In this article, Kashish Khattar, currently pursuing Lawsikho Diploma In M&A, Institutional Finance and Investment Laws (including PE And VC Transactions), discusses on Asset Sale.

Introduction

An asset sale is one of the methods that is used for business transfers. It is preferred by the acquiring company because it can cherry pick the assets that it needs to diversify its business or increase its stronghold in a particular area. Individual assets are assigned a value in this kind of a sale. It can also be called a price meal sale of the assets of the company.

Typically, an asset sale is considered by a company when it wants to clean up its balance sheets which is burdened with bad loans. Data from a Thomson Reuters Eikon report shows that Indian companies have sold more assets in 2016 than in any year since the liberalization. The asset sales announced, pending or completed in 2016 amounted to a whooping USD 40.85 billion. Asset sales in India are mostly forced through a bank when it has to recover the debt owed by the borrower company. Asset sale includes any type of property that a company wants to sell to the acquirer. It can be a plant, factory, land or some intellectual property rights. In an Indian scenario, an Asset sale is done through an agreement to sell or a conveyance deed.

An agreement to sell is an agreement where the sale of goods is going to take place at a later date. A conveyance deed is a more formal agreement which authorises the sale of goods, the list of goods to be sold are mentioned and listed. Eventually, the goods are sold on the basis of this deed.

An asset sale is typically undertaken through a Business Transfer Agreement (“BTA”), where the individual assets are listed down which the acquirer wishes to acquire. The specific liabilities are also listed which the acquirer has cherry-picked. The terms and conditions of the acquisition are listed down. The representation and warranties of the transferee company are also given in the BTA. The indemnity payable by the transferee company is also listed down.

Checklist for an Asset Purchase Agreement

The counsel drafting the agreement should be clear on various aspects that should be covered:

1. They should have full knowledge of what assets are going to be transferred;
2. what liabilities are going to be taken up;
3. T&C concerning the transfer needs to be crystal clear;
4. The considerations that are payable against which particular asset needs to be clear;
5. What kind of a BTA it is – (i) Agreement to sell, (ii) Conveyance Deed
6. Looking out at the Stamp Duty implications on the BTA. The stamp duty is state specific.

For the basic understanding, the basic steps of an M&A Transaction would be

1. A typical seller will open its data room and attract bidders,
2. The potential acquirer does its various due diligence on the specific business, asset and possibly enter into a non-binding term sheet,
3. If the things keep going well, the acquirer moves ahead and formalises the transaction with a formal term sheet, and
4. This leads to the execution of formal documents such as the Shareholders Agreements, BTA, Scheme of arrangement.

Documents needed for an Asset Sale

The parties first enter into a non-binding term sheet, do the required due diligence required, then move ahead to formalise their arrangement in the form of a legal agreement. The legal agreement can range from a Business Transfer Agreement, Asset Purchase Agreement and a Shareholders Agreement etc.

Internal Approvals

Internal approvals needed for an Asset sale are achieved with the help of the Companies Act, 2013. The steps required for an asset sale or a stock sale can be as follows:

1. The Board of Directors must pass a resolution to the effect of the sale of assets/undertaking of the company as per Section 179.
2. The following steps are only applicable to public companies where the asset in question constitutes more than 20% of the total net worth of the company or the asset/undertaking is generating more than 20% of the total income of the company in the previous financial year. Section 110 of the Companies Act, 2013  is to be read with Rule 22 of the Companies (Management and Administration) Rules, 2014.
3. Board of directors of every listed companies and all public companies – i) with paid-up capital of Rs. 10 crores or more; (ii) having a turnover of Rs. 100 crores or more; (iii) all public companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding Rs. 50 crores or more will refer to the Audit Committee for valuation of the undertaking and assets of a company (Section 177(4)(vi) of the Companies Act, 2013).
4. Notice must be given to the members that the resolution for asset sale is proposed to be passed as a special resolution by way of postal ballot / electronic voting. The notice must be accompanied by an “Explanatory Statement”, pertaining to the said Resolution, mentioning the material facts concerning the item and the reasons should also be enclosed along with a Postal Ballot Form (See Section 102 of the Companies Act, 2013).
5. The Resolution will have to be passed by a special resolution (received through postal ballot). Vote must be received within thirty days from the date of dispatch of the notice to be considered as a valid vote.
6. If the resolution is successfully passed, the Board will authorize a person to finalise and execute necessary documents including but not limited to definitive Agreements, deeds of assignment / conveyance and other ancillary documents, with effect from such date and in such manner as is decided by the Board.
7. Form MGT – 14 along with the resolution and notice given under Section 102 must be filed with the ROC within 30 days along with required fees.
8. The following steps are not to be followed for private companies and for asset sale of public companies where the valuation of the asset is less than the mentioned threshold. Although, some companies can frame their own procedure for an asset sale within their constitutional documents of the company i.e. the MoA & AoA. The only steps relevant for the above mentioned companies will be Step 1, 6 and 8.

Tax considerations

The structure is the most important thing that is to be analysed to understand the tax implications in an M&A transaction. These are the following taxes that are to be taken care of in an asset sale:

• Stamp Duty

The amount of stamp duty that is to be levied on a transaction is state specific. To understand the stamp duty implication on a transaction, it is advised to read Section 5 and 6 of the Indian Stamp Act, 1889, which is as follows:

“5. Instruments relating to several distinct matters. — Any instrument comprising or relating to several distinct matters shall be chargeable with the aggregate amount of the duties with which separate instruments, each comprising or relating to one of such matters, would be chargeable under this Act.

6. Instruments coming within several descriptions in Schedule I. — Subject to the provisions of the last preceding section, an instrument so framed as to come within two or more of the descriptions in Schedule I, shall, where the duties chargeable thereunder are different, be chargeable only with the highest of such duties: Provided that nothing in this Act contained shall render chargeable with duty exceeding one rupee a counterpart or duplicate of any instrument chargeable with duty and in respect of which the proper duty has been paid.”

In case of a Business Transfer Agreement, it is generally advised to use an agreement to sell instead of a conveyance deed as the stamp duty is considerably lesser for an agreement compared to a conveyance deed.

• Capital Gains Tax

In case of depreciable assets, capital gains computed on a block of asset basis and the value over and above the aggregate of the written down value of the block of assets and expenditure incurred in relation to the transfer will be treated as the capital gains and subject to tax as short term capital gains. Where the block of asset basically means a group of assets falling within a class of assets in respect of which the same percentage of depreciation is prescribed. Such block of assets may comprise of (a) tangible assets such as buildings, machinery, plant or furniture; (b) intangible assets such as knowhow, patents copyrights etc.

In other cases, capital gains tax payable by the seller will depend on the period that the seller has held each of the assets that are transferred.

GST would also be applicable in the Asset Sale. Schedule 1 will be applicable where there is a permanent transfer of the business assets. However, Schedule II covers the situation only if a part of business assets is disposed of.

Difference between an asset sale and a slump sale

Conclusion

An asset sale can be defined as the sale of part or whole of assets of the target to the acquirer assigned with individual values assigned for each asset. No kind of a court approval is required in the case of an asset sale. The transfer of asset or liabilities is dependent on the acquirer. He has the option of cherry picking the liabilities. In the case of a capital gains taxes, it is typically  computed on a block of asset basis and the value over and above the aggregate of the written down value of the block of assets and expenditure incurred in relation to the transfer will be treated as the capital gains and subject to tax as short-term capital gains. The stamp duty is determined on the instrument that is used for the transaction and is state specific. The stamp duty to be levied on each instrument is typically given in Schedule I of the act. There are no carry forward of losses in an asset sale.

In this article, Anisha Jain, pursuing Certificate Course in Trademark Law at LawSikho, discusses the jurisdiction issues under Trademark law for online transactions.

“If your business is not on the internet, then your business will be out of business” – Bill Gates

Introduction

E-Commerce has made the world a global village today. Some years ago when a business used to open, it had to largely rely on its local customers for its sustenance. However, with the inception of the internet everything changed, a business now has its audience all around the world. The conduct of business has been revolutionized by the internet wherein it has enabled the businesses to connect with their customers more rapidly and effectively and speed up their services as well.

Judicial Approach to Trademark Jurisdiction in Online Transactions

With the increasing number of businesses moving online where everything can now be purchased on the World Wide Web, there is an all-time increase in the number of legal disputes in the e-commerce sector. These disputes have a novel character to them unlike their counterparts where business places in case of traditional business were permanent within a defined geographical location, whereas the e-commerce business has a virtual existence, thus raising an important question of jurisdiction in the plethora of cases related to cybercrime, infringement of trademarks and domain name that come up everyday.

The determination of the jurisdiction of the Court in cases of Trademark Infringement poses a great difficulty. Jurisdiction is the first step involved in deciding any dispute and in order to effectively decide a dispute, it is very important to determine whether a court is competent to decide on a particular matter or not. In civil cases the questions related to jurisdiction are governed by Section 20, Code of Civil Procedure 1908, the test is the place where the defendant resides or cause of action arises.

Recently Delhi High Court can be seen as the pivot for all disputes related to IP Laws. It has passed various judgments interpreting the provisions related to the determination of jurisdiction where either one or both the parties have an online presence.

Banyan Tree Holding (P) Limited vs A. Murali Krishna Reddy & Anr

The Delhi High Court, in this case, decided the question of jurisdiction of the Court under Section 20(c) of Code of Civil Procedure, 1908. The Division Bench, in a well thought out judgment, laid down that in cases of passing off or infringement, where the plaintiff is not carrying on his business within the jurisdiction of the court and there is no long-arm statute, the question whether this court has the jurisdiction to entertain the suit would be decided if the plaintiff shows that the defendant has ‘Purposefully Availed’ the jurisdiction of the forum court to himself. Further, in order to prove this, the plaintiff will have to show real commercial transactions entered into by the Defendant with an internet user residing within the jurisdiction of the forum court. In addition to Section 20(c) CPC, the plaintiff also has an option of approaching the Court under Sections 62(2) and 134(2) of Copyright Act, 1957 and the Trademark Act, 2002 respectively.

