In this article, Prakarsh Seth, pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses on stock exchanges.

Introduction

“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” – Robert G. Allen

Although the above-mentioned quote has nothing much to do with the regulation of stock exchange in India, it highlights the importance of investment and risk-taking. While we are highlighting the importance of risky investment it is pertinent to talk about financial markets. Financial markets not only help investors take risks and get rewards for the same, it also has an important relationship with the economic development of the country. Since financial markets play such an important role, their regulations for enabling orderly functioning should also be given highest priority.

Securities Exchange Board of India

The responsibility for the orderly functioning of the security market has been delegated to Securities Exchange Board of India which is entrusted to protect the interest of investors and ensure the development of securities market.

The responsibility entrusted with SEBI is to create an environment in which the various participants such as the investors, government, intermediaries and the stock exchanges are satisfied.

SEBI derives its validity from Securities and Exchange Board of India Act, 1992 (the SEBI Act, hereafter). The main purpose of the Act is the protection of investors in the securities market and thereby making it a reliable place. The provisions of the SEBI Act define its role in more specific terms^[1]. These broadly relate to

1. Regulating stock exchanges as well as other security markets
2. Regulating trade markets
3. Prohibiting practices that are considered to be unhealthy for development of the securities market such as insider trading and fraudulent and unfair trade practices for promoting and regulating self-regulatory organizations.

SEBI performs several of its functions which are based on its powers which have been given to it under Securities Contract Regulation Act, 1956 and the Securities Contract Regulation Rules, 1956. The object of the SCR Act is to provide for the regulation of stock exchanges and of securities dealt in on them. It also indulges in regulating the securities outside the stock market.

Stock market facilitates mobilisation of funds from small investors and channelizes these resources into various development needs. In order to avoid undesirable transactions in securities by regulation of the business of dealing, the Securities Contract Regulation Act, 1956 was enacted by parliament.

Listing of Securities – The Process

According to Section 9 (1) (m) of the SCR Act, any stock exchange is free to make rules for listing of securities as part of the bye laws which govern their working. A company applying to get their securities listed on a particular stock exchange have to apply and comply with the necessary rules specified in the bye laws and SCR rules.

Securities Contract Regulation Rules, 1956 have defined the documents that a company has to provide to the stock exchange while seeking the list of its securities^[2].

The Listing Agreement

All securities exchanges presently have a listing agreement that has several common, standard provisions. It is a contract that securities exchanges enter into with issuers which effectively governs the relationship between the issuer and the investor.

Recognition of stock exchange

Section 3 of the Securities Contract (Regulation) Act lays down that for recognition, every stock exchange for the purpose of being recognised has to make an application in a prescribed manner to the Central Government. If the central government is satisfied, then it may grant recognition subject to further inquiry and condition imposed as laid down in the Act.

Every grant of recognition shall be published in the Official Gazette. The opportunity has to be given to the applicant to present their matter in case their application is refused. Any amendment shall not be made without the involvement of central government.

Corporatisation and Demutualisation of Stock Exchanges

Historically stock exchanges were formed as mutual organisations. Ownership and trading rights were clubbed together. The disadvantage in this is that the organization would work towards the benefit of the members and not the investors. In view of these shortcomings, a step was taken by the Government of India for the demutualisation and Corporatisation of the stock exchanges.

Withdrawal of recognition

If, in the interest of the public, the central government feels that the recognition given to the stock exchange be withdrawn, then it has the power to do so under section 5 of the SCR Act.

Powers vested in Stock Exchanges

Power to call for returns and make direct enquiries

According to Section 6 of the SCR Act, every stock exchange shall preserve books of accounts for a period of minimum 5 years and it may be subject to inspection at times by SEBI.

Power of stock exchanges for management and regulation purposes to make bye-laws

Section 9 of the SCR Act gives the power to the various stock exchanges to make bye-laws for the regulation and control of contracts.

Establish trading floor

A stock exchange may establish additional trading floor with the prior approval of SEBI in accordance with the terms and conditions stipulated by SEBI.

Penalties and procedures

Under Section 23 of the SCR Act, various penalties have been listed and any person who indulges in them be subjected to a penalty decided by the adjudicating officer or imprisonment which may extend to 10 years or fine which may extend to  twenty five crore Rupees.

The penalties have been explained as follows ^[3]–

Penalty for failure to furnish information, return, etc

Any person, who is required under this act, fails to furnish any information, document, books, returns or report to a recognised stock exchange or fails to maintain books of accounts

Penalty for failure by any person to enter into any agreement with clients

Any person who is required under this act or any bye laws of a recognised stock exchange, fails to enter into an agreement with his clients.

