessions Judge/ Trial Court had the power to summon the Appellant as an additional accused under Section 319 of the Code of Criminal Procedure when the trial had concluded and rendered the judgement
While dealing with the first issue pertaining to the power of the Trial Court to summon an additional accused under Section 319 of the 1973 Code, the Supreme Court observed that in cases of conviction, the power under the said provision is to be invoked and exercised before the Court pronounces the judgement pertaining to the order. The order relating to the issuing of summons has to precede the conclusion of the trial. In the case of acquittal, the order pertaining to summoning an additional accused to trial has to be pronounced before the order of acquittal.
Furthermore, it is crucial to point out that if the judgement is rendered by the Court on the same day, it will be assessed on the basis of the facts and circumstances of each and every case. Moreover, if the order that provides for issuing summons to the additional accused is passed before the order of acquittal has been rendered or before imposing a sentence in the case of conviction, the same is not sustainable.
Whether the Sessions Judge is empowered to summon an individual as an additional accused when the trial of the other accused persons who were absconding was pending before the Court when bifurcated from the main trial?
While addressing the second issue, the Apex Court held that the Trial/ Sessions Court is empowered to issue summons to an additional accused when the trial has proceeded with respect to the individual who is already an accused and is absconding after securing his presence. The same is subject to the evidence recorded pertaining to the involvement of the accused, who is sought to be summoned as an additional accused. Thus, it is to be noted that the evidence recorded in the main trial, which has been concluded, cannot be the basis for issuing a summoning order.
What are the guidelines that are to be followed by a competent Court while exercising its power under Section 319 of the Code of Criminal Procedure, 1973
While addressing the third issue, the Apex Court observed certain guidelines that must be followed by the competent Courts while they are exercising their powers under Section 319 of the Criminal Procedure Code, 1973. These are as follows:
If during the trial proceedings, the Court has evidence or an application under Section 319 of the Code is filed with respect to the involvement of an individual committing the offence based on any evidence which is recorded at any stage in the trial before the order on acquittal or the order of sentence has been passed, it shall halt the trial at that said stage.
It is the duty of the Court to decide whether there is a need to summon the additional accused and pass the order with respect to the same.
If the Court decides to exercise its power under Section 319 of the Code and summon an additional accused, such an order shall be passed before proceeding with the trial in the main case.
If the Court orders summons for an additional accused, it is for the Court, depending on the stage of the trial, to adjudicate whether there is a need to try the additional accused separately or with the other accused.
In case the Court decides to conduct a joint trial, the same shall commence only after the presence of the summoned accused is assured.
If the Court decides to conduct a separate trial for the additional accused, there will be no impediment for the Court to continue and conduct the trial against the other accused whose proceedings were pending.
There will be no impediment to pass the order of acquittal in the main case if the proceedings are paused, wherein the accused who is tried to be acquitted and the additional accused are tried separately.
The power under Section 319 of the Code can be exercised only if there is enough evidence to show that the additional accused was involved in the offence.
After the arguments have concluded and the case is reserved for judgement and as per the circumstances, the Court has to invoke its power under Section 319 of the Code, the appropriate course of action is to set down the trial for rehearing.
In case the Court is set down for rehearing, the above procedure to look into summoning, conducting a joint trial or a separate trial shall be decided and proceeded with as the case may be.
In such a case, if the Court decides to summon an additional accused and conduct a joint trial, the same shall be conducted afresh and de novo proceedings shall be conducted.
However, if the Court decides to conduct a separate trial:
“The main case may be decided by pronouncing the conviction and sentence and then proceed afresh against the summoned accused.
In case an order of acquittal has been passed, the order shall be passed to that effect in the main case and then proceed afresh against the additional accused.”
Analysis of the judgement in Sukhpal Singh Khaira v. State of Punjab (2022)
The judgement by the Constitution Bench of the Supreme Court discusses and elaborates on the application and interpretation of Section 319 of the Code of Criminal Procedure, 1973. The Court laid down certain guidelines that provide clarity on the scope of the provision.
Section 319 of the Code of Criminal Procedure, 1973, provides for additional prosecution. It lays down a mandate on the Court, which provides that any additional accused can be added to the trial provided there is sufficient evidence regarding his involvement before the Court. The Court is further empowered to take cognizance and add any additional accused to the case at any stage of inquiry or trial. The Court is not barred from conducting the proceedings under Section 319 of the Code, even in case the complaint is dismissed under Section 203 of the Code of Criminal Procedure, 1973.
However, there have been several cases where there have been issues pertaining to the stage at which the Court is empowered to exercise its power under the said provision.
The Supreme Court has provided clarity on the same and has observed that a criminal trial is not complete till the judgement has been pronounced by the Court. The Court emphasised its previous decisions in the landmark judgements that have been discussed before and observed that the words of the provision expressly provide that the powers under Section 319 can be exercised only before the judgement or the order of acquittal or conviction has been announced by the Court of law. The Supreme Court also referred to its landmark judgement in the case of Hardeep Kaur and observed that the term “course” in the provision provides for the ongoing stages of trial and does not refer to a fixed point of time.