World Wrestling Entertainment v. Reshma Collection

The Delhi High Court in an appeal of its Division Bench Judgment, in this case, has defined the rules which shall apply to eCommerce and online retailers in order to determine the issues of Jurisdiction. These rules are however only limited to Trademark and Copyright infringement cases. In the present case, the plaintiff filed for a permanent injunction on the defendant alleging infringement his copyright, trademark, passing off, dilution etc. The plaintiff was an incorporated company in United States of America and defendants were residents of Mumbai. The plaintiff, appellant, in this case, approached the Delhi High Court under Sections 62(2) and 134(2) of Copyright Act, 1957 and the Trademark Act, 2002 respectively. A specific plea regarding jurisdiction was also filed by him. Plaintiff is WWE which is a well-known trademark and holds over 200 licenses in 86 countries including India. They offer a variety of memorabilia including apparel, posters, calendars etc. The same is being Counterfeited and sold by the defendant, thus infringing the Plaintiff’s registered trademark. The court held that in the present case the website consisting of the various products of the plaintiff cannot be considered an offer by itself, but is an invitation to an offer which has been compared to a menu in a restaurant.

The Delhi Court referred to the decision of the Supreme Court in Bhagwandas Goverdhandas Kedia vs M/S. Girdharilal Parshottamdas and in M/S. Dhodha House vs S.K. Maingi in deciding the question of jurisdiction in this case. When a customer in Delhi accepts it, it becomes an offer made by the customer in Delhi. Further, when through the software and browser the transaction is confirmed by making the payment to the plaintiff, the plaintiff accepts the offer of the customer at Delhi. Therefore the plaintiff can be considered to be carrying his business in Delhi to some extent because the plaintiff instantaneously communicates his acceptance to the customer through the internet at Delhi. Thereby facilitating an entity to have a virtual presence in one place which is at a distance from the place of its physical presence. This presence of websites at a particular place is like having shops in the physical world. Therefore it was held that the High Court of Delhi will have jurisdiction to entertain the suit in the same capacity as if the plaintiff is considered to be carrying on business in Delhi for the purposes of suits under Trademark and Copyright Laws.

Impresario Entertainment & Hospitality Ltd vs. S & D Hospitality

In this case, the defendant challenged the jurisdiction of Delhi High Court in the present case as neither he had his registered office at Delhi nor did he carry out any business at Delhi, even the plaintiff’s registered office is in Mumbai. In the present case, the plaintiff is a company engaged in providing restaurant services having its registered office at Mumbai. The plaintiff is carrying on a business in Delhi under the Trademark ‘SOCIAL’, in 2017 it became aware of the defendant having two restaurants in Hyderabad under the name ‘SOCIAL MONKEY’ and also about serving an identical/similar beverage to that of the plaintiff’s beverage. Therefore the plaintiff filed for a permanent injunction against the defendant before the Delhi High Court contending that his principal office for franchising and financing is located in Delhi and it carries on its business in Delhi through its office in Hauz Khas. Moreover, the defendant has entered into a contract with Zomato in order to promote his business, the office of which is in Delhi and hence this court will enjoy the jurisdiction in the present matter. The Learned Division Bench of the High Court relied on the decision of the Court in Banyan Tree Holding (P) Ltd. and held that the plaint failed to pass the test laid down in this case because merely registering on Zomato would not conclude a commercial transaction between the defendant and the customers, they would have to avail the services of the defendant at Hyderabad (his principal place of business), even Purposeful Availment could not be proved on the part of defendant. Therefore the Court did not exercise the jurisdiction in this case.

Millennium & Copthorne International Limited vs. Aryans Plaza Services Private Limited & Ors.

In this case, the Delhi High Court relied on the Impresario case but it also highlighted the faults in the test laid down in the judgment. While dealing with the question regarding reservation and booking from a website, it is a part of carrying on the business even if it does not subsequently materialize.

Conclusion

Online transactions are a rather new concept for our Country right now and consequently, there is a lot of discussion and confusion surrounding it. The Judicial Precedents till now have been time and again criticized the ground that selling products/services online gives an option to the plaintiff of Forum Shopping i.e. the choice of Forum based on his convenience without paying any regard to the difficulty which the defendant might have to face. What is needed is a uniform approach to be followed in all cases of jurisdiction with respect to Online Transactions with respect to Trademarks. Therefore there is a need for a Long Arm Statute or a Specific Law which deals with the question of Jurisdiction so as to enable a fair and speedy trial.

In this article, Darpan Magan pursuing Certification in Alternative Dispute Resolution from Lawsikho discusses the changing arbitration landscape in India.

Introduction

When you read about the appalling reports that about 2.5 Crore cases are being pending in India, first thing that comes to your minds is that why we have come to this situation? Possible answers to this question is the pathetic 1:10 ratio of judge to population, abysmal budgetary allocation to judiciary (roughly 0.1 to 0.4 percent of the whole union budget) and one more, often unhighlighted reason for such a bad state of judiciary is the failure of the Arbitration law to flourish in India prior to the much talked about amendments in the field in 2015.

Positive changes to the arbitration landscape in India

The legislative act in the field of Arbitration was first passed in the year 1940. However, the law was made prior to the New York Convention on Enforcement of Arbitral awards in 1958 and also the very significant UNCITRAL model law which sought to provide international connotation to Arbitration so that the Arbitration laws of all countries are uniform in nature. Also, the interference of judiciary in this law was present at every stage of arbitration proceedings. Hence, this law was replaced by a new law in 1996 which was based on UNCITRAL Law and New York convention. The present law sought to address the deficiencies of 1940 law and aspired for speedy and efficient resolution of disputes, but failed to achieve the purpose. Hence, to make India an International hub of arbitration and achieve quicker resolution of disputes, efficient enforcement of arbitral awards and quick recovery of monetary claims, the Arbitration and Conciliation Act, 1996 was amended in October 2015. Some of the prominent changes in the act are :

• Starting of arbitration proceedings within 3 months of granting of interim relief by the court and doing away with court interference during the arbitration proceedings under Section 9 of the act.
• Giving a time period of 60 days for the appointment of arbitrators and fixing the fees of the arbitrators depending on the claim amount under Section 11 of the act.
• Making it mandatory for the arbitrators to declare any conflict of interests with any of the party or to declare his inability to efficiently complete arbitration proceeding under Section 12.
• Replacement of an arbitrator by another arbitrator under Section 14 of the act.
• Giving the tribunal the power to provide interim reliefs, if any, during the arbitration proceedings as if given by a civil court under Section 17 of the act.
• Bringing the provision for filing a counter-claim or filing a set-off under Section 23 of the act.
• Providing a more strong and efficient mechanism to provide exemplary costs incase of intentional or avoidable defaults by either party under Section 24.
• One of the most significant amendment is to provide a specific time period for the completion of arbitration. It is mandated that the arbitration must complete within a period which can be extended by 6 months and incase it does not gets completed within the said period, arbitrators’ fee can be reduced for every month of delay under Section 29A.
• Also, a completely new provision of fast track arbitration is introduced under Section 29B of the act which provides for completion of arbitration within 6 months and such arbitrations only has written submissions and do not have any oral submissions.
• Applications for challenge of an arbitral award has to be necessarily disposed within an year of such application and also the wide scope of public policy has been reduced under Section 34.
• Under previous act, the enforcement of award automatically stayed after a Section 34 application was filed but now enforcement of arbitration award is not stayed by a Section 34 application and a separate application under Section 36 has to be filed for obtaining a stay on enforcement of award.

Positive changes set to be introduced by the proposed 2018 amendment to the Arbitration and Conciliation Act, 1996.

It is now a well known fact that India made a laudatory jump in Ease Of Doing Business Ranking, 2018 by moving to 100th rank amongst 190 countries from the rank of 130 in 2017, making a significant jump of 30 places. However, having more detailed look at the report would tell that India still has a pretty shoddy rank of 164 in the category of Enforcement of Contracts. In India, an average 1,445 days is taken to resolve disputes, compared to 164 days in Singapore and around 400 days in Hong Kong, Indonesia, Vietnam and Malaysia. Now, this report came after the amendment of 2015 which tells that some further reforms are called for to further increase India’s ranking in Ease Of Doing Business and for that, this lacuna needs to address. Hence, the cabinet has proposed further amendments to Commercial Courts, Commercial Division and Commercial Appellate Division of the High Courts Act, 2015 and also much important to the Arbitration and Conciliation Act in 2018. These amendments are :

1. For the appointment of arbitrators, Supreme Court or a high court can directly appoint arbitrators from designated arbitral institutions
2. A proposal to amend sub section (1) of section 29A by excluding International Arbitration from the clutches of the mandated timeline and it further provided that the timeline of 12 months for completion of arbitration shall begin from the completion of pleadings, providing a relaxation in timeline.
3. There is also a provision for creation of Arbitration Council Of India to grade arbitral institutes and also to accredit arbitrators. It will also have a prominent role to increase the awareness of Arbitration amongst young students and to regulate Arbitration in India.
4. It is also proposed that by virtue of a newly inserted Section 42A, the confidentiality of the arbitration proceedings shall be maintained by the arbitrators and arbitration institutes and it is proposed that under Section 42B, the arbitrators cannot be sued for deficiency of services or other action or omission, done in good faith.
5. A clarification under a new Section 87 of the act is proposed regarding applicability of the amendments in the act in 2015.

Hence, these amendments seek to further structure the arbitration landscape in India and also to give a boost to institutionalisation of Arbitration in India. At present, arbitrations in India are majorly ad-hoc arbitrations due to non- availability of good arbitration institutions in India.

According to Singapore International Arbitration Centre’s annual report in 2016, Indian parties constituted the largest foreign contingent in the institute with 153 Indian parties, which grew by 68 percent from the previous year.

Now, if this trend will continue to operate, India is set to lose a major chunk of capital, which can be tapped by having a good indigenous arbitration mechanism and good arbitral institutes in India itself. In October, 2016, Mumbai Centre of International Arbitration commenced its operation in India which boasts of state of art facilities to conduct arbitrations, however its effectiveness is yet to be seen.

Recent Pro Arbitration stance taken by the courts in India after 2015 amendment.

Entry of foreign lawyers in Arbitration Sector.

The Supreme Court judgement in the very recent case of Bar Council Of India Vs. A.K. Balaji and ORS. clarified that foreign lawyers could not be barred from coming to India for conducting arbitration proceedings in disputes involving International Commercial Arbitration in India. This judgement though barred foreign law firms to practice in India, but left the ball in Central Government’s Court to frame rules regarding the practice of foreign law firms in International Arbitration.

Giving validity to Two-Tier Arbitration clauses.

The Supreme Court in the case of Centrotrade Minerals and Metal Inc. V Hindustan Copper Ltd held that the practice of challenge of a first tier arbitration to another separate arbitral tribunal is valid, thereby, giving validity to Two-Tier Arbitration in India.

Clarifying the position on interference of a third party in enforcement of a foreign arbitral award.