Penalty for failure to redress investor’s grievances

If any stock broker, after being called by SEBI, fails to redress the grievances within time.

Failure to segregate securities or moneys of clients or client

A registered stock broker if fails to segregate securities or moneys of clients or client or uses the money of a client for himself or for any other client.

Penalty for failure to comply with provisions of listing conditions or delisting conditions

If a company fails to comply with provisions of listing conditions or delisting conditions or commits a breach thereof.

Penalty for excess dematerialisation or delivery of unlisted securities

If any company dematerialises securities more than the issue securities of a company or delivers in the stock exchanges the securities which are not listed or delivers securities where no trading permission has been given by the recognised stock exchange, he shall be liable to a penalty which shall not be less than  5 lakh rupees and which may extend to 5 crore rupees.

Penalty for failure to furnish periodical returns, etc

if a recognised stock exchange fails or neglects to furnish periodical returns to SEBI or fails or neglects to make or amend its rules or bye-laws s directed by SEBI or fails to comply with directions issued by SEBI, such recognised stock exchange shall be liable to a penalty which shall not be less than 5 lakhs rupees and which may extend to 25 crore rupees.

Penalty for contravention where no separate penalty has been prescribed

If anyone contravenes of any provision of this Act, the rules or bye laws or the regulation of the recognised stock exchange or directions issued by SEBI for which no separate penalty has been provided, shall be liable to a penalty which shall not be less than 1 lakh rupees and which may extend to 1 crore rupees.

Under Section 23- I, SEBI shall appoint any officer not below the rank of a division chief of SEBI to be an adjudicating officer for holding an inquiry in the prescribed manner after giving any person concerned a reasonable opportunity to be heard.

Any person aggrieved by the decision of the recognized stock exchange or adjudicating officer or any order of SEBI may appeal to Securities Appellate Tribunal (SAT). SAT shall dispose of the matter in 6 months.

Other functions discharged by SEBI pertaining to regulation of the stock market

A serious concern has been around manipulative practices in the Indian securities markets. Manipulative practices are usually resorted to by traders and brokers in the market. Often they involve the owner managers or promoters of companies who may stand to gain from these practices. These have typically been meant to create a false market in the securities or to push the price of the securities down to unwarrantedly low levels through circular trading and other means. Such practices have not been limited to the so-called “penny stocks” alone but have often been practiced in the shares of larger and well established companies as well. Thus manipulative practices can harm the interests of small and large investors alike as well as that of companies whose shares are subject to such practices. SEBI has addressed these through the SEBI (Fraudulent and Unfair Trade Practices) Regulation, 2003^[4].

SEBI (Amendment) Bill 2002 gave more powers to SEBI to cover all transactions associated with the securities market and in the next year ie 2003, it got the power to impose enhanced monetary penalties.

Transparency

Transparency is one of the key elements on which SEBI has its focus. Lack of transparency would result in unfair practices. To tackle this problem, SEBI has introduced stricter norms pertaining disclosure of information and has made it mandatory for companies to disclose the risk associated with their projects. The fact that Cash transactions were prohibited by NSE in 2003^[5] and asking the brokers to reveal transactions of more than 0.5 percent of listed shares of company thereby, banning them from trading with each other on the same stock exchange^[6], indicate that SEBI has been going in a positive direction with respect to transparency.

Corporate governance

Corporate governance is being extended to all the companies. In 2000, SEBI introduced a new clause calling for one third of the directors of the stock exchange to be independent directors^[7].

Outsourcing the responsibility of surveillance

In the year 2003, SEBI made few changes in the bye-laws for the governance of stock exchanges and allowed a separate entity to manage the surveillance and investigation of stock exchanges. This was done to ensure self-regulation of stock exchanges, define responsibility more clearly etc.

Another Act which is relevant for protection of security market is the Depository Act,1996. This Act provides for regulation of depositories in the matters of securities and matters related to it. It introduces the scripless trading system and settlement, which is important for the effective functioning of the securities markets^[8].

^[1] S 11(2) of SEBI Act

^[2] Rule 19 and Rule 20  of Securities Contract Regulation Rules, 1956

^[3] Section 23A to Section 23H, SCR Act,1956

^[4] Sabarinathan, G., Securities and Exchange Board of India and the Regulation of the Indian Securities Market (June 30, 2010). IIM Bangalore Research Paper No. 309

^[5] NSE (National Stock Exchange), 2003, Indian Security Markets: A Review, and earlier issues,

^[6] Sebi (Securities and Exchange Board of India), 2003, Annual Report2002-03

^[7] Goyal, Ashima. (2006). Regulation and deregulation of the stock market in India. Deregulation and its Discontents: Rewriting the Rules in Asia. 168-192.