Conclusion
The observations laid down by the Supreme Court of India in various landmark judgements as discussed above, along with the case of Sukhpal Singh Khaira v. State of Punjab (2022), provide crucial insights on the scope of the provision. The Supreme Court has time and again clarified its stance on the interpretation of the provision and elaborated that the same can be exercised only during the pendency of trial or before an order pertaining to acquittal or conviction has been pronounced by the Court of law.
Further, the guidelines issued by the Court in this judgement underscore the importance of the judgement. These guidelines clarify the nuances of the legal provision and lay down the crucial principles that are to be followed in case the provision is to be exercised.
Frequently Asked Questions (FAQs)
What is the difference between sentencing and conviction?
The terms ‘sentencing’ and ‘conviction’ are often used interchangeably. However, the terms have different meanings altogether. The term “sentencing” refers to the formal declaration of a punishment that is rendered by the Court after the accused has been found guilty beyond reasonable doubt. On the other hand, the term “conviction” refers to the outcome of a trial. It is the act that provides for declaring the guilt of the accused.
When and how can the power under Section 319 of the Code of Criminal Procedure, 1973, be exercised?
There are certain essential ingredients laid down under sub-section 1 of Section 319 of the Code of Criminal Procedure, 1973, that provide for when and how the Courts can exercise such powers. These ingredients are:
There is an pending trial or inquiry.
The evidence is sufficient to show that a person who has not been added as an accused to the same trial has committed the offence.
These two essentials are to be proved before the Courts can exercise their power under the said provision.
Who is entrusted with the power under Section 319 of the Criminal Procedure Code, 1973?
The power under the said provision can be exercised by the Court either suo moto or on the basis of an application made by someone who is inducing an additional accused to the case.
Is the Court empowered to exercise its power after the conclusion of trial under Section 319 of the Criminal Procedure Code of 1973?
In the case of Samartha Ram v. State of Rajasthan (2002), the Court observed that the powers under Section 319 of the Code cannot be exercised after the judgement has been rendered by the Court, which marks the conclusion of the trial. The same was referred to a five judge constitutional bench in the present case and the Court re-emphasised the same.
This article is written by Moiz Akhtar. This article provides an in-depth analysis of the transfer of shares and transmission of shares under section 56 of the Companies Act, 2013. This article also covers all aspects of the procedures required for the registration of both the transfer and transmission of shares in a company.
In today’s 21st century, as India is moving towards a greater economy, its business dynamics are also evolving. India has come a long way from the 1991 economic crisis to building up one of the largest foreign exchange reserves. In the last 30 years starting from the LPG reforms (liberalisation, privatisation, globalisation) initiated by then Prime MinisterNarsimha Rao’s government which opened up the Indian market for private players and foreign investments to the change of economy from a protectionist to a more liberal one. The changes that happened in the economic sectors of India created a level playing field for all the players in the economy.
An evolving economy brings entrepreneurs and investors together to work cooperatively by cultivating a healthy relationship among them. Trading exchanges like BSE (Bombay Stock Exchange) and NSE (National Stock Exchange) are crucial for the daily flow of investment and economy in the Indian market. BSE is the oldest stock exchange in Asia and was set up in 1875. NSE was established in 1992 and, in 1993, it was recognised by SEBI. Both BSE and NSE are stock exchanges that deal with the sale and purchase of thousands of shares daily. Hence, an optimal level of transparency in the functioning of companies that are registered in these two exchanges is required so that investors have an ample amount of trust while buying shares of these companies. Transparency in day to day business of trading shares in lieu of the Companies Act, 2013 is very important for the companies themselves as well as for the investors.
What are stocks and shares
Section 2(84) of the Companies Act, 2013 defines a share as a share in the share capital of a company and includes stock. A stock is a security held by individuals and is issued by a corporation or a company. Stock represents the ownership or the extent of ownership of the individual in the company. The more stocks a person owns, the more the percentage of ownership he or she has in the company from which he or she purchased the stocks. Stocks are categorised into single units and every single unit is called a share as a share of the holding shares in a company makes the individual a proportional owner of the company and the ownership is directly proportional to the number of shares the individual holds. Why are shares issued by the companies?
Shares are vital for the aggregation of capital for the company to carry on its business. To run day-to-day activities and business, companies need capital. Investors buy shares of the companies of their choice and the companies utilise the investor’s money for its production activities, manufacturing, buying raw materials, paying debt, and many other commercial activities. Accordingly, the profits earned by the company are equally distributed to all its shareholders in proportion to the number of shares they hold. For example, if there are 100 shares of a company and the company earns a profit, then the profit will be equally distributed among these 100 shares. The distribution of profit should be transparent and also by following the laws concerned. Likewise, if a company suffers a loss, then it has no liability to return the money to its investors; hence, the loss is incurred by the investors.
Share prices are influenced by the company’s performance. When the company’s business is growing and the company is making profits, then the prices of each share of the company will rise, resulting in a profit for its investors. Also, if for any reason business of the company is performing poorly or the sale of services or products depreciates, then the value or price of each share depreciates resulting in a loss to the investors. An investor’s ownership percentage depends upon the total shares issued by the company. For example, if an investor owns 10% of the share in a company, we cannot necessarily say that he is the 10% owner of the company because it depends on how much the company values the shares it has issued. For example, if a company’s total value is 100 Rupees, but it has issued shares valued at 50 Rupees each, then we could say that the company still holds 50% of the asset. Here, the company has issued shares worth 50% of its net asset value, and investors will buy from these 50% of the shares which are issued by the company. Therefore, if someone owns 10% of the total shares issued by the company, it means he or she is the owner of 10% of the total shares issued, which would be 5 Rupees. Because the total share issued is 50 Rupees and 10% of 50 Rupees is 5 rupees. This calculation is based on the total value of the issued shares.