Delhi High Court, recently in the case of Ntt Docomo Inc vs Tata Sons Limited held that even Reserve Bank Of India, a third party to the arbitration agreement cannot implead itself in enforcement of a foreign arbitration award. This reinforces the obligation an Indian party to treat a foreign party in just terms.

Giving recognition to composite reference of interconnected contracts to arbitration.

Supreme Court in its judgement of Chloro Controls India Pvt Ltd V. Severn Trent Water Purification Inc. propounded that composite reference of interconnected contracts to arbitration is valid only in the domain of International Commercial Arbitration, however in the recent Supreme Court judgement in the case of Ameet Lalchand Shah and Ors. V. Rishabh Enterprises and Anr, it extended the same principle in the domain of domestic arbitrations as well.

Conclusion

The present landscape of how arbitration is shaping in India is extremely positive and never before such a spur in activities regarding the field was seen in India. The downside to this extreme hustle is that the stability which should be there for any arbitration mechanism to flourish is not there at the present, but this revamp of arbitration landscape in India is necessary to make Arbitration in India, a future arbitration hub.

This has to be the best time to practice arbitration in India for any lawyer as once, the mechanism settles, it is believed that the majority of Indian parties which are going outside of India to conduct Arbitration proceedings are to stay back in the country, which would mean that there would be substantially high amount of work for Arbitration practitioners in India and also the successful implementation of the law would mean reduction in litigation proceedings and hence, the backlog of cases. However, what needs to be seen is how the recent amendments play out and whether the pro-arbitration attitude that the judiciary has adopted, continues in future as well.

References

1. Bar Council Of India Vs.  A.K. Balaji and ORS, Civil Appeal Nos.7875-7879 of 2015.
2. Centrotrade Minerals and Metal Inc V. Hindustan Copper Ltd, (2017) 2 S.C.C. 228.
3. Centrotrade Minerals and Metal Inc V. Hindustan Copper Ltd, (2017) 2 S.C.C. 228.
4. Chloro Controls India Pvt Ltd V. Severn Trent Water Purification Inc, (2013) 1 S.C.C. 641.
5. Ameet Lalchand Shah and Ors V. Rishabh Enterprises and Anr ,Arising out of SLP(C) No.16789 of 2017).

In this article, Neel Vasant of SLS, Pune does a case analysis of Enrica Lexie Case.

If we look into the context of Maritime Law several incidents can be seen where a foreign vessel has violated certain rules and regulation of another country, on voyage. In the year 2012 one such incident happened in the territorial waters of our country, India. The study of this particular case is very interesting as rules of several Codes such as the Indian Penal Code, Criminal Procedure Code and several International Treaties such as the United Nations Convention on Law of the Sea (UNCLOS) are applicable. This is an attempt to analyse several aspects involved in this case as lucidly as possible.

Brief Facts

• On 15th February, 2012 two Indian fishermen were killed off the coast of Kerala, India, aboard the St. Antony after they were fired upon by Italian marines on board the Italian ship Enrica Lexie.
• Enrica Lexie was travelling from Singapore to Egypt and St. Anthony returning back to its destination from a fishing expedition.
• Out of nowhere there started shooting when St. Anthony was 20.5 Nautical Miles off Indian Cost within contiguous zone area of India’s Exclusive Economic Zone.
• The Indian Coast Guard got hold of Enrica Lexie somewhere near the Lakshadweep Islands and compelled it to proceed it to Kochi.
• Names of two Italian Marine Officers Captured were; – Massimiliano Latorre & Salvatore Girone.
• Charges of Murder (Section 300 of the Indian Penal Code), Mischief (Section 425 of the Indian Penal Code) etc. were levied against the captured Italian Mariners.

Issue of Jurisdiction

• In order to protect the Interest of their citizen, Italy challenged the arrest before the Kerala High Court alleging that India has no jurisdiction to try the case at the very first Instance as the incident happened not in the territorial waters on India but on the International Waters.
• Italy has cited Article 97 of the United Nations Convention on the Law of the Sea (UNCLOS): “In the event of a collision or any other incident of navigation concerning a ship on the high seas”, only the flag state of that ship can launch penal proceedings. By definition, a flag state is the state in which a vessel is registered. On the high seas, flag states hold sole jurisdiction over oceangoing vessels. (Art. 217 UNCLOS).
• However, India bases its jurisdictional claims on domestic legislation which confers the Indian courts with the jurisdiction to try a person (including a foreigner) in respect of an offence committed on board a ship registered in India (Sections 3 and 4 of the Indian Penal Code, 1860 and Sec.188 of the Code of Criminal Procedure).
• On the other hand, the Italian Government gives the argument keeping in mind various provisions of UNCLOS, 1982. Article 97 of UNCLOS focuses on ‘Penal jurisdiction in matters of collision or any other incident of navigation’. According to this Article no penal or disciplinary proceedings may be instituted against such person except before the judicial or administrative authorities either of the flag state or of the State of which such person is a national.
• Secondly, according to Article 92, ships shall be subject to the exclusive jurisdiction of flag state while on the high seas.
• Thus. it is seen that claims of both the nations were equally strong. Both the nations have their reasons as to why the case should be tried at their respective countries. he general principle of criminal procedure that a trial shall ordinarily be conducted at the place where the offence has been committed, justifies the Indian position. Additionally, a trial conducted in a foreign land would deprive the victims of their right to participate which is an essential aspect of fair trial. Moreover, considering the convenience of conducting investigation the case is tilted towards India.
• The Supreme Court ruled that as per the Indian government notification issued in pursuant of the Convention on the Law of the Sea, India has jurisdiction over the entire 200 miles Exclusive Economic Zone, and thus the case can be triable in India. The court also held that only Indian government not the Kerala government can exercise the jurisdiction.

Final Outcome

• When nothing was going in their way, the Italian Government approached the International forum to look into the matter. The forum the country approached the International Tribunal for the Law of Sea (ITLOS). Again, at this forum Italy contended that India had no jurisdiction to try this case. On the other hand, India outrightly rejected Italy’s contention and also raised an issue that the International Tribunal also had no power to hear the case involving two individual nations, which was later rejected by ITLOS.
• Amidst all these, the relations between both these nations started to get sour. There was political tension all around.
• In August 2015, the International Tribunal for the Law of Sea ordered both the countries to refrain themselves on filing any new suite and thus try to solve the existing problem amicably. Abiding the order, The Supreme Court of India had stayed all the proceedings related to this case.
• To compensate the victims The Government of Kerala granted aid of 5 Lakh Rupees and the same amount was given by The Government of Tamil Nadu. Over and above the monetary aid The Government of Kerala also employed the victim’s wife.
• The Italian Government also gave a monetary compensation of 1 Crore Rupees to the victim in this case of Maritime Disaster.

In this article, Colin Fernandes, currently pursuing Lawsikho Diploma in Entrepreneurship Administration and Business Laws discusses the setting up of a micro enterprise under the MSMED Act.

Introduction

The MSME sector is the backbone of the growth story of the Indian economy. It contributes around 6.11% of the manufacturing GDP and 24.63% of the Service GDP. They provide employment to approx 120 million people and contribute around 45% of the overall exports (Source: CII).

Micro, Small and Medium Enterprises Development (MSMED) Act, 2006

In order to promote the MSME sector, the Micro, Small and Medium Enterprises Development (MSMED) Act was enacted in 2006. This Act addresses the various policy issues affecting MSMEs as well as their coverage and investment ceiling of the sector. The Act tries to incorporate the development of the enterprises while trying to enhance the competition among the businesses. The Act provides for the first time a legal framework for the recognition of the term “enterprise” which comprises of both manufacturing and service entities.

The Act also provides for the following:

• The establishment of specific funds for the promotion, development and enhancing the competitiveness of enterprises,
• The notification of schemes/programmes for this purpose,
• Progressive credit policies and practices, preference in Government procurements to products and services of the micro and small enterprises,
• Effective mechanisms for mitigating the problems of delayed payments to micro and small enterprises and assurance of a scheme for easing the closure of business by these enterprises

Ministry of Micro, Small & Medium Enterprises is an apex body under the Central Government which plays a crucial role in promoting growth and development of the MSME Sector together with the cooperation from State Governments and other Stakeholders.

What is a micro enterprise?

The Definition of the Micro enterprises is provided under Section 7 of the MSMED Act 2006 as:

Eligibility of a micro enterprise to be set up under MSMED Act

Registration under the MSMED Act is discretionary.

Types of Business: Proprietorships, HUF, Partnership firms, One Person Company, LLP, Private Limited / Limited Companies, Association of Persons, Co-operatives Societies are eligible to be registered under the MSMED Act.

Criteria: Only those entities which can be classified as Micro, Small or Medium Enterprise under the Act are eligible to register under the MSMED Act.

Entities engaged in manufacturing or production of goods

• Micro enterprise: Any entity wherein the investment in plant and machinery does not exceed rupees twenty-five lakhs.

Entities engaged in provision or rendering of Services

• Micro enterprise: Any entity wherein the investment in equipment does not exceed rupees ten lakhs.

Benefits of registering your enterprise  under the Act

In order to compete with the Large Enterprises and also to improve India’s ranking in Ease of Doing Business, there are various benefit offered by the Government for MSMEs registering under the Act as under:

A. Purchase & Price Preference Policy

1. 358 items are exclusively reserved for purchases from MSMEs by Central Govt.
2. If registered with NSIC, then there is an exemption from payment of purchase of tender documents, depositing earnest money and security deposit.
3. As per the Govt’s Public Procurement Policy, Central Govt ministries, PSU’s
   shall procure a minimum of 20% of their purchases from MSMEs.
4. MSME are allowed to supply 20% of the total tender value if their price quoted in the tender document is 15% higher than the lowest bid. However, their price needs to be matched to the lowest bid price.

B. Assistance in faster recovering of overdue Invoices

1. Ability to charge compounding interest rate 3 times more than the bank rate
2. No income tax relief for the buyer on the interest paid to the MSME enterprise on overdue Invoices Avenues for faster dispute resolution by referring such matters to a Micro & Small Enterprises Facilitation Council. Disputes to be resolved within 90 days from the date the matter is referred to the council.
3. The Act also attempts to ensure that MSME’s viability is not impacted during the pendency of the case (malafide intention of Large enterprises to delay payments by dragging cases for long periods). As per the Act, the defaulting entity cannot appeal against the decision of the council/arbitrator unless it has deposited 75% of the amount it is required to pay.
4. Disclosure for companies who have overdue Invoices payable to MSMEs in the Audit reports.
5. In order to benefit from this policy, it is advisable for MSME to state its MSMED registration number on Invoices, bills and any other relevant documents. (see notification here)

C. Lower Corporate Tax rate of 25%

In the Budget for 2018, the government has proposed to cut the Tax rate from existing 30% to 25%

Schemes offered by the Central Government

A. National Manufacturing Competitiveness Programme (NMCP)

This scheme was launched in order to revive the manufacturing sector, especially small and medium enterprises, and to enable them to adjust to the competitive pressures caused by liberalization and moderation of tariff rates. Ten schemes have been drawn up including schemes for promotion of ICT, mini tool room, design clinics and marketing support for SMEs.