^[8] ‘Business Portal Of India : Corporate Governance : Legal Framework : SEBI Laws’ (Archive.india.gov.in, 2018) <https://archive.india.gov.in/business/corporate_governance/sebi_laws.php>

*This article is written by Ayushi Dubey, of Damodaram Sanjivayya National Law University, Visakhapatnam.

“Respect for the rights of individuals is the true bastion of democracy.”

The fundamental rights enshrined in the constitution would be meaningless unless and until there are effective measures adopted for its enforcement. There can be no right without a remedy (Ubi jus ibi remedium).

The word ‘compensation’ means to expiate the loss suffered. The rationale or basis for compensation may be the following three perspectives:

1.   As a social insurance
2.   As a welfare measure by the Govt.
3.   As a governmental obligation to protect the citizens.

History of Victim Compensation

Under the Tort Law, victims can claim compensation for the injury or the loss suffered by them. Recently the idea of compensation to victims of the crime is gaining much more importance. The modern welfare states have realized the importance of giving compensation to the victims of the crime as part of their duty towards the protection of its citizens and also as part of their general welfare. Many countries have adopted this scheme of payment of compensation to victims, for example, countries like Canada, Australia, New Zealand, UK, have created a fund for the payment of the compensation to crime victims.

Compensation is now being awarded as a matter of right not in just criminal law, but also in constitutional law, environmental law, etc.

There are pieces of evidence that show certain categories of victims of crime being compensated either by the offender or their kinsmen or by the sovereign, even in the olden times. In primitive law, it can be found that an injured person can take similar blood feud from the wrong order of his kin. Later, instead of blood feud, the payment of blood money i.e., the penalty paid by a murderer to the relative of the victim. This was so because, in the primitive societies, the responsibility of protecting oneself against the crime and of punishing the offenders vested with the individuals and not with the sovereign, and therefore, the idea of private vengeance existed.

As and when the societies got systematized, the responsibility of protecting the citizens from the crime and also that of punishing the criminal shifted to the hands of the political authorities. But, even then, according to the old Germanic law- the Code of Hammurabi, the Ancient Hindu Law- The Manu Law, and Islamic law, the principle of giving the compensation to the victim by the wrongdoer continued.

At the end of the medieval age, the idea of crime, as an action against the State took its shape, and the state was considered to be the proper authority to punish the offender, thought the victim of the crime became the irrelevant factor.

The concept of compensation in India, goes back to 1857, when the Courts made an attempt to regularise the pollution generated by the oriental gas company by imposing fines on the company and giving a right to compensation against the fouling water. No relief was then given for violation of environ- legal right, but in personal injury cases, the courts hardly awarded compensation for non- pecuniary loss incurred.

The advent of a right to compensation under Indian constitutional law is not very old. It was only in the late eighties, that this concept started to grow in India under constitutional law. This was the innovative concept developed by Indian judiciary for securing the justice. The compensation awarded is generally on the basis of the entitlement of the claimant. The modern concept of justice is more concerned with providing relief to victims than the necessities of legal principles.

Laws in India Providing Compensation

Compensation in India is broadly divided into two heads namely:

Compensation as a Constitutional Right

According to the view of the liberal world, respect for human rights also mean, providing adequate relief if those human rights are violated. The right of compensation for the violation of fundamental rights is derived from the rights that were violated. As a matter of fact, it is inherent in them, for example, a person’s right over his body, makes the other duty bound and forbids him to attack or injure without any justification. Moreover, this right over one’s body also gives him the right to compensation if he’s attacked unjustifiably, in order to help the him recover mentally and physically. Compensation is both acknowledgement of the violated right and an attempt to reimburse for the damage.

In India, to fill the gap in the fundamental right to compensation, the apex court has found the monetary way to expiate the abuse of the human rights. The Supreme Court in Rudal Shah v. State of Bihar, for the very first time laid down the principle that compensation can be given in the cases where any fundamental right of an individual has been injured and that the higher courts have the authority to do so by using the writ jurisdiction and evolved the principle of compensatory jurisprudence.

Rudal Shah v. State of Bihar

The facts involve the petitioner who was even after being acquitted by the Court of Sessions, Bihar on June 3, 1968, was released from the jail only on October 16, 1982, that is after more than 14 years. The petitioner thus filed the writ of habeas corpus on the grounds that his detention was illegal and unlawful. He had also asked from the courts for certain additional reliefs like rehabilitation, reimbursements for medical expenses, and compensation for the unlawful confinement.