Whenever an investor wants to sell their shares he or she could sell their shares to any person who is interested in buying those shares at the market price of the share. The Market price of the share varies every day and even throughout the day. Hence, there is no fixed price at which the investor could sell their share. Hence, the sale and purchase of shares happen every day.
Securities and Exchange Board of India (SEBI)
Securities and Exchange Board of India (SEBI) was established as a regulatory body for stocks and securities in India in 1988. At first, SEBI was set up as a non-statutory body to regulate securities. However, on 30th January 1992, SEBI became an autonomous body and gained statutory powers under the Securities and Exchange Board of India Act, 1992 passed by the parliament of India.
The stock exchanges are legally bound to follow the rules and business guidelines set up by SEBI for managing securities. Noncompliance with the said guidelines by the exchanges will attract heavy penalties and various legal obligations, as SEBI has the power to investigate and scrutinise the financial accounts and business activities of any of the exchanges in India. Consequently, the stock market, as well as the sale and purchase of shares on exchanges, is highly regulated by SEBI, which increases the trust and confidence of investors. SEBI’s regulation also helps prevent illegal activities like stock manipulation and insider trading.
Section 56 Companies Act, 2013
Provisions under Section 56 of the Companies Act, 2013are mentioned below-
Subsection 1 of Section 56 of the Companies Act, 2013 specifies that a company is not empowered to register a transfer of securities or transfer of shares unless both the parties i.e., the names of the transferor and the transferee are mentioned in the depository. Furthermore, the act mandates that for a proper transfer to take place, an instrument of transfer is necessary.
The instrument must be stamped, and the stamp duty of the deed must be duly paid. It also should be properly dated as well as executed by both the transferor and the transferee. The execution of the deed can also be done on behalf of the transferor and the transferee by their legal representatives. In the instrument of transfer, the name, address, and occupation of both the transferor and the transferee should be properly mentioned. The instrument of transfer should be sent and delivered to the company office either by the transferor or the transferee or by their legal representatives within 60 days from the date of execution of the instrument.
The share certificate of the shares to be transferred should be attached to the instrument of transfer and, if the share certificate is not delivered by the company, then the letter of allotment of shares should be attached to the instrument of transfer. The Companies Act further states that, if the instrument of transfer is lost due to any reason, the company may still register the transfer after consulting the board members of the company. But, in this case, the transferor and the transferee have to agree to the indemnity clause that if any third party claims the said transferred shares in the future, then all loss, damages and legal expenses arising from it will be borne by both parties.
Subsection 2 of Section 56 of the Company Act, 2013 grants companies the authority to register the transmission of securities for a person who is the legal heir of the deceased shareholder in the company. The transmission of security will take place only by operation of law.
Subsection 3 mentions that for the transfer of partly paid-up shares, the company will only register the transfer after sending a notice to the transferee about the balance amount of the partly paid-up shares, which should be paid by the transferee in the future. Furthermore, the transferee, after receiving the notice from the company, should send an NOC to the company regarding the transfer of partly paid-up shares within 14 days.
Subsection 4 describes the timeframe within which the company must deliver the certificates for the allotted shares to the respective shareholders. The timelines are mentioned below:-
For the members of the company, the company will deliver the share certificates within 60 days of the incorporation of the company.
If the company is allotting shares to anyone, then the company should deliver the share certificate within 60 days from the date of allotment of shares.
In both the case of transfer of shares as well as transmission of shares, the company will deliver the share certificate within 30 days. For the transfer of shares, 30 days are calculated from the date of receipt of the instrument of transfer by the company, and in the case of transmission of shares, 30 days are calculated from the date of receipt of intimation for transmission of shares by the company.
In case of debentures, the company will provide the share certificate within 180 days from the date of allotment of debentures.
In case the securities or shares of any company are registered under any depository, then the company shall provide the details of the allotment of shares to the depository.
Subsection 5 states that any transfer made by the competent legal heir or representative of the deceased shareholder is considered valid. Even if the legal heir is not a shareholder of the company before, they can still execute the transfer of shares.
In case of any default or noncompliance with the provisions mentioned in Subsection 1 and Subsection 5 of Section 56 of the Companies Act, 2013, the company and every officer of the company involved in the noncompliance shall be liable to a penalty of Rupees 50,000/-.
If any depository or any participant of any depository with ill intentions defrauds a person or illegally transfers shares, then the defaulter shall be liable under Section 447. This section states that the person committing fraud is liable to a punishment of imprisonment of a minimum of six months and it could be extended to a period of ten years. The person who is guilty is also liable to a fine and the minimum fine amount is the amount involved in the fraud. The fine amount also could be extended to a sum three times the amount involved in the fraud.
Transfer of shares in private companies
Shares issued in private limited companies are not marketable because of the restriction on the right to transfer. Hence, shares issued by private limited companies are not freely tradable in the open market. The main reason behind the restriction on the right to transfer shares in a private company is to preserve the composition of the shareholding.