The schemes can be found here

B. Micro & Small Enterprises – Cluster Development Programme (MSE-CDP)

Objectives of the Scheme

1. This scheme was formulated to support the sustainability and growth of MSEs by solving  issues such as:

• improvement of technology,
• skills and quality,
• market access,
• access to capital, etc.

2. The scheme also helps to build the capacity of MSEs for common supportive action through:

• formation of self-help groups,
• upgradation of associations, etc.

3. It was formulated in order to create/upgrade the infrastructural facilities in the industrial areas of MSEs which includes the setting up of Flatted Factory Complexes.

4. The scheme helps set up common facility centres.

C.   Credit Guarantee Fund Scheme for Micro and Small Enterprises

The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGS) was launched by the Government of India (GoI) in order to make collateral-free credit to the micro and small enterprise sector easily available. Both the existing and the new enterprises are eligible to be covered under this scheme. The Ministry of Micro, Small and Medium Enterprises, GoI and Small Industries Development Bank of India (SIDBI), established a Trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement the Credit Guarantee Fund Scheme for Micro and Small Enterprises

The credit facilities which are eligible to be covered under the scheme are both term loans and/or working capital facility up to Rs.100 lakh per borrowing unit, extended without any collateral security and/or third party guarantee, to a new or existing micro and small enterprise.

D. Marketing Development Assistance Scheme for Micro & Small Manufacturing Enterprises / Micro & Small Exporters

Objectives of the Scheme

This scheme was introduced to encourage Small & Micro exporters in their efforts at entering and developing overseas markets.

It also helped in increasing the participation of representatives of small/ micro manufacturing enterprises under MSME India stall at International Trade Fairs/Exhibitions.

The scheme enhances exports from the micro manufacturing enterprises

It helps to popularise the adoption of Bar Coding on a large scale

E. Financial Assistance on Bar Code

Under this Scheme, the financial assistance is provided by reimbursing 75% of the one-time registration fee (Under SSI-MDA Scheme) w.e.f. 1st January 2002 and 75% of the annual recurring fee for the first three years (Under NMCP Scheme) w.e.f. 1st June 2007 paid by MSEs to GS1 India for using Bar Code.

There are many more schemes announced by Central & State Governments like establishments of industrial parks, land at cheap rates, credit facilities from State level Financial Institutions. You can find these under the website of Ministry of Micro, Small & Medium Enterprise and websites of respective State Government.

Step by step procedure on registering your enterprise

A Simple One-Page registration form has to be filed online on the portal – http://udyogaadhar.gov.in

Steps to be followed: (Aadhar is a must)

• Aadhar No.: Enter the 12 digit Aadhaar number issued to the applicant in the appropriate field
• Name as per Aadhar: Fill the name of Applicant as mentioned on the Aadhaar Card.
• Social Category: Select the Social Category of the applicant from the given options.
• Gender: Select the gender from provided option
• Physically Handicapped: Select the status from provided options
• Name of Enterprise / Business: Enter the Name of the Enterprise
• Type of Organization : Sole Proprietorship / HUF / Partnership / LLP / Company / Co-operative Society
• PAN: Fill 10 Digit PAN Number
• Location of Plant: Please fill the location address
• Office Address: Please provide office address, if address other than plant location.
• Mobile No: Fill the correct Mobile Number of Applicant
• Mail ID: Fill the correct Mail ID of Applicant
• Date of Commencement of Business: Fill the date of Commencement of Business which will get printed on MSME Certificate.
• Bank Account Number: Fill the Applicant’s bank account number.
• Bank IFS Code: Fill the Applicant Bank IFS Code. The IFS code is printed on the Cheque Books.
• Main Business Activity of Enterprise:.
• NIC 2 Digit Code: Select the 2 Digit NIC Code from the given options considering your business activity. Two or more activities can be added
• Additional details about Business: Fill Additional details about the business.
• Number of employees: Fill the total number of people been employed.
• Investment in Plant & Machinery / Equipment : (items to be excluded as per notification no. S.O. 1722 (E) dated 16^th Jan 2009).
• Attachment : Attach scan copy of Aadhaar card (jpg,png file < 200KB)

No fee is required to be paid. Once the form is submitted it will be reviewed and a      Lifetime MSME Udyog Aadhar Certificate will be issued to the registered email.

Option for Registration without AADHAR

An applicant who is not yet enrolled for Aadhaar shall have to apply for Aadhaar enrolment and in case he or she is entitled to obtain Aadhaar as per Section 3 of the Aadhaar Act such individual may visit any Aadhaar enrolment centre to get enrolled for Aadhaar.

Provided that till the time Aadhaar is assigned to the individual, UAM registration shall be filed by the concerned DIC or MSME-DI on behalf of such enterprise, subject to the production of the following documents as alternative and viable means of identification.

• If he has enrolled, his Aadhaar Enrolment ID slip; or
• A copy of his request made for Aadhaar enrolment,
• Any of the following documents, namely:-
  • Bank photo passbook; or voter ID Card; or passport; or driving license; or PAN card; or employee photo identity card issued by the Government

Conclusion

MSMEs are the backbone of the Indian Economy. They have to be protected from Large enterprises who in many cases are in direct competition with the MSMEs.

In a very recent case, the Delhi court has passed a judgement wherein it has held that an entity which falls within the definition of Micro / Small Enterprise will be treated as a “supplier” within the meaning of Section 2 (n) of the MSMED Act, 2006 even if it is not registered at the time of execution of the contract.

The MSMED Act was enacted to protect, promote development and growth of Micro, Small & Medium Enterprises in India. Although the registration under the Act is discretionary, enterprises must look at the advantages it offers as the cost of registration is nil and there are no compliance requirements.

About the Program

iPleaders is inviting applications for Campus Ambassador program from all recognized law colleges across India. Law students are being called to represent their college!

What do you do get to do as a Campus Ambassador

• iPleaders’ Campus Ambassador Program 2018, is an opportunity for students to act as liaisons and strategic link between iPleaders and their institution.
• It is a chance for you to develop your writing, professional, communication and leadership skills.
• You will have the opportunity of getting your Articles and Research Papers published on iPleaders Blog.
• You will get to conduct interviews of Dean, Director, Law Faculty, eminent Legal Luminaries visiting your college/university, the guests arriving at your campus, etc. for the purpose of publication on our website. You will be given recognition for the same.
• Campus Ambassadors will be given the opportunity of interacting with industry experts, successful entrepreneurs and peers from across the country.

Duration & Time Commitment

5 months, the estimated time commitment is approximately 5-7 hours a week, with some variations throughout the term.

Eligibility Criteria

• Law students from any recognised college in India can apply!
• We are looking for self-motivated and responsible individuals with excellent communication skills.
• He/she should have networking skills and be able to engage with lawyers, law students, academicians etc.
• Good writing skills and impeccable grammar expected.
• If you don’t have impeccable knowledge of English, impeccable knowledge of your mother tongue (Hindi, Bengali etc vernacular languages) will also do. If you want to do your campus ambassador program in a vernacular language, please indicate that.
• Organizing and resourcefulness skills will also be an added advantage.

Perks

• Certificate of completion.
• Get to publish articles and interviews conducted by you on SuperLawyer.in, iPleaders and other platforms managed by iPleaders
• Interact with the Founder and Trainers of iPleaders
• Recognition of active Campus Ambassador on our website.
• Enhance your professional development, leadership, and communication skills
• While you are a campus ambassador, actively working, you can enroll into any of these courses at a 20% scholarship. As you may know, iPleaders never gives a discount on any of its courses, so it is a major incentive!
• Upon successful completion of the entire program, you will get a gift certificate worth INR 5000 which you can utilize to buy courses offered by iPleaders on Courses.LawSikho.com.

Selection Process:

• Applications are being accepted on rolling basis. The applications will be accepted up to 31st July, 2018.  Accepted students will be notified by 5th August, 2018 via email.
• You need to write one unpublished, original, plagiarism-free article (1500-2000 words) and send it to [email protected]. The themes for the article are mentioned below.   

(If you want increase your chances of getting selected, you can submit more articles!)

Themes for the Articles

• Nightlife for law students
• Law Professors
• Legal recruitment in your college
• Getaways for law students
• TV/Web series (Legal)
• Unputdownable books for lawyers
• Life in law school
• Career opportunities in law

How to Apply?

Fill up the form, HERE.

Contact:

[email protected]

In this article, Anupam discusses Enforceability of Shareholders Agreements.

Introduction

A company is an artificial legal entity and incorporated association formed by voluntary association of many persons coming together in order to carry out their commercial business and to earn profit or to carry out function with charitable object. According to the Companies Act, 2013 a company will be regarded as a “company” only if it was or will be incorporated under this or any previous company acts. A company can either be a private, public or one person company. A company may be formed under section 8 of the act in the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object with non profit purpose.[1]

What is Shareholders agreement?

Shareholders are individuals who invest money in the company’s share and become owners of that share of the company. Agreement can be defined as a consensus between the parties on certain terms and conditions pertaining to their work or any article and they are bound by such agreement and can be enforced against the parties agreeing to it. Shareholders agreement (SHA) after amalgamating both the definitions shareholders agreement can be defined as a consensus arrived by the shareholders of a company for managing the working of the company, division of shares, company related or non-company related matter. “A shareholders’ agreement is an agreement entered into between all or some of the shareholders in a company. It regulates the relationship between the shareholders, the management of the company, ownership of the shares and the protection of the shareholders. They also govern the way in which the company is run.”[2]

SHA is not regulated by any specific law in India and thus it is not mandatory for shareholders to make and enter into SHA. There is no confinement to the number of shareholders who can enter into an agreement as per any rules and regulations.

Motive for framing an SHA

The motive behind framing of the shareholders agreement is to provide an extensive remedy to the shareholder to enforce his rights mentioned in the agreement other than those mentioned in the Articles of Association of a company. In order to enforce the conditions prevailing in the agreement, terms and conditions of the agreement are to be mentioned in the articles of a company.