Furthermore, the reply given by the Jailor’s affidavit stated that the petitioner was acquitted but not released since he was of unsound mind when the order for his acquittal was passed. But, this affidavit by the jailor disclosed no data on the basis of which he was adjudged insane, or about any specific measures are taken to cure his illness. Moreover, what was even more important to note was that, whether or not it took 14 years to cure his mental imbalance. It is also to be taken into account that, there was no medical opinion produced to support the fact that he was medically insane, and that no jail record showing as to what kind of medical treatment he was being given, existed.

The Supreme Court elaborately discusses the question as to whether or not an order for the payment of money can be passed by the Supreme Court under the Writ Jurisdiction on the consequential deprivation of a fundamental right. Justice Chandrachud said, “Article 21 which guarantees the right to life and liberty will be denuded of its significant content if the power of this Court were limited to passing orders to release from illegal detention. One of the telling ways in which the violation of that right can reasonably be prevented and due compliance with the mandate of Article 21 secured, is to mulct its violators in the payment of monetary compensation. Administrative sclerosis leading to flagrant infringements of fundamental rights cannot be corrected by any other method open to the judiciary to adopt. The right to compensation is some palliative for the unlawful acts of instrumentalities which act in the name of public interest and which present for their protection the powers of the State as a shield.”

Therefore, the Supreme Court clearly condemned the State authorities for its actions and had ordered for a compensation of Rs. 30,000/-.

The decision of Rudal Shah was important in two aspects:

1.   That violation of a fundamental right can lead to a civil liability;
2.   It also formulates the bases for a theory of liability.

The decision focused extreme concern to protect and presents the fundamental right of a citizen than the sovereign and non-sovereign dichotomy.

According to the court, the compensation was in the nature of a palliative, i.e., comforting to the victim, in order to give better meaning to article 21.

Development Post Rudal Shah’s Case

After the pronouncement of the Rudal Shah’s case, another case of Sebastian Hongray v. Union of India came up before the Supreme Court of India, wherein, the State failed to reproduce two persons missing from the army custody. The Courts ordered for the respondents to pay Rs. 1 lac each to the wives of the two missing persons. This was followed by the case of Bhim Singh v. State of J & K. In this case, the Court opined that it could set right a wrong complained of in respect of his arrest and violation of his rights by awarding compensation. It deviated from the rule as laid in the above two cases of Rudal Shah and Sebastian Hongray, i.e., of the rule of Habeas Corpus being remedial, and thereby made it punitive. It forms both, a mixture of palliative compensation and exemplary costs.

In yet another case, Saheli v. Commissioner of Police, the reasons for the award of compensation was being expounded. The State was held liable for the death of a nine-year-old child by Police assault beating. The Court said that an action for damages lies for bodily harm, including battery, assault, false imprisonment, physical injuries and death, since damages represented a solatium for mental pain, distress, indignity, loss of liberty and death.

Furthermore, the Supreme Court in the case of Nilabati Behera v. State of Orissa gave the jurisprudential reasoning behind the award of damages in cases of violations of fundamental rights. The petitioner was awarded compensation for the death of her son in the police custody. The Court held that, the principle of sovereign immunity does not apply to the public law remedies under Article 32 and Art 226, and said that, “a claim in public law for compensation for contravention of human rights and fundamental freedoms, the protection remedy for enforcement and protection of such rights and such a claim based on strict liability made by taking recourse to constitutional remedy provided for the implementation of fundamental right is separate from and in addition to the remedy in private law damages for tort.”

In M.C. Mehta v. Kamal Nath, the SC held that it has power under Article 32 to award compensation to the victims of the pollution.

Relying on the three major judgements of Rudal Shah, Sebastian Hongray, and Bhim Singh, the Andhra Pradesh High Court stated that Kasturi Lai’s Case has no application where there is a deprivation of life or personal liberty. The Andhra Pradesh High Court noted down the recommendations of the Law Commission first report for statutory recognizing the liability of the State.

This case opened a new outlook for individual action against the State as Article 300 has been held not to be an exception to Article 21.

Compensation Under Code of Criminal Procedure, 1973

The Code of Criminal Procedure (hereinafter referred to as CrPC) initially provided for the compensation to victims of crime under sections 357, to be given by the accused. With due course of time, the Courts in India realized that, in punishing the offender, it ignored the victim. It was only in the year 2008 when the CrPC was amended to impose a liability on the State for such compensations, based on the recommendations of the Malimath Committee. It stated that compensation should be provided to the victim, as not only as a token of relief but also as part of the substantial remedy. It justified it on the grounds that it is the political, economic, and social institutions of the State that generates crime by poverty, discrimination, unemployment and insecurity, and therefore made it obligatory for the State to provide victim compensation in all serious crimes, whether the offender is convicted or acquitted.