–Section 2(68) of the Companies Act 2013, restricts the transfer of shares in a private company but it does not prohibit the right to transfer shares. For the transfer of shares in a private company, provisions and restrictions contained in (AOA) Articles of Association should be duly complied with by the transferor and the transferee.
-As per provisions mentioned in Section 44 of the Companies Act 2013, shares or debentures or other interests are movable property, transferable in a manner provided by the Articles of Association of the company. Hence, there is no absolute prohibition on the right to transfer shares. The right to transfer is subjected to restrictions contained in articles and there cannot be total prohibition or ban on the transferability of the shares. However, the company could incorporate only permissible restrictions on transferability.
However, restrictions on the transfer of shares in private companies are not applicable in the following cases-:
The company cannot restrict the transfer of shares if the shares are to be transferred to the representative(s) of shareholders.
In case the legal representative may proceed for the registration of shares in the name of its heirs, on whom the shares have been devolved.
In respect of shares which are proposed to be issued on the basis of articles of association, existing members have a right to renounce shares likely to be allotted to them. If the existing shareholder renounces their shares for any reason, then these shares will be allotted to the renounces for the first time and therefore no transfer of shares would take place.
Restriction on the right to transfer is generally placed by using the following method
Right of preemption
If a member of the company wishes to sell some or all of his shares, such shares shall first be offered to other existing members of the company. The price of each share shall be determined by the director or auditor of the company. The price of each share could also be determined by using the formula mentioned in the article of association. If no existing member agrees to buy those shares, then the transferor can transfer the shares to the transferee of his choice. A member of a private company is not bound to sell his shares to other members of the same company under the pre-emption clause unless any other member agrees to purchase all the shares proposed to be sold. The pre-emption clause cannot place a complete ban on the right to transfer, it cannot completely prohibit the transfer.
Valuation of shares under the pre-emption clause
Article of Association of a private company provides that the shares are to be sold under the pre-emption clause at a fair price determined by the directors or the auditor of the company. It may also be provided that the fair price would be certified by the auditor of the company. If the preemption clause requires that the shares are required to be offered to other members at a price certified by the directors or the auditors then the court also cannot inquire about the correctness of the valuation, unless there is evidence that the valuation was not correctly made. If the person who made the valuation has acted in negligence and failed to take into account all necessary data and factors for determining the value of the share, in such case the transferor may sue for damages to the person who made the valuation. The damages should be claimed for the difference of amount between the value of the share determined by the valuer and the real value of the shares.
Powers of director to refuse registration of transfer of shares
These powers are specified in the Articles of Association(AOA) of the company. This power should be exercised by the board of directors in good faith.
Transfer of shares in a public company
According to Section 58 of the Companies Act 2013, the securities or the interest of any member in a public company shall be freely transferable. The board of directors of the public company or depository has no power to refuse or withhold the transfer of any securities. Unlike in the case of a private company, there is no preemption clause in the case of a public company. But Section 58(2) of the Companies Act 2013, states that any contract or agreement between 2 or more persons in respect of transfer of securities shall be enforceable as a contract. The concerned parties could also add the terms of the agreement such as right of first refusal, right of first offer, call option, tag along, put option etc. These terms would be binding on the investors.
What is the transfer of shares
The transfer of shares refers to when any shareholder or owner of shares in a company voluntarily transfers the ownership rights of his/her shares or interest to any other person. The act of transfer should be completely voluntary and the transfer should be duly registered by the company. The person who transfers his/her shares is called a “transferer” and the person who purchases the said shares is called a “transferee”. Hence, both the seller and purchaser, i.e., the transferor and transferee, should agree to the transfer of shares. The transfer of shares must take place for a consideration, which is determined by the market. Without consideration, the transfer of shares would be held invalid.
Process of transfer of shares
Subsection 1 of Section 56 of Companies Act 2013 states that a company shall not register a transfer of securities of the company, or the interest of a member in the company in case of a company having no share capital, other than the transfer between persons both of whose name are entered as holders of beneficial interest in the records of a depository, unless a proper instrument of transfer, in such form as may be prescribed, duly stamped, dated, and executed by or on behalf of the transferor and the transferee and specifying the name, address and occupation, if any, of the transferee has been delivered to the company by the transferor or the transferee within a period of sixty days from the date of execution, along with certificate relating to securities, or if no such certificate is in existence, along with the letter of allotment of securities. For a proper transfer to take place, Section 56 of the Companies Act 2013 has mentioned the procedures. The transferor, transferee, and the company must all follow the procedure established under Section 56 of the Companies Act, 2013. To transfer shares from the transferor to the transferee, both parties are required to give the instrument of transfer to the company. Without an instrument of transfer, a company shall not register the transfer of shares. Moreover, a company by itself cannot transfer the shares of a person to any other person. Hence, proper legal documentation and instruments of transfer are prerequisites for a proper transfer to take place.
Sending intimation to Board of Directors
First of all, the person who wants to transfer shares to another person or any other shareholder of the company should send the intimation to the board of directors of the company. The transferor’s request to the company should be in a written form, mentioning that the transferor wants to sell his/her shares or any part of them. The intimation sent to the board of directors of the company should be simple and precise. For example, if the transferor has 100 shares in the company and they wish to sell all of them, they should mention in the intimation that they want to sell all 100 shares. And if they want to sell only 50 shares out of 100 shares then they should specify the split and transfer of shares in the intimation to the board of directors. Both total transfer of shares and as well as split along with transfer of shares can be easily done, usually, the board of directors has no objection to it. Shares issued by a private company are not marketable securities because of the restrictions on the right of transfer. Hence shares issued by a private company are not freely tradable in the open market. The main reason behind the right of restriction on the transfer of shares in a private limited company is to preserve the composition of the shareholding.