Contents to be included in the SHA

Shareholders can include both company and non-company related clauses in the agreement but it is advisable to include the clauses which are pertinent to the company and not in violation of articles of a company and company Act, 2013. The agreement can include clauses related to

1) The appointment of directors,

2) Quorum requirements,

3) The matters related to special resolution or providing veto rights to certain shareholders (more in case of private equity and venture capital partners), 3) financial needs of a company,

4) Restrictions on right to transfer shares,

5) Defining the rights and duties of each of the shareholder towards the company.

Articles of Association

Articles of association of a company contain the rules, regulation and guidelines to the management of the company[3]. It defines the rights and duties of management in relation to its internal affairs. Articles should not contain any element which is in ultra vires to memorandum, the companies act or oppose to public policy. Articles are auxiliary to the memorandum.

A company is incorporated under the company act, 2013 after framing and submitting its articles and memorandum of association.

Legal Validity and Enforceability of SHA

There is no specific statutory act to govern the shareholders agreement and in addition to it there is no consistent case law to govern the agreement. There is no legal formality prescribed by law for its creation. However it is partially guided by the contract act and other legal principles.

In order to claim remedy under company act, 2013 often the clauses of the shareholders agreement are made in conformity to the articles of a company or the articles are altered after the shareholders enter into the agreement.

Agreement cannot be enforced against the third party to the SHA. However, in order to enforce the agreement against the third person in the matter concerning to the non- company related issue, it has to be first incorporated in the articles of the company. Articles of a company are public in nature i.e. it is easily accessible to the third party and thus he would be legally bound to read the articles before entering into any transaction.

Important case laws related to the SHA

V.B.Rangaraj v. V.B Gopalakrishnan was the first case instituted in the Supreme Court related to the shareholder’s agreement. The defendant is a private limited company which from the start had an aggregate shareholding of 50. Prior to the joint family of the plaintiff and defendant came to hold all the 50 shares of the company, the family was a minority investor holding 13 shares, the rest 37 shares being held by outsiders. In course of time, the family procured the rest 37 shares and turned into the sole shareholder of the organization. The family comprised of Baluswamy Naidu and Guruviah Naidu who were siblings, and every one of the siblings held 25 partakes in the organization. The plaintiffs and defendant 1 and 2 and one Selvaraj are the children of Baluswamy Naidu and defendants 4 to 6 are the children of Guruviah Naidu. Baluswamy Naidu kicked the bucket on February 5, 1963 and Guruviah Naidu passed on January 10, 1970. The plaintiffs claimed that in 1951 there was an oral agreement between Baluswamy Naidu and Guruviah Naidu that each of the branches of the family would dependably keep on holding equal number of shares, viz., 25 and that if any part in both of the branches wished to offer his shares, he would give the primary choice of procurement to the individuals from that branch and just if the offer so made was not acknowledged, the offers would be sold to others. In spite of the fact that for the benefit of defendants, it was questioned that there was any such agreement between the two siblings, the finding recorded by every one of the courts underneath is against defendant. It isn’t in question that the Articles of Association of the organization were not altered to acquire them congruity with the said understanding.

The fundamental question which was considered in the case was related to the dominance of article of association of a company over shareholders agreement. The court held that the restrictions to the transferability of shares are to be mentioned in the articles of association and since in this case it was not mentioned in articles but in shareholder’s agreement made it unenforceable against the defendants.

Mafatlal Industries Ltd. v. Gujarat Gas Co. Ltd – the Gujarat High Court enforceability of the SHAs regarding granting of pre-emption rights in a public company was decided. In tha SHA there was a clause granting the pre- emption rights to the Mafatlal Industries but it was dishonoured by the defendants which initiated this suit. The defendants contended that in view of the provisions of Section 82 and 111A of the Companies Act, the Supreme Court had already declared that shares are freely transferable with no restriction on the shares.

The defendants contended the reasoning of the case V B Rangaraj v. V B Gopalakrishnan. In retaliation it was contended by the plaintiffs that the judgement of the case would not be applied as it was concerned to the private company and the concerned company was a public company. The Gujarat High Court inclined its judgement towards the plaintiff and declared that the pre-emption agreement which is not incorporated in the Articles of Association was held to be unenforceable.

In Premier Hockey Development Private Limited v. Indian Hockey Federation, the Indian Hockey federation and the petitioner company entered into a shareholders agreement. Court held that the agreement was enforceable against both i.e. the shareholders and the company both of them were a a party to the Shareholders Agreement and were legally bound by it.

Enforceability of SHA against the company

Two conditions which could be propounded after considering above judgements are:

1. When company is not a part of the shareholders’ agreement –

There are two sub categories under this a) Private company, and b) Public company

In case of private company the clauses related to the shareholders agreement should be mentioned in the articles of association. This condition is mostly prominent in the cases related to restrictions imposed on transferability of shares of the members of the company.

In case of public company if the terms and conditions in the shareholders agreement is not in contravention to the provisions of the company act and the articles of association then it would be enforceable against the members. Albeit, no obligations can be imposed on the statutory powers of the company.

2. When company is a part of shareholders’ agreement

In the scenario where the company itself is a party to the shareholders agreement, the agreement can be enforced against the company according to the enshrined contractual principles.

Conclusion

The articles of association constitute a statutory contract between the shareholders and the company[4]. The articles tend to bind each and every member of the company even though there is no individual contract between the members.

The agreement which is inconsistent with the provisions of the act would be considered to be void as per Section 6 of the company act,2013.

To fill the void provision in the company act about the shareholders agreement and its enforceability various landmark judgements have been passed by supreme court and high courts. The judgement in the case of V.B.Rangaraj v. V.B Gopalakrishnan is considered pertinent even today in many cases related to the difference of private and public company in relation to shareholders agreement. The case of Premier Hockey Development Private Limited v. Indian Hockey Federation is relied and considered in the cases where the company is party to the agreement. However, considering the recent judgements of the Delhi High Court and Bombay High Court it can be concluded that incorporation of the Shareholder Agreements in the Articles of Association of the company is not a mandatory clause for its enforceability against company. The condition for its enforceability is that the Shareholder Agreements should not curtail the statutory powers of the company and should not bind future shareholders, then they can be enforced against the company even if they are not incorporated in the Articles of Association of the company.

[1] COMPANY ACT, 2013

[2] https://www.stephensons.co.uk/cms/document/Shareholders_agreements.pdf

[3] http://www.mca.gov.in/SearchableActs/Schedule1.html

[4] Borland Trustee v. Steel Bros & Co. (1901) 1 Ch. 279.

As political philosopher; Marcus Tullius Cicero said that: – “for what people have always sought is equality before law. For rights that were not open to all alike would be no rights.”  

The protection of law to poor, penniless, uneducated and frail is critical to guarantee break even with equity. Legal aid is a mode to guarantee that an opportunity for securing their rights are not denied to any individual by reason of poverty, illiteracy etc.

Legal aid implies broadening lawful help free of cost to poor people and destitute, to the individuals who don’t have the assets to draw in an attorney to speak to them in lawful procedures in a council, court or before some other expert or authority. It basically infers offering legal help to those miseries in troublesome circumstances in lawful troubles.

Different enactments necessitate legal aid for an individual. The poor people or marginally usually have little or no information about their rights and the lawful services tries to enhance this circumstance and increase awareness to legal aid and their rights. Neediness prompts disempowerment and financial hardship, in this way handicaps individuals from getting to courts for securing legal help to ensure their rights.[1]  

Without giving the poor equivalent opportunity to get to law and make the most of their rights, it denies them of lawful assurance and help which gives unreasonable forces to others to misuse them. Legal aid is a gift for all individual who may have been denied access to equity because of conditions and progress toward becoming casualties of atrocities. Legal aid is a method for expelling disparities which is existing in the society by giving access to legal aid to the penniless and sparing them from the mishandle of energy by the higher areas of society. Since legal aid is accommodated free, it is accepted that all social orders would have a specific level of people who might not approach the lawful framework because of devastated conditions.[2] Case of Sheela barse v UOI provides the insight of supreme court on legal aid and measures which has to be taken for implementation of right to legal aid.

Right to legal aid and Constitution of India

The Constitution of India gives much accentuation on the constitutionalism and governing of law.[3]  The Constitution of India makes arrangement for fundamental rights which are essential rights that each individual ought to appreciate for carrying on with an existence. In India, the rule of law is fundamentally the basic structure of the Constitution and furthermore of natural justice. The administer of natural justice gives that people ought not penalised by choices which deprives them from their rights or legitimate expectations unless they have been given earlier notice and necessary data of the cases against them, a reasonable chance to answer them, an opportunity to present their own cases and the chance of being heard.

The preamble of the Constitution secures to its citizen, social, economic and political justice.[4]  Article 14 of the Constitution provides that the State shall not deny to any person equality before law or the equal protection of the laws within the territory of India.[5] The assurance of equivalent equity is pointless if poor people or uneducated or feeble people can’t uphold their rights on account of their neediness or lack of education or weakness. The Rule of Law epitomized in Article 14 is the ‘fundamental element’ of the Indian Constitution and subsequently it can’t be demolished even by a revision of the Constitution under Article 368 of the Constitution.[6]

Article 38 (1) gives that the State shall undertake endeavours to advance the welfare of the people by securing and protecting as viable as it can a social order in which equity, social, monetary or political, should illuminate every one of the institutions of the national life.  

Article 39-A directs the State to guarantee that the task of the lawful framework ought to promote equity on a basis of equivalent opportunity and shall, specifically, give free legal aid by appropriate enactment or plans or in some other way, to guarantee that open doors for securing equity are not denied to any native by reason of monetary or different handicaps.

Right to free legal aid or free legal service is a vital and integral right ensured by the Constitution. It frames the basis of sensible, reasonable and just freedom which are the essence of Article 21, which says, “No person shall be deprived of his life or personal liberty except according to procedure established by law “.[7]

In State of Maharashtra v. Manubhai Pragaji Vashi[8], The Supreme Court said that the inability to give free legal aid to a blamed at the cost for the State unless declined by the denounced, would vitiate the trial. In M.H Hoskot v. Province Of Maharashtra[9], Justice Krishna Iyer said that giving free legal sir is the duty of the State and not Government’s philanthropy.