What is the Scope of S. 357 CrPC? What are its limitations?

The Scope of S. 357 was explained by the Supreme Court in Sawarn Singh v. State of Punjab. The Court said that the aim of section S. 357 is to give compensation to the victim or to their kin, even when fine does not form part of the sentence. But, in providing this compensation, it is necessary for the court to keep the following things in mind:

1.   Nature of Injury Caused

The Supreme Court in Madan Lal v. State of HP invoked this provision, where the accused caused disfigurement of the face of the victim. In yet another case, it held that while reducing the sentence of death to imprisonment for life in a case of serious nature, the widow and her children were compensated for the loss they have suffered.

2.   The capacity of the Offender to pay

In a number of cases, the Supreme Court has held that the power of the Courts to award compensation, should be just and reasonable. In Dilip S. Dahanukar v. Kotak Mahindra Co. Ltd. and Anr., the Court said that “the amount of compensation sought to be imposed, thus, must be reasonable and not arbitrary.” The Court in this case also suggested, for issuing a summary enquiry, to judge the capacity of the accused to pay the compensation.

3.   Application of Mind

1. 357 of CrPC, confers a heavy duty on the Judges to apply its mind to the question of compensation in every criminal case, or else it becomes a dead letter. In Maya Devi (Dead) and Ors. v. Raj Kumari Batra, the Courts have held that “Application of mind brings reasonableness not only to the exercise of power but to the ultimate conclusion also. Application of mind, in turn, is best demonstrated by disclosure of mind. And disclosure is best demonstrated by recording reasons in support of the order or conclusion.” Even though, awarding or refusing compensation might be in the Court’s discretion there exists a mandatory duty on the Court to apply his mind on the question in every criminal case.

Victim Compensation Scheme Post Amendment of 2008

1. 357 had a few limitations, for example, as it was held in R. Vijayan v. Baby, wherein the Court held that “if compensation could be paid from out of the fine, there is no need to award separate compensation. Only where the sentence does not include fine but only imprisonment and court finds that the person who has suffered any loss or injury by reason of the act of the accused person, requires to be compensated, it is permitted to award compensation under section 357 (3)”, the Parliament post recommendations of the Malimath Committee added S. 357A to S. 357D. The Amendment Act, 2008 also provides for the right to appeal against an order imposing inadequate compensation.

1.   Budget allocation by the State Governments

1. 357A (1) directs every State Government to prepare a scheme for providing funds for the purpose of compensation to the victim or his dependents, who have suffered loss or injury, and who require rehabilitation. It requires every state government to create a victim compensation fund, which would have budgetary allocation. Sadly, only a few state governments have framed the scheme for providing the funds for compensation. Even in the States which have made a scheme have, the eligibility criteria to get compensation along with the procedure different from each other. There is thus, no uniformity neither in subject- matter nor in the amount of compensation. In Hari Singh and State of Haryana v. Sukhbir Singh, it was held by the Court that, victim compensation is a “measure responding appropriately to crime as well as reconciling the victim with the offender and indeed a step forward and in our criminal justice system.” However, the application of these provisions, are yet to be put in practice.

2.   Additional Compensation

1. 357B provides that the compensation to be paid by the State Government u/s 357A is to be paid in addition to the payment of fine to the victim given u/s 326 A or 376- D.

3.   Treatment of Victims

1. 357C provides for immediate medical relief, free of cost, to the victims of any offence covered u/s 326 A, 376, 376 A, 376 B, 376 C, 376 D or u/s 376 E of the Indian Penal Code, and shall immediately inform the police of such incident, in every hospital, public or private.

4.   Quantum of Compensation

According to S. 357 A (), whenever the recommendation is made by the Court for compensation, the District or the State Legal Service Authority, shall decide the quantum of compensation to be awarded under the scheme aforesaid.

5.   Compensation when the Offender is not found

Where the offender is not traceable or is not identified, or is absconding, but the victim is identified, and where no trial takes place, the victim or his dependents, may make an application to the State or the District Legal Services Authority for award of compensation which shall be decided after due enquiry award adequate compensation by completing the enquiry within two months.

Compensation For Acid Attack Victims

Acid attack is one of the most brutal crimes, which just not leave scars on the victim, but also violates the very basic human rights of the victim. The Law Commission took suo moto view of the contentions raised in the case of Lakshmi v. UOI. The Commission felt that no definition of grievous hurt would be enough to cover the various kind of injuries caused due to an acid attack. Moreover, the commission also suggested the government to propose a law known as Criminal Injuries Compensation Act, providing both interim and final monetary compensation to victims of certain acts of violence like Rape, Sexual Assault, Acid Attacks, etc., also providing for their medical and other expenses relating to rehabilitation, loss of earnings etc.