Meeting of the Board of Directors
After receiving the intimation from the transferor/transferee/, a notice will be sent to all the members and shareholders of the company on behalf of the company as per Section 173 The company would mention that a certain number of shares are available for sale, and interested buyers should report their desire to the company to buy the shares available for sale. If it is mentioned in the Article of Association (AOA) of the company, that any shareholder wishing to sell his/her shares must first offer them to existing shareholders, the company would ask, notify and propose it to its members and existing shareholders. If none of the shareholders and members of the company show a willingness to buy those available shares, the company will allow an outsider to purchase those shares which the seller wants to sell. As soon as a competent buyer is found, an agreement must be reached between the transferor and the transferee.
Filing the Form No. SH4
Both the transferor and the transferee shall fill out Form No. SH4. The form generally consists of two pages. On the first page, at the top right corner, the date of execution of the transfer deed is mentioned, which needs to be filled out by either of the parties. Then, the company’s Corporate Identification Number (hereinafter mentioned as “CIN”) should be filled in. CIN is issued by the registrar of the companies for all the companies registered in India. The name of the company should also be filled in, and if the company is listed on any of the securities or stock exchanges, the name of the stock exchange should be filled in below the CIN.
In the description of the securities section, the kind and class of securities held by the shareholder should be filled in. Generally, there are four kinds of securities, namely debt securities, derivative securities, equity securities, and hybrid securities. Let’s say the kind and class of securities the transferor holds is equity securities (shares), then it should be mentioned under that kind/class of securities in the form. Furthermore, the description of securities is divided into four boxes. Contents of the boxes are mentioned below-:
Kind and class of securities
In the first box, the kind and class of securities are mentioned. There are four kinds of securities, namely debt securities, derivative securities, equity securities, and hybrid securities.
Nominal value
In the second box, the nominal value of each unit of share should be filled in. The nominal value of a share is the price of each security at which the company first issued its shares. The nominal value of a share is very important because it is used to calculate the profits and dividends each shareholder receives.
Called up amount
The third box consists of the amount called up for each unit of security. This is the price of each share decided by the company. The amount called up is the minimum price at which the seller could sell his/her shares. The company decides this price by the article mentioned in the Articles of Association of the company.
Amount paid up for shares
The amount paid is the price of the share at which the transferor is selling his/her share to the transferee. The amount called up per unit of share is decided by the company, whereas the amount paid up depends upon the negotiations between the seller and purchaser.
Below the description of the securities box, there is a section for securities transferred along with consideration received. The number of securities should be filled in both numbers and words. Next to the number of securities, the consideration received from the transferee should be filled in. Again, the consideration amount should be duly filled in both words and figures. For example, if the number of securities or shares to be transferred is 10 and the amount paid up for each unit of security is 5 rupees, then 10 should be filled in the number of securities box, and 50 rupees should be filled in the consideration box (as 10 shares at 5 rupees each equals 50).
After filling out the above details, distinctive numbers of shares should be filled in. Each company assigns a serial number to its issued shares, and this serial number is known as the distinctive number.
For example, If a company has issued 100 shares and a shareholder buys 10 shares, then the company would mention the assigned serial number of those 10 shares. If the company has allotted shares having serial numbers from 70 to 80, then it means that share numbers 70 to 80 belong to the shareholder. Below the distinctive number, the corresponding certificate number is to be filled in. While allotting the shares to the investors, the company provides the investors with corresponding certificates of the allotted shares. It is a unique identification number and is different for every shareholder. The corresponding certificate is signed by the company and it also serves as the legal proof of ownership of shares allotted to the shareholder. Folio number is also mentioned in the form. Folio number is kind of a roll number of the shareholder assigned to them by the company. It could also be said that the folio number is the unique number identifying the shareholder’s account with the company. There are many details linked to the folio number like how much money the shareholder has invested in the company, how many shares he/she holds, share trading history, as well as contact details of the shareholder. Folio numbers are very useful for the company to keep a record of their investors and their transactions within the company. Folio number helps companies in times of emergency like frauds and manipulations.
In the transferor’s particulars, the transferor’s details like full name, residential address, and signature should be filled in. One witness is also mandatory for the execution of the transfer deed. The name of the witness and residential address are also to be filled in. The witness will put his signature clarifying that the request for share transfer is genuine. The witness should also agree to the fact that the transferor and the transferee both signed the form in front of him and he witnessed the signature.
Coming to the transferee’s particular which is a very detailed part of the form. The name of the transferee, his/her father’s name, mother’s name, and also spouse’s name to be filled in if any. Then, the address of the transferee is to be filled in along with his/her mobile number and email ID. The transferee’s occupation is to be duly filled along with the transferee’s folio number if the company has given any folio number to him/her. Permanent Account Number (PAN) of the transferee is to be filled in so that the income tax department is well-informed about the transaction of the transferee. Lastly, the transferee should put his signature on the form.