Provisions of Legal Aid under C.P.C and Cr.P.C

1. Under section 304 of the CrPC. Where, in a trial before the Court of Session, the accused is not represented by a pleader, and where it appears to the Court that the accused has not sufficient means to engage a pleader, the Court shall assign a pleader for his defence at the expense of the State. At the point when individual is poor, at that point he can get legal aid. Without legal advisor, the whole trial ends up vitiated and after that case to be remanded back to the trial court. Court to ask the accused, regardless of whether he has service to draw in a legal counsellor or not. If not, the court will undoubtedly give him attorney from the bar, who ought to be knowledgeable with the law and to be get paid by St. Govt. Court cannnot sympathize with a legal counsellor. Legal advisor must be an able one….”is amicus curiae (companion of court).

Order 33, rule 17, CPC

Suit by or against a needy individual. At the point when a plaint alongside appeal, that individual unfit to benefit administrations of an attorney, at that point court exempts him from court expenses.

The object of Order XXXIII is to empower people who are excessively poor, making it impossible to pay court charge to initiate a suit without instalment of it.

The motivation behind the arrangement is that neither one of the parties to sidestep the instalment of court expense.

This order has been sanctioned to spare triple purposes

1. To secure the bonafide cases of poverty stricken people,
2. To defend the interest of income and
3. To ensure the respondents right not to be harassed

The Order opens with Rule 1, a law that a penniless individual may initiate any suit.

According to clarification I of Order XXXIII a man is an indigent, on the off chance that he does not have  adequate means (other than property excluded from connection in execution of a decree and the topic of suit) to empower him to pay the expense prescribed by law for the plaint in such suit or where no such charge is endorsed, in the event that he isn’t qualified for property worth one thousand rupees other than the property excluded from connection in execution of an decree and the topic of the suit.

Explanation II of Order XXXIII illuminates the purpose of property entitlement of the individual under Explanation I and states subsequently:

“Any property which is procured’ by a person after the presentation of his application for consent to sue as a poverty stricken individual, and before the decision of the application should be taken into account in investigation about the inquiry regardless of whether the candidate is a poverty stricken individual.”

To decide if the candidate is a poverty stricken, the property which he procured amid the pendency of the application is additionally taken into account, however he should be a poor at the date of application.

Explanation III to the Rule I provides that “Where the offended party sues in a delegate limit, the inquiry whether he is a penniless individual shall be resolved with reference to the means accessible by him in such capacity.”

How to avail Free Legal Aid

According to Section 12 of the LSA Act any individual who falls inside any criteria as specified underneath shall be qualified for legal aid:

• Individual from Scheduled Caste or Scheduled Tribe;
• A victim of trafficking in individuals or poor person as alluded to in Article 23 of the Constitution;
• A woman or a minor;
• A person with inability as characterized in Section 2(i) of the Persons With Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995;
• A man under conditions of underserved need, for example, being a casualty of a mass catastrophe, ethnic, viciousness, surge, dry season, seismic tremor;
• An industrial labourer;
• A man in custody, incorporating authority in a defensive home (Section 2(g) of the Immoral Traffic (Prevention) Act, 1956), or in an juvenile home (Section 2 (j) of the Juvenile Justice Act, 1986), or in a mental doctor’s facility or mental nursing home (Section 2(g) of the Mental Health Act, 1987);
• a man who gets a yearly wage not as much as rupees nine thousand or such other higher sum as might be endorsed by the State Government, if the case is under the watchful eye of a court other than the Supreme Court, and not as much as rupees twelve thousand or such other higher sum as might be recommended by the Central Government, if the case is under the watchful eye of the Supreme Court.

Cases where free legal aid is not provided

Legal aid isn’t accessible for a situation where proceeding of the case:

• Relate to, entirely or partly, slander, malicious indictment, contempt of court;
• Is for the offense against which fine forced isn’t more than Rs.50/ – ;
• Is incidental to any of the issues specified previously;
• In regard of monetary offenses and offenses that are against social laws; where the individual applying for legal aid isn’t straightforwardly worried about case and result of the case won’t influence the interests of such individual.

A man needing free legal aid can approach the concerned authority or advisory group through an application which could either be made by sending in composed form, or by filling up documents arranged by the said authorities expressing in short the purpose behind looking for legal aid or can be made orally in which case an officer of the concerned lawful authority or a paralegal volunteer can help the individual.

A man can likewise apply online for getting Legal Aid to any Legal Services Institution in the nation by topping off the Legal Aid Application form online at NALSA’s site by going on the ‘Online Application’ Link on the Home Page, alongside transferring vital reports.

Different SLSAs/DLSAs/SCLSC/HCLSCs/TLSCs likewise have application frames accessible on their sites.

Sample application

APPLICATION FORM FOR LEGAL AID

1. Name of Applicant :
2. Father’s/Husband’s Name :
3. Residential Address (Tel. No. if any) :
4. Whether Employed/Unemployed :
5. Place of Work :
6. Nationality & Religion :
7. Whether SC/ST (Proof in support of it) :
8. Income per month (Affidavit on Rs.10/- On non-judicial paper in support of it) :
9. Name and Address of opposite party & Tel. No. (if any) :
10. Whether legal aid is required to file : Suit/Application U/s 125 Cr. P.C./Civil (Please state the category) Writ/ Criminal Writ/ Labour Case/ Service Matter/Criminal Matter/ Other (pl. specify)

(a) State the full address of immovable property in dispute and the place where property is situated :

(b) In money suit, state the date on which it fell due. :

11. Whether any application has been filed previously before this Authority, if yes, mention date and file No. of application:
12. Details of your problem ( in brief) :
13. Please state whether any case is pending before, any court, if so, the details thereof:
14. Nature of relief sought :

SIGNATURE OF THE APPLICANT

REMARKS :

Bodies Constituted by the Act to Ensure Free Legal Aid

Different bodies working for legal aid plans are built up in India under the LSA Act:

National Legal Services Authorities (NALSA)

It is constituted under the LSA Act by the Central Government. It sets down vital strategies and standards to make lawful administrations accessible, as made under the provision of the LSA Act. It additionally has an obligation to make effective and efficient plans for law administration and to grant assets to State Legal Services Authorities and NGOs for executing legal aid programs and schemes.

Constitution of NALSA[1]:

Chief Justice of India as Patron-in-Chief;

A serving or retired Judge of the Supreme Court as Executive Chairman, to be nominated the President in consultation with the Chief Justice of India;

Such number of other members and a member Secretary appointed by the central government in consultation with the Chief Justice of India.

State Legal Services Authorities: The State Legal Services Authorities is constituted to effectuate the rules and regulation of NALSA. It is likewise in charge of giving free legal aid, directing Lok Adalats and undertaking vital and preventive lawful aid programs and different function as the state authority may settle by controls subsequent to counseling the NALSA.

Constitution of the State Legal Services Authorities[2] :

Chief Justice of High Court as Patron-in-Chief;

A serving or retired judge of the High Court as executive chairman, to be appointed by governor in consultation with Chief Justice of the High Court;

Such number of other members and a member Secretary appointed by the state government in consultation with the Chief Justice of the High Court.

District Legal Services Authorities: District Legal Services Authorities are constituted in each locale to perform works as designated upon them by the State Legal Services Authorities. They are likewise in charge of organizing the exercises of Taluk Legal Services Authorities and Lok Adalats inside their locale alongside overseeing other lawful administrations in the district.

Constitution of the District Legal Services Authorities[3]:

District Judge as the Chairman;

Such number of other members appointed by the state government in consultation with the Chief Justice of High Court and a Secretary appointed by the state authority in consultation with the Chairman of such committee.

Supreme Court Legal Services Committee: The Supreme Court Legal Services Committee is set up to perform such duties as required by the directions made by the central authority for it to perform. It comprises of a sitting judge of the Supreme Court as the Chairman, a Secretary delegated by the Chief Justice of India and such different individuals, named by the Chief Justice of India as per the controls made by the central government.

High Court Legal Services Committee: It is constituted by the state authority to perform such duties as might be endorsed by the directions made by the state authority and comprises of a sitting judge of High Court as the Chairman, a Secretary named by the Chief Justice of High Court and such different individuals as named by the Chief Justice of High Court as per the controls made by the state authority.

Taluk Legal Services Committees: The primary elements of the Taluk Legal Services Committee are:

Organizing the exercises of lawful administrations in the Taluk;

Arranging Lok Adalat inside the Taluk;

Perform such different duties as endorsed by the locale authority.

It comprises of the senior most Judicial Officer working inside the purview of the Committee as the ex-officio executive and such number of different individuals as assigned by the state government in interview with the Chief Justice of the High Court.

Allocation a pleader

Control 9A (1) states the Court to dole out a Pleader to an unrepresented poverty stricken individual. Where a man who is allowed to sue as a poverty stricken individual, isn’t represented by a pleader the court may, if the conditions of the case so require, appoint a pleader to him.

Rules for Selecting the Pleader

Rule 9A (2) states making of tenets for choosing the pleader. The High Court may with the past endorsement of the State Government, is engaged to make rules selecting the method of choosing pleaders which will be doled out to a poor individual. The rules can likewise manage different issues such as the facilities to be given to such pleader by the court and any other issue which is required or might be required offering impact to the provision of sub-administer (1)

The principles don’t give the accused a choice for a legal advisor. They don’t provide a change in the legal advisor if the accused is disappointed with the working of the legal counsellor. There is no instrument in rules for allowing any complaint against the legal advisor assigned to the accused by help of legal aid.

Sheela Barse vs State Of Maharashtra

Equivalent citations: 1995 SCC (5) 654 JT 1995 (6) 615 1995 SCALE (5)159- BENCH: Jeevan Reddy, B.P. (J) Jeevan Reddy, B.P. (J) Mukherjee M.K. (J)

Act: Constitution of India, 1950, Art. 144,-Scope of-Duty of the Subordinate Courts/Judicial authorities to comply with the directions of the apex Court explained.

Constitution of India, Art 39(f)-Legislation, enactment and enforcement of Children’s Acts-Constitutional obligation of State-States to enforce Children’s Acls- District Judges to visit jails and see that child prisoners are accorded the benefit of Jail Manual.

Facts

A letter from Ms. Sheela Barse routed to the Hon’ble Chief Justice of India regarding the unfortunate and deplorable conditions in which rationally sick and insane females were locked up and kept in Presidency prison, Calcutta, was enrolled as a writ appeal to and certain orders passed.

After some time, Ms.Sheela Barse pulled back from the issue. Supreme Court Legal Aid Committee was substituted. Orders were passed by Supreme Court now and again. Magistrates were likewise selected to examine and provide details regarding the conditions acquiring in places where females and minor were being confined. Throughout the years, this Court has likewise been observing the usage of its orders.