The Government of India took the matter seriously and passed the necessary amendments. The amendment resulted in the insertion of sections 326A and 326B. U/s 326A the punishment includes a sentence not less than 10 years, and also fine, which shall be just and reasonable to meet the medical expenses of the treatment of the victim, and that any other such fine imposed should be entirely paid to the victim. Also, the addition of 357B, as mentioned provided for compensation by the State Government to be in addition to the payment of fine to the victim u/s 326A.

Compensation Under A Few Special Laws

1. The Motor Vehicles Act, 1988

Increased number of motor vehicles, poor maintenance of roads and negligence by drivers has led to the increase in the road accidents, resulting in death or injuries to victims. To curb this menace, S. 40 of the MV Act, embodies the idea of compulsory compensatory jurisprudence for the benefit of victims of road accidents. It makes the owner of the vehicle obliged to pay a specific sum of compensation if the negligent act of the driver has caused death or permanent disablement of a person.

1. 163 provides for a scheme of payment of compensation in case of hit and run motor accidents which shall contain the form, manner, and the time within which applications for compensation may be made, to whom it may be made, and the procedures to be followed by administrative authorities constituted under the Act. Furthermore, S. 163- A, provides for compensation in a structured format as mentioned in the second schedule of the Act. Under this Section, the victim is entitled to compensation on a fault- liability, based on the Second Schedule.

2. Workmen Compensation Act, 1923

This Act provides compensation to workmen, by their employers for injuries caused by an accident occurred during or in the course of employment.  S. 3 obliges the employers to pay the compensation in respect of:

1.    Any injury which resulted in the total or partial disablement of the workman for a period exceeding seven days;
2.    Any injury resulting in the death caused by an accident which was not caused due to the workman having been under the influence of alcohol or any other drugs, or any willful disobedience of the workman to an order which was expressly given, or any safety measure provided.

The Schedules I, III, and IV, annexed in the Act, lays down the process of determination of payment of compensation by enlisting the injuries that might result in permanent partial disablement, and the occupational diseases that might be caused.

3. Compensation in Medical Negligence Cases

In the landmark case of Jacob Mathew v. State of Punjab, and also in the case Suresh Gupta v. Govt. of NCT, Delhi, the Supreme Court has relaxed the norms for doctors with regard to criminal liability for medical negligence by adding the requirement of “gross” medical negligence. However, the culpability of doctors through civil liability has been recognized by the Courts. In the recent judgement of 2014 of, Balram Prasad v. Kunal Saha, the SC awarded a compensation of Rs. 11 Crore to a victim, who was paid by the doctors and the private hospital deemed responsible for the wrongful death of a patient. This was by far the largest ever given in case of medical negligence.

The basis of computing compensation under common law lies in the principle of “Restitutio in Integrum”, which means, that the person seeking damages due to a wrong committed to him/ her is in the position that he/ she would have been had the wrong not been committed. Inconsistency in awarding compensation in medical negligence cases is a problem that currently plagues the Indian health sector. Each and every case has to be considered independently because of would be inappropriate to not give the facts of every situation due to importance. The Supreme Court in Sarla Verma v. Delhi Transport Corporation noted that: “The lack of uniformity and consistency in awarding compensation has been a matter of grave concern… If different tribunals calculate compensation differently on the same facts, the claimant, the litigant, the common man will be confused, perplexed, and bewildered. If there is significant divergence among tribunals in determining the quantum of compensation on similar facts, it will lead to dissatisfaction and distrust in the system.” The dilemma that judges face while awarding compensation in medical negligence cases because:

1.    Law is required to protect a patient’s rights and
2.    The law also needs to provide due sovereignty to a profession that by all definitions are an inexact science.

The Indian legal system addresses medical negligence mainly through the consumer courts. The policy impact of being included under the purview of the Consumer Protection Act, 1987, is that the treatment provided by a doctor which by all definitions, an inexact and variable science with rapid advancement and substantial responsibility, is subject to the same scrutiny as any other service provider, therefore increasing the propensity of the system to solve such matters purely by awarding compensation.

According to a few, large compensation is considered an ideal remedy for medical negligence because it acts as in insurance to the victim, retribution towards negligent doctors and hospitals, and as a deterrent to other doctors/ hospitals. The counter- arguments include an increase in defensive medicine, professional liability premiums, and treatment costs as symptoms of a dysfunctional system created to reward the litigious and punish the professionals.