Stamp duty on transfer of shares
For a transfer to occur, the stamp duty should be paid. Since shares are moveable as well as tradable property, under the Indian Stamp Act, 1899, the Central Government levies stamp duty on the exchange of instruments, securities, and shares. Furthermore, Section 44 of the Companies Act, 2013 allows shares to be transferred in accordance to the Articles of Association of the company. Articles of Association are nothing but the internal guidelines, rules, and bylaws governing the company. All the internal business of the company is carried out according to the articles mentioned in its Articles of Association.
The Central Government, empowered by the Union list of Schedule 7 of the Indian Constitution, collects duty on transfer forms for the transfer of shares. Also, it is expressed in section 17 on the Indian Stamp Act 1899, that all instruments chargeable with duty and executed shall be stamped before, or at the time of execution. After the amendment to the Indian Stamp Act, 1899 in July 2020, the rates of stamp duty on the transfer of shares were revised. Earlier the rate of stamp duty for the transfer of shares used to be 0.25% of the total consideration value but after the amendment it was reduced to 0.015% of the consideration value mentioned in the share transfer form or the transfer execution deed. Since the Indian Stamp Act, 1899, governs all the aspects of stamp duty across India, the rate of stamp duty payable on the transfer of shares is uniform throughout the country, currently set at 0.015% of the consideration value.
Documents required to be attached to the transfer deed
Share Certificate
The most essential document for a share transfer deed is the share certificate of the transferor. The share certificate should be attached to the share transfer form or share transfer deed. A share certificate is issued by the company to its shareholder, serving as proof of the shareholder’s legal ownership of the company’s shares. A share certificate is mandatory for the transfer of shares if shares are delivered to the transferor.
Letter of allotment of shares
In case the transferor has recently purchased the shares and the company has not yet issued a share certificate to the shareholder, then a letter of allotment of shares should be attached to the instrument of transfer. A letter of allotment of shares is provided whenever a new set of shares is purchased by an individual or investor. It serves as validation given by the company to its shareholders that they have purchased the specified number of shares and that the delivery of those shares will take place shortly. Hence, either a share certificate or a letter of allotment of shares should be attached to the share transfer form or share transfer instrument.
PAN Card
In case the company is listed in any of the stock or security exchanges, a photocopy of the PAN card should also be attached to the instrument of transfer.
Deposition of transfer deed to the company
After all the particulars and details are filled in the form SH4, along with the necessary documents attached, the instrument of transfer should be deposited at the company office within 60 days from the date of execution of the transfer deed, either by the transferor or by the transferee. If, for any reason, the parties are unable to submit the transfer deed or the transfer deed is lost or misplaced during transit, then the company will still register the transfer subject to the indemnity clause. Under the indemnity clause, a contract is signed by the transferor or both the transferor and the transferee that they will compensate the company for the cost and expenses arising from third-party claims. If any third party claims the transferred shares, then the indemnifying party i.e., the transferor and the transferee, will bear the expenses and legal costs suffered by the company. Here the transferor and transferee are the indemnifying party while the company is the indemnified party. However, it is completely dependent upon the board members whether they will register the share transfer without the instrument of transfer or not.
Transfer in case of partly paid-up shares
If the shares are partly paid up, meaning the transferor has not made full payment for the shares to the company and enters into a transfer deed with a transferee, the company will still allow the transfer. However, the company will send a notice to the transferee, requesting the transferee to make the payment for the remaining balance of the partly paid-up shares. In this case, the transferee should send a No Objection Certificate (NOC) to the company within 2 weeks (14 days) from the date of receiving the notice.
Effects of transfer of shares
Once the transfer form has been executed and the stamp duty paid, the transfer is complete between the transferor and the transferee. Then the transferee acquires to have his name entered in the registered members. Once the transfer is executed, the liability upon the transferor ceases to exist and is transferred to the transferee.
Priority among transferee
If a transferor fraudulently sold his shares to two transferees then the priority will be given to the first transfer or the first purchase of shares.
What is transmission of shares
Transmission of shares means the transfer of ownership or title of shares by operation of law. This typically only happens when the shareholder or owner of shares dies or becomes insolvent. In general, the transmission of shares takes place due to the death of the shareholder. In such cases, the shares will be transmitted to the competent legal heir of the shareholder as determined by the court under the Indian Succession Act, 1925. If the shareholder has a will, then the court may direct the execution of the said will and the title of shares would be transmitted by the company to the competent legal heir.
Under Section 56 of the Companies Act, 2013, a company can register a transmission of shares if the competent legal heir of the deceased shareholder sends an intimation to the company, requesting the transfer of shares from the shareholder to its legal heir. Unlike the transfer of shares, which requires the execution of the transfer deed and filing of form no. SH4, the transmission of shares does not require these procedures. A notice or application to the company by the competent legal heir of the shareholder, along with the necessary documents, is sufficient for the transmission of shares to occur.
Documents required for the transmission of shares
A photocopy of the death certificate
A death certificate can be easily issued by a medical practitioner who states when a person has died, or one could apply for the death certificate online. Death certificates usually contain the date and location of the deceased, along with the age.
Succession certificate
A succession certificate is a certificate that is issued by the court stating the rightful and competent legal heir of the deceased person. It is valid only when it is issued by the court. In the succession certificate, the court mentions the names of competent legal heirs of the deceased according to personal succession laws.