At the point when this issue was set before us on August 21, 1995, it was recommended by Sri S. Muralidhar, learned counsel for the solicitor (Supreme Court Legal Aid Committee) and furthermore by a portion of the scholarly guidance showing up for the respondents that it would be suitable if the capacity of observing the implementation of the made by supreme court  is made over to individual and respective High Courts. It was proposed that every High Court be asked for to screen and guarantee appropriate and full execution of the order of the Court seeing that that specific State is concerned. Suggestion was found acceptable. Sri Muralidhar, and Sri Harish Salve, learned counsel for the petitioner and respondents respectively, had put their recommendations before the court.

Decision of the court:

The following orders are made in the wake of hearing the parties:

1. The workplace shall get ready essential number of sets of the record of case. The record should be in two sections.

Part-I might contain the letter composed by Ms. Sheela Barse (alongside the fenced in areas thereto), the orders go by this Court now and again arranged in appropriate sequence and the reports of the Commissioners named by this Court, again in their proper succession.

2. The office shall separate the affidavits, counter affidavits, rejoinders and further affidavits, if any, along with their annexures with respect to each State separately.[10]

If there are any affidavits, reports or other documents filed by the Union of India, the same may be included in each of such sets. This shall be treated as Part-II of the record. Obviously, it will be separate for each State concerned herein.[11]

3. The cost of getting ready the two Parts-I and II should be borne by the Union of India. After the record is set up as coordinated over, the cost thereof can be insinuated to the scholarly insight for the Union of India for this situation who should impart the same to the concerned expert. The installment might be made into the workplace of this Court inside three months there from.
4. The workplace might convey a duplicate of Part-I to the High Courts as assigned. Alongside Part-I, Part-II identifying with that specific State might likewise be encased.
5. The High Courts are asked for to enlist the record so got by them as a Public Interest Litigation. The Hon’ble Chief Justice of every one of the High Courts is asked for to assign a Judge of that Court to manage the issue. The High Court might make all such vital and suitable requests as might be justified, now and again, for an appropriate usage of the orders of this Court. The High Court should likewise be allowed to pass such other and further orders as might be discovered important or proper to secure and enhance the conditions getting in places where women and minors – not accused or sentenced for any wrongdoing – are kept.
6. The High Court Legal Aid Committee of respected High Courts should be dealt with as the solicitor in the issue in that High Court. Duplicates of Part-I (and Part-II, wherever appropriate) should be imparted to the particular Legal Aid Board in the High Court.

The High Court Legal Aid and Advice Board will help the High Court in the matter of checking consistence with the requests and bearings made by this Court. It will be qualified for apply for such further requests and headings from the High Court as might be discovered vital in the issues.

7. It is clarified that the High Courts to whom the procedures are being made over should be completely free and equipped to pass such further order and make such further bearings as they think fitting in the light of the realities and conditions getting in that specific State steady with and to assist the goals basic the order of supreme Court.
8. So far as the State of Assam is concerned, the High Court should guarantee that the State of Assam agrees to the recommendations made in the report of the Commissioner, Sri Gopal Subramaniam, and the request made by this Court on October 3, 1994 based on the said report.

How effective is legal aid services in India

Legal Aid is a social and legal movement conveying justice to poor people and initiating change under law towards the constitutional objective of directive principle stated in 39A.
In Indira Gandhi v. Raj Narain (AIR 1977 SC 69)  the Supreme Court held that rule of law is an essential limb of the body of the Constitution of India. Nobody ought to be subjected unheard. Equality before law requires that legal aid be given. Without it, a trial is vitiated.

In M.H. Hoskot v. Province of Maharashtra (1978 3 SCC 544)  the Supreme Court held that in the event that a detainee was not able exercise right of appeal for need of legal help, the Court under Article 142 read with Articles 21 and 39A of the Constitution, has the ability to dole out counsel for such detained individual ‘for doing complete equity’.
In 1979 the Supreme Court in Hussainara Khatun v. Territory of Bihar (AIR 1979 SC 1360) held that free legal aid is certain in the assurance of Articles 14 and 21. This is in accordance with the goal provided under Article 39A. For every one of these reasons it was held that free legal aid is essential.

On account of Khatri v. Province of Bihar (AIR 1981 SC 928) The Supreme Court held that the state can’t deny its nationals of sacred rights on grounds of destitution or absence of funds. Article 22 likewise encourages that a man arrested ought to be permitted to counsel and be protected by a legal counsellor.
In the advanced world, the touch stone of a democracy is the access to legal aid so that equal justice can be provided. Success rate of the legal aid cases likewise ought to be a component for the assessment measures.

Till 2011, around 58,416 individuals have gained through legal aid and counsel all through the nation in which around 6,147 were of Scheduled Caste, 5,388 of Scheduled Tribe, 9,113 people of backward classes. In excess of 7,405 individuals were women, 300 children and around 4,289 individuals in custody, 25,774 General were likewise benefited. About 1.34 lakh Lok Adalats have been held only by APLSA in which in excess of 12.78 lakh cases have been settled. In around 1.1 lakh Motor Accident Claim cases, more than Rs. 810.8 crore has been granted as remuneration.

From 2006 to 2010 the seven states together have provided legal aid in 144,881 cases to the various categories of persons mentioned in 5 Section 12 of the LSA Act.

Conclusion

‘His own suit upon his own bottom and at his own expense’. Those who are poor – of small means – can bring their cases at the expense of the state. They can have them conducted by lawyers of their own choice without making any contribution out of their own pocket.[12]

The discussion of human rights would end up useless unless a man is furnished with legal aid to empower him to approach equity if there should be an occurrence of infringement of his human rights. This a challenge in the nation of India’s size and heterogeneity where the greater part of the populace lives in far-flung towns saturated with neediness, desperation and absence of education. Legal aid is not any more a matter of philanthropy or generosity yet is one of the sacred rights and the legitimate apparatus itself is required to bargain particularly with it. The fundamental logic of legal aid envisages that the administration to govern proper justice ought to be effortlessly open and ought not be out of the scope of the individuals who need to turn to it for the implementation of their lawful rights.

In India, judiciary has assumed a critical part in building up the idea of legal aid and growing its extension in order to empower the general population to approach courts if there should be an occurrence of any infringement of their human rights. On account of M.H. Wadanrao Hoskot v. state of Maharashtra, the Court held that the privilege to legal aid is one of the basic element of the system.

If a prisoner sentenced to imprisonment, is for all intents and purposes unfit to practice his protected and statutory right of bid, for need of help, there is verifiable in the court under article 142 read with article 21 and 39-An of the Constitution .Where the detainee is incapacitated from connecting with a legal counselor, on sensible grounds, for example, poverty or incommunicado circumstance, the court should, if the conditions of the case, the gravity of the sentence, and the finishes of equity so required, assign a skilled and competent counsel with insight for the detainees resistance.

References

[1] Access to justice- right to legal aid in india, available at http://www.nilsindia.org/uploads/1/2/0/8/12081957/access_to_justice-_right_to_legal_aid.pdf

[2] ibid

[3] Right to legal aid; A constitutional comment, Pooja P. Vardhan available at http://pib.nic.in/newsite/mbErel.aspx?relid=118011

[4] ibid

[5] Constitution of India, 1950

[6] Indira Nehru Gandhi v. Raj Narain, AIR 1975 SC 2299

[7] Supra note 5

[8] 1996 AIR, 1 1995 SCC (5) 730

[9] 1978 AIR 1548, 1979 SCR (1) 192

[10] Sheela Barse Vs. Union Bank of India & Ors [1995] INSC 464 (5 September 1995) available at: http://www.advocatekhoj.com/library/judgments/index.php?go=1995/september/18.php

[11] ibid

[12]  Lord Denning, What Next in the Law, (London: Butterworths, 1982), p. 92.

In this article, Anirudh Sethi discusses whether Bar Associations can deny an advocate the right to legally represent an individual.

Recently, Faridabad District Bar Association (FDBA) passed a resolution[1], which barred the outstation advocates from appearing before the Faridabad District Court unless they are accompanied by a local advocate. Bar Association’s secretary relied[2] on a Supreme Court’s ruling[3] and justified the Association’s resolution.

The case relied by the Association was Jamshed Ansari v. High Court of Allahabad[4] wherein Rules 3 and 3A of the Allahabad High Court Rules, 1952 were challenged. The court in its judgment held the rules as perfectly valid, legal and in consonance with Article 19 (1) (g) of the Indian Constitution. Important portions of Rule 3 and Rule 3A for the purpose of this article are reproduced below:

Rule 3: An advocate who is not on the Roll of Advocate or the Bar Council of the State in which the Court is situated, shall not appear, act or plead in such Court, unless he files an appointment along with an Advocate who is on the Roll of such State Bar Council and who is ordinarily practicing in such Court.

 Rule 3-A: Unless the Court grants leave, an Advocate who is not on the Roll of Advocates in the High Court at Allahabad or Lucknow shall not be allowed to appear, act or plead in the High Court at Allahabad or Lucknow as the case might be unless he files appointment along with an Advocate who is on such roll or Allahabad Cases at Allahabad and for Lucknow Cases at Lucknow.

Therefore, it can be deduced that similar provisions were in question before the Supreme Court at that time. However, in that case, the rules so drafted were formulated by High Court by virtue of its powers under Section 34 of the Advocate Act, 1961 (Act, 1961) and Article 225 of the Constitution and not by the Bar Council or State Bar Association.

The Powers of Bar Council of India are laid down under various sections of the Act, 1961. Section 49 (1) provides residuary powers to Bar Council of India to make rules in furtherance to the discharge of its functions, which are envisaged under the Act, 1961. However, no section in the Act, 1961 provides the Bar Council the power to prohibit appearance in the courts save for the disciplinary proceedings.

Restrictions on appearance of advocates in the Patna High Court was discussed in Anju Mishra v. The High Court of Patna[5] wherein it was observed that:

It has been held by the Allahabad High Court in Prayag Das v. Civil Judge, Bulandshahr [AIR 1974 All 133], that the High Court has the power to make rules for regulating the appearance of advocates and proceedings inside the Courts. Obviously, the High Court is the only appropriate authority to be entrusted with this responsibility. However, so far as the basic qualification of an advocate entitling him to practice, without physically appearing in Court, or disentitling him from doing so, is concerned, the determination of such conditions must remain within the exclusive province of the Bar Council.

Thus, it was held that it is the High Court which has exclusive power to regulate the appearance of advocates in the High Court or in the courts subordinate thereto but by no stretch of imagination it can be extended to Bar Councils much less to Bar Associations.