Now, for the question as to who shall be responsible for paying compensation, the doctor or the hospital, it has been seen that nowadays, the hospitals as an organization in most cases today is run not by the doctors but by the administrators. In many cases, both doctors and the hospitals have been held responsible for paying compensation, since, in the majority of the cases, an individual doctor may not be in a position to pay the huge compensation until the hospitals are also made a party in the litigation.

Therefore, we can see that the calculation of compensation is not precise or accurate, and is bound to vary from case to case. This results in the subjectivity of presiding judges, which erodes faith in the justice system. Hence, there is an urgent need to introduce certain broad guidelines, assessment parameters to support the health system in providing quality health care. The compensation awarded needs to be just, reasonable, and prudent.

Is Compensation Palliative or Punitive??

The nature of monetary relief that a petitioner would be entitled to be of crucial nature. A brief overlook over these cases shows that in all of them the compensation given was palliative in nature or as exemplary costs. In many of the judgements, the Supreme Court also concluded that the award of money in the writ would not exclude a claim to damages in a civil court. Though, the palliative compensation is done away with the decision of the Supreme Court in Bhim Singh’s case. However, the mentioning of the remedy available with the civil court has been done away with due to two reasons-

1.   to ensure that the writ courts do not become submerged with litigation, and
2.   to do away with the cumbersome process of appreciation of evidence and to calculate the damages payable.

Also, in earlier decisions, the Courts used the concept of the ‘shocking of conscience’ as an indicator to warrant compensation. But, that was also done away with the Behera’s case.

Conclusion

The jurisprudence of compensation is relatively young but has made significant headway since the Rudul Shah’ Case. The new remedy has proved a godsend to many and has provided a substantial shot in the arm in the role of the Courts as protectors of human rights. The failings of the common law of torts are now redressed to a good extent. The judicial initiative is a welcome step, but it is only a guiding star in the long struggle of Rudul Shah’s and Sahelis who grope under the reign of terror of a politicized bureaucracy or bureaucratized politicians and other leviathans collectively manifested in the monster known as the State. The trend is thus clearly a step in the right discretion. But it must also be noted that it has been observed in only a small minority of cases. The judiciary must use the provision of compensation to grant relief in appropriate cases. The lawyers engaged in such matter may also, contribute by including in their pleadings, a prayer for compensation. To sum up, this area promises to be an interesting one for future research.

This article is written by Apoorv Agarwal.

Curtailing the Freedom of Speech and bringing the curtains down on the interest of media houses in the lives of ‘public officials’

The above adage has been proved true in the recent Madras High Court verdict. Any time such conflict arises the judiciary invariably reaches for its hammer and probably bans, compels or prohibits the fundamental right to speech and expression over privacy. Whenever there is a conflict between preservation of the fundamental right of speech and expression over the privacy, the never-ending arguments show their light. Anytime the conflict arises between the privacy of public officials and rights of media in relation to their fundamental rights there it has been observed that Judiciary keeps on prohibiting the “Right to Speech and Expression” over the “Right to Privacy”. Although, privacy has been made a fundamental right after the enlightening judgment of K.S. Puttaswamy v Union of India but ignorance and non-maintenance of the right to speech and expression are also not worthy. Judicial Censorship is a dangerous emerging trend in India.

The freedom of press is sine qua non to democracy. The democratic credentials and the maturity of a state are adjudged by the extent of freedom of speech a dissent press enjoys in that state. Since media has been permitted to intrude or divulge details about Queens and Prime Ministers in the foreign country, the Madras High Court’s decision may cause ripples for the crusaders of freedom of speech. Singhania and Partners analyses the implications of the said judgments over media houses and democracy.

Legitimate expectation of privacy

The directory language, connotes that any act of ‘public official’ which has impact on public or is of ‘public interest’ must be propagated and cannot be conceived. Narrowing the scope of protection of privacy with regards to the private life of these public officials indicates that the protection of privacy is only limited to sex, (enter the limitation) and education, children and motherhood.[1] The problem is to what extent can media expose lives of these people without violating their privacy rights?