Probate
If the deceased shareholder of the company has a will that is not registered, the competent legal heir should register the will in the court of competent jurisdiction. They will then examine the will and affix its seal, thus registering it. The certified copy of the registered will is known as probate. In case the legal heir of the deceased shareholder has probate, then, a succession certificate by the court is not necessary, as the transmission of shares will take place by the registered will. But in case the deceased shareholder has appointed a nominee, then the said nominee would be entitled to the shares of the deceased.
Signature of the competent successor
The signature of the competent legal heir is required for the transmission of shares to take place.
By attaching the above-mentioned documents along with the application for the transmission of shares, the legal heir should send the application to the company. After receiving the application, the company will transmit the title of shares from the deceased shareholder to its competent legal heir. In the case of transmission of shares, only a change of title takes place, and there is no sale or purchase of shares. Hence, unlike in the transfer of shares where the parties are required to pay the stamp duty, in the transmission of shares no stamp duty is to be paid to the government. This is because it is simply a transmission of title from the deceased shareholder to its legal heir, thus, no stamp duty or executed deed is necessary.
Difference between transfer and transmission of shares
The major differences between the transfer and transmission of shares are given below.
Basis of differentiation
Transfer of shares
Transmission of shares
Definition
Transfer of shares means any shareholder or owner of the shares in a company transfers the ownership rights of his/her shares or interest to any other person voluntarily.
Transmission of shares means the transfer of ownership or title of shares by operation of law.
Parties involved
For the transfer of shares to take place, both the transferor and the transferee are needed.
For the transmission of shares to take place, only the competent legal heir of the shareholder is needed.
Voluntariness
The act of transferring the shares is completely voluntary and dependent upon the transferor and transferee.
The act of transmission of shares is not voluntary and is governed by the operation of law.
Instrument of transfer
A proper instrument of transfer is needed to be executed by both the transferor and the transferee for the transfer of shares.
No instrument of transfer is needed in case of transmission of shares.
Form no. SH 4
Both the transferor and the transferee should fill out form no. SH4 and attach the share certificate
Only an application or a letter of intimation is required for the transmission along with legal heir proof; there is no need to fill the form no. SH4.
Stamp duty
Stamp duty is payable in case of transfer of shares.
No stamp duty is payable in case of transmission of shares.
Liability
The liability of the transferor ceases to exist after the shares are transferred to the transferee.
In case of transmission of shares, the original liability continues to exist and the legal heir or receiver of the shareholder will be liable for the shares.
Statutory remedy against refusal
Section 58 of the Companies Act 2013, contained the provision to be followed when a company refuse to register the transfer of securities-:
If a private company limited by shares refuses for any reason to register the transfer of shares or transmission of shares of a member in a company, then the company shall send notice to the transferor or transferee or the legal representative of both the transferor and transferee. In the notice, the company shall mention the cause and reason for the denial of registration of transfer. The company shall send the notice of refusal within thirty days from the date of receipt of the instrument of transfer or intimation of transmission.
The transferee or the transferor in case of refusal from the company may appeal to the tribunal against the refusal within a period of thirty days from the date of the receipt of the refusal notice. If no notice has been sent by the company and the transfer also didn’t take place then the transferor or the transferee or the legal representative of both should appeal to the tribunal within a period of sixty days from the date on which the instrument of transfer or the intimation of transmission was delivered to the company.
If a public company without sufficient and valid causes refuse to register the transfer of securities within a period of thirty days from the date of receipt of the instrument of the transfer or the intimation of the transmission, the transferee may, within a period of sixty days from the date of receipt of refusal notice can appeal to the tribunal against the refusal by the company. In case no refusal notice has been sent to the transferor or transferee then the transferee should appeal to the tribunal within ninety days from the date of delivery of the instrument of transfer to the company.
A tribunal while dealing with the appeal after hearing the parties may either dismiss the appeal or-
Direct the company to register the said transfer or transmission and the company shall register the transfer or transmission within ten days of the receipt of the order from the tribunal.
The tribunal could also direct rectification of the register and also direct the company to pay for the damages if any, sustained by either the transferor or transferee or both.
Death of transferor or transferee before registration of transfer
In cases where the transferor has died before the registration of the transfer and the company has not received any notice regarding the transferor’s death then the company would register the transfer. If the company has notice of the transferor’s death then the company would not register the transfer until the legal representative of the transferor has been referred to.
In the case where the transferee dies and the company has notice of his death, then the company shall not register the transfer of shares in the name of the deceased transferee. The registration of transfer could only take place with the consent of the transferor and the legal representative of the transferee. In case of a dispute regarding the registration of the transfer, then an order of the court will be needed.
Lost transfer deed
Many times the transfer deed sent to the company by the parties was lost during the transit. In this case, Section 56(1) of the Companies Act 2013, provides that if the instrument of transfer is lost or the instrument of transfer is not delivered to the company within sixty days from the date of the execution of the deed, then the company may register the transfer subject to indemnity as the board of directors may think fit.
The company may ask for proof of the instrument of transfer. The proof may be in the form of an affidavit either by the transferor or by the transferee. The sale or purchase note of the broker and the registration receipt issued by the postal authorities should be duly provided to the company.