It is noteworthy to observe that the FDBA is not a statutory body, while the Bar Council is a statutory body duly constituted under the Act 1961. Bar Associations are generally registered under the Societies Registration Act, 1860 and can form their own rules and regulations for its members. However, they cannot actually encroach or override on the express statutory provisions laid down by the legislature or the High Court, for that matter.

Recently, the Supreme Court Roster bench heard a matter[6] where the Jabalpur District Bar Association by a resolution restrained all the advocates from appearing and representing a specific litigant husband. The court, speaking through Justice Abdul Nazeer and Justice Indu Malhotra observed that “if such a resolution has been passed, it will be withdrawn”, thereby negating the overreach by Bar Association.

Assessing the situation from another perspective, it is vital to consider that whether if the Rule imposed by the Bar Association is a reasonable one or not. The reason given by the Association in the resolution is that the outstation advocates cause inconvenience to the members of the FDBA as the matters go uninformed and it results in the loss of work of the fellow advocates.

It can be seen that the regulation is prohibitory and not regulatory in nature as it poses a complete ban on outside advocates. The regulation does not even give an option of representation by outside advocates with the leave of the court. In Jamshed Ansari this option was given to the other advocates. It was one of the factors that ultimately led to upholding of the vires of the Rules. Furthermore, the regulation poses a threat to the concept of justice at the door step and at an affordable cost which is enshrined in the Constitution under Article 39A. In a given case, a party may not be able to afford to engage another advocate at Faridabad court or he might be of the view that his outstation advocate is in complete control of the entire brief. Since the rule compels the parties to engage another domestic counsel it will further put burden on the shoulders of poor litigants.

On a careful analysis of constitutional, statutory and relevant case laws it appears that Bar Associations cannot in the letter of the law prohibit outstation advocates from appearing in any court. The action of FDBA attracts necessary criticism from the advocates regarding the validity of its recent resolution.

* Final Year Law Student (awaiting result), Law Centre II, Delhi University.

[1] http://www.livelaw.in/faridabad-distt-bar-assn-passes-resolution-barring-outstation-advocates-from-appearing-in-courts-sans-local-lawyers/

[2] Ibid.

[3] Jamshed Ansari v. High Court of Judicature at Allahabad & Ors. civil appeal no. 6120 OF 2016

[4] Ibid.

[5] Anju Mishra vs The High Court of Judicature At Patna and Ors. Civil Writ Jurisdiction Case No.5831 of 2012 delivered on17 July, 2015

[6] http://www.livelawin/bar-associations-cant-deny-advocates-the-right-to-legally-represent-any-individual-sc/

In this article, Sweta Mohanty, currently pursuing Online Certificate Course in Commercial Contract Drafting and Negotiation at LawSikho discusses the importance of free consent.

Introduction

In our daily lives, we come across contracts so many times without even realizing it. Be it buying goods from a shop, availing cable services or installing an app on our phone, contracts are everywhere. Contracts are an indispensable part of the business. Every transaction in some way or the other uses contracts, whether written or verbal. Contracts in India are governed by the Indian Contracts Act, 1872. The Act extends to the whole of India except the state of Jammu & Kashmir.

What is a contract?

Over the years various authors and jurists have tried to define ‘what are contracts’ but none of the definitions have satisfactorily captured the essence of a Contract. Basically, a contract is a bundle of rights and obligations binding parties to one another in exchange of some consideration. The Indian Contract Act 1872 defines contract as “An agreement which is enforceable by law is a contract”. This means that all agreements are not contracts. Only those agreements which can be enforced by law are contracts. For an agreement to be enforceable, it must satisfy certain essentials laid out by law to become valid contracts.

Essentials of a contract

Section 10 of the Indian Contract Act, 1872 provides that:

• There should be an agreement between the two parties. When a proposal by one party is accepted by the other, it becomes an agreement
• The parties entering into an agreement should be competent to contract.
• There should be a lawful consideration and a lawful object in the agreement.
• There should be free consent of the parties entering into the contract.
• The agreement must not be expressly declared void by the law.

This Article will only focus on one essential of a valid contract, which is Free Consent and its importance in Contract Law.

Consent

For a Contract to be valid, the consent of the parties must be genuine. The principle of consensus-ad-idem is followed which means that the parties entering into the contract must mean the same thing in the same sense.  The parties to the contract must have the same understanding in regards to the subject matter of the contract.

Mere consent is not enough for a contract to be enforceable the consent given must be free and voluntary.  The definition of Free consent is provided under the Indian Contracts Act is Consent that is free from Coercion, Undue Influence, Fraud, Misrepresentation or Mistake. Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation or mistake.

Clearly, Free Consent means the absence of any kind of coercion, undue influence, fraud, misrepresentation or mistake. When the consent which is given is affected by these elements it calls into question whether the consent given was free and voluntary. The objective of this principle is to ensure that judgment of the parties while entering into the contract wasn’t clouded. Therefore consent given under coercion, undue influence, fraud, misrepresentation or mistake has the potential to invalidate the contract.  

Factors which invalidate consent

As stated above, consent given by a party must be absent of:

Coercion

According to the Indian Contracts Act, 1872, coercion is defined as:

“‘Coercion’ is the committing, or threatening to commit, any act forbidden by the Indian Penal Code (45 of 1860) or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.”

A point to be remembered is that it is not necessary that the IPC is applicable at the place the consent was obtained. A very crucial part of the law is the phrase “to the prejudice of any person whatever” which means the coercion could be directed against the prejudice of any person and not just the party to the contract. It is also not necessary that only the party to the contract causes the coercion. Even a third party to the contract can cause coercion to obtain the consent, as was seen in the case of Ranganayakamma v. Alwar Sethi where a widow was coerced into adopting a boy by the boy’s parents by not allowing the corpse of the widow’s husband to be removed from the home until the adoption is made.

The burden of proof in cases of coercion lies on the party whose consent was coerced. When consent of a party was obtained through coercion, the contract becomes voidable at the option of the party whose consent was so obtained.

Undue Influence

When the parties to the contract are in relationships in such a way that one party can dominate the will of the other and uses the unfair advantage so gained to obtain the consent of the other party, then the consent is said to have been obtained by undue influence.  Now, the Contract Act 1872 also provides instances where a person can dominate the will of another. These instances are:

• Where a person has a real or apparent authority over the other.
• Where a person has a fiduciary relationship with the other.
• Where a person enters into a contract with another whose mental capacity is affected, either temporarily or permanently.

When a party who in a position to dominate the will of the other, enter into a contract and the contract prima facie appears to unconscionable, then it is the burden of the party who in a position to dominate, to prove that consent has not been obtained by undue influence.

When the consent of the party to the contract has been obtained through undue influence, then the contract becomes voidable at the option of the party whose consent has been so obtained.

Fraud

Consent is not said to be free when it has been obtained by means of fraud. In such cases, the contract becomes voidable at the option of the party whose consent was obtained by means of fraud. Moreover, fraud is also a tort where action for damages can lie. The Indian Contract Act, 1872 gives the definition of the term ‘Fraud’.  The law provides five acts which when committed either by the party or with his assistance or by his agent, with the intention to deceive the other party, amounts to fraud. Those acts are as follows:

• A suggestion, as to a fact which is false, by a party who believes it to be false.
• An active concealment of a fact by a party
• A promise made without any intention of fulfilling it.
• Any other act which can deceive.
• Any act or omission which the law specifically provides to be fraudulent.

Mere silence about facts which can affect the willingness of a person to enter into a contract does not amount to fraud, but if there is a duty to speak upon the person who is keeping silent, then it becomes a fraud. Example of such cases is Contracts Uberrima fides, also known as Contracts of Utmost good faith where full disclosure is expected.

The burden of proof in cases of fraud lies on the party who alleges it. The party has to prove the circumstances which can lead to the existence of fraud. Merely making a mention of fraud in the pleadings is not enough. If the party, whose consent has been obtained through fraud, had the opportunity or means to discover the truth with ordinary diligence, then the contract will not be void.

Misrepresentation

Misrepresentation under the Indian Contract Act, 1872 has an exhaustive definition and can be divided into 3 types.

• The first type is when a statement is made by a person, about a fact which is not true, though he believes it to be true.
• Second is the type when there is a breach of duty by a person who is making the false statement and he gains some kind of advantage even though it wasn’t his intention to deceive the other party.
• The third is the type where if one party acting innocently, causes the other party to make any mistake with regards to the subject matter of the agreement.

As can be seen from above, the three types of misrepresentation have one very important thing in common, the intention of the party which misrepresents is innocent; it is not to deceive the other party into entering the contract. The intention of the party who makes the false statement is the difference between misrepresentation and fraud.

The burden lies on the party claiming misrepresentation to avoid the contract to prove that misrepresentation was used to obtain the consent. When consent was obtained through misrepresentation, it becomes voidable at the option of the party whose consent was so obtained.

Mistake

When one of the parties has given its consent to the contract under some kind of misunderstanding then the consent is said to be have been given by mistake. If it wasn’t for the misunderstanding the party would not have entered into the agreement.  Under contract law, a mistake can of two kinds: 1) Mistake of Law and 2) Mistake of Fact.

Mistake of Law

When the party has any misunderstanding with regards to the legal provisions, it is called Mistake of Law. Now, the party can be confused regarding the law of the Homeland or law of a foreign land. If it is a mistake regarding the law of the homeland, the contract cannot be avoided. The party cannot take the plea of having no knowledge of laws of his homeland. But if it is a mistake regarding the law of a foreign country, he can be excused.

Mistake of Fact

When the parties have any misunderstanding regarding the subject matter or terms of the contract, it is said to be a Mistake of fact. The misunderstanding can be on the part of one party or both of them.

Bilateral Mistake – When both the parties are under any misunderstanding/mistake relating to a matter of fact essential to the agreement, the agreement becomes void.

Unilateral Mistake – When the misunderstanding/mistake is on the part of one party to the contract, the agreement remains valid.  Only when the party is mistaken about the parties to agreement or nature of the transaction, the agreement becomes void.

Conclusion

Free Consent is absolutely essential to make an agreement a valid contract. The importance of free consent cannot be stressed enough.  Consent of the parties to the contract must be free and voluntarily. Consent to the contract has to be given without any kind of pressure or delusions. It is important that the consent given by the parties is free as this can affect the validity of the contract. If the consent to the agreement was obtained or induced by coercion, undue influence, fraud, misrepresentation or mistake, then it has the potential to make the agreement void.

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