Forged transfer
A forged transfer is said to take place when a forged transfer deed is presented to the company for registration. Upon suspicion, the company generally sends a notice to the transferor about the lodgement of the transfer instrument so that he can object to the transfer if he wishes. The company allows the transferor a time period within which he can object to the transfer. If no objection is raised by the transferor then the company would register the transfer.
The consequences of a forged transfer are mentioned below-:
A forged transfer deed, however genuine it may seem, is a nullity. It can never transfer the title title from one person to another. Hence a forged transfer doesn’t make any changes to the shares and it rightly belongs to the transferor. If a company registers a forged transfer then the real owner of the shares can apply to the company regarding the transfer and his name will be restored. ( People Insurance Co. Ltd. vs. Wood & Co. Ltd.)
In case if a company has issued a share certificate in a forged transfer to the transferee and the transferee sells the share further to any innocent purchaser, then the company is liable to compensate such an innocent purchaser. The company cannot deny the innocent purchaser to register his name as a member. ( Balkis Consolidated Co. vs. Tomkinson)
The company has all rights to recover the loss from the person who lodged the forged transfer.
Even if the transferee has paid the stamp duty and was a bona fide purchaser for the shares, it did not make any difference and the transferee is bound to return the scripts to the person to whom the same rightly belongs.
Provisions under the Companies (Share Capital and Debentures) Rules, 2014
1. For the transfer of physical shares to take place, the instrument of transfer should be made under form no. SH4. Furthermore, it is mentioned that this instrument of transfer, which is form no. SH4 should be submitted to the company within 60 days from the date of execution of the instrument.
2. In case the company does not have any share capital and has not issued any shares, but the members of the company receive dividends or interest from the company, in proportion to the money they have invested, even in such cases, an instrument of transfer under form no. SH4 is mandatory.
3. If the transfer is taking place for partly paid-up shares, the company will issue a notice to the transferee using form no. SH5, informing them of their obligation to pay the remaining balance amount of the partly paid-up shares in the future. After receiving the notice from the company, the transferee should respond to the company, with an NOC that he has no objection regarding the transfer of partly paid-up shares. The transferee should provide their response to the company, stating any objections or lack thereof, within 14 days from the date of receipt of notice from the company.
Penalty
Section 56 of the Companies Act, 2013 clearly mentions the penalty for non-compliance of the guidelines while carrying out the processes of both the transfer of shares and transmission of shares. If any non-compliance occurs, the company and every officer of the company involved in the noncompliance shall be liable to a penalty of Rupees 50,000/-.
Conclusion
The stock and share market in India is growing at a much faster pace. People are investing in equities more often. For many, investing in equities is a more lucrative and better investment decision than investing in real estate and other sectors of the economy. As people aspire for better returns on their investments, they trust their money with the companies they invest in. It is crucial for the companies to follow the mentioned guidelines of the Companies Act and apply the rules strictly while managing shares of the investors. Also, for the investors, it is very important to know the intricacies of the rules and regulations according to which their shares are being managed by the companies. The process of transfer and transmission of shares and how to execute both the transfer and transmission are intrinsic to the knowledge of the investors as well as legal professionals.
Frequently Asked Questions (FAQs)
What is form no. SH4?
Form no. SH4 is the form in which both the transferor and the transferee should mention the details of the transfer of the shares and this form itself will be treated as the instrument of transfer.
What is a share certificate?
A share certificate is issued by the company to its shareholders, which serves as proof of legal ownership of the shareholder on the company’s share. Every share certificate is unique to its owner and it is duly signed and stamped by the company. Each share certificate has a distinctive number as well as a certificate number, which is unique to every shareholder of the company.
What is a folio number?
The folio number is the unique number identifying the shareholder’s account with the company. There are many details linked to the folio number, such as how much money the shareholder has invested in the company, how many shares he/she holds, share trading history of the investor, as well as contact details of the shareholder. Folio numbers are very useful for the company to keep a record of their investors and their transactions within the company. One could say that the folio number is a roll number assigned to the investor by the companies.
What is the Article of Association (AOA)?
Articles of Association (AOA) of a company is a document which contains the regulations according to which the company should operate. It also contains the kind of work the company will be doing, the kinds of services the company will be providing and the bylaws of the company for its internal governance.
What is the instrument of transfer?
The instrument of transfer is a transfer deed for the transfer of shares from the transferor to the transferee. An instrument of transfer is very necessary for the transfer of shares to take place. The instrument of transfer serves as the legal evidence of the fact that both the transferor and the transferee agree to the transfer of shares and its execution.
What is a CIN (Corporate Identification Number)?
CIN is a unique number assigned to the company when it is registered with the Registrar of Companies of India. CIN is very important for the company because it serves as the identification for the company with the Government of India. It is a 21-digit alphanumeric code and should be mentioned in all the reports submitted to the Ministry of Corporate Affairs by the companies. CIN is used by the government to track the business and transactions of the company and to maintain the records.
What is transposition?
In the case of a joint shareholding, one or more of the shareholders may intimate the company to alter or rearrange the serial orders of their names in the register of members of the company. In this process, the serial orders of names mentioned in the share certificate also change. In transposition, no interest of any shareholder is transferred and hence stamp duty is not payable. The company will issue new share certificates with altered serial orders of name to respective shareholders.