Grey area between ‘public interest’ and ‘interest of public’

The fact that media cannot be given unbridled license to publish anything and everything will do more harm than good is not denied but what shall be the extent for restriction over such freedom still remains an unanswered question. The Hon’ble Madras High court in order to maintain a balance between right of privacy of these ‘public officials’ and the freedom of press reiterated the basic test of ‘public interest’.There is a very thin line difference between what constitutes ‘public interest’ and ‘interest of public’. Justice Sanjay Kishan Kaul in K.S. Puttuswamy[2] case opined that

“There is no justification for making all truthful information available to the public. The public does not have an interest in knowing all information that is true.”[3]

The Madras High Court propounded ‘exclusively private’ matters are not in ‘public interest’ and should not be published. However, the interpretation was vague and did not define the said term. After the verdict of  Madras High Court the bigger question that comes into picture is can a plea be raised that media houses may not conduct any inquiry for individuals, despite them being public citizens as it would not be in ‘public interest’ and be counted as a violation of privacy rights?

Over-responsibility leading to end of media trials (The tussle between right to know and right to publish)

There has now been a candid conflict between ‘Informational Activism’ and privacy rights which can be summed up as “Public’s Right to Know versus Infringement of Privacy”.[4] The Madras. High court opined that basis that the media houses must show responsible journalism and publish facts that do not violate privacy of a ‘public official’.

We may bat for excessive interference, but how far are we from accepting that institutions in our country would not deliver if they weren’t constantly checked by the media? Notwithstanding the fact that some articles published by these media houses during the course of such investigation may be derogatory to the reputation of the accused, however, the ‘public officials’ have never been restricted to bring action under tort law for such publications. The Madras. High court by placing a blanket injunction has not only violated the rights of free press but has also encouraged ‘public officials’ to decide as to what information should be known the public about them thereby distorting the very essence of democracy and curtailing the freedom of press.

Effects on media houses and the role of law firms

The Hon’ble Madras High Court has also used the gag order quite indiscriminately and this is going to affect the media houses acutely. The court substantiates its decision by holding that the defence of truth was not taken by the media house. It is not disputed that the facts published must be true but the Hon’ble courts have also iterated that media only needs to prove a reasonable verification of published facts; moreover there is no such caveat of it being absolutely true.[5]

The opinion of the Hon’ble Madras High court that media has been completely reckless in determining what should be posted and thus an absolute gag order or blanket injunction being placed to publish any other ‘exclusively private’ about the personal life of the ‘public official’ is erroneous and has restricted the fundamental rights of media houses. Laying no emphasis on defining such terms on which the Hon’ble court has given its verdict the rights of media can now only be safeguarded by law firms because what constitutes ‘exclusively private’ is now open to interpretation. This will not only drag media houses to a lot of privacy infringement cases but will also refrain them from publishing true opinions.

The court appertained the ‘consent theory’ by instructing media to receive consent from such ‘public official’ before 48 hours of publishing any news.  This will overburden the media houses with a lot of responsibilities and restrictions which will finally lead them to refrain themselves from propagating the true colours of justice. Ergo, media houses in order to protect their rights and work freely will have to take support of the law firms so that they still remain an independent entity and are not controlled by thes. Moreover the interpretation of what constitutes ‘public interest’ and ‘interest of public’ is a crucial question and open to interpretation. With the Madras. High Court judgment where the Hon’ble court has considered privacy over such freedom of press the media will now need law firms to defend their publications.

[1]Ms.KanmozhiKarunanidhi v/s …

[2]Justice K.S. Puttaswamy v. Union of India [(2015) 8 S.C.C. 735]

[3]Supra note 4

[4]Nupur Sony, Right to Privacy and Its Infringement by Media(2017)  IJSRE Volume 05 Issue 07<http://ijsae.in/index.php/ijsae/article/viewFile/231/142>accessed 29 May 2017.

[5]R. Rajagopalvs State Of T.N [ 1994 SCC (6) 632]

In this article, Kavita Karwa, pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses whether a private company can issue securities or not

Introduction

A company means an association of people formed to achieve a common goal and it must be incorporated under the law. In India, companies are regulated by the Companies Act, 2013 which is an Act of the Parliament of India. Various types of companies with varying levels of liability for the shareholders and members can be incorporated under the Companies Act, 2013.

Types of Company

A company could largely be classified into the following:

• Private Limited Company;
• One Person Company;
• Limited Company;
• Section 8 Company.

What is a Private Company?

A private company is a company whose stock is not traded on public exchanges (example BSE Limited, National Stock Exchange of India Limited, etc.), unlike public companies. Rather, shares created by private companies are issued, offered, owned and traded privately amid interested investors.

A private limited company is incorporated with a minimum of two members and can have a maximum number of 200 members.

Securities under Companies Act, 2013

Section 2(81) of the Companies Act, 2013 defines Securities to mean Securities as defined in the Securities Contracts Regulation Act, 1956 under Section 2(h). As per the definition, Securities Include Shares, debentures, bonds, scrips, stocks, debenture stocks etc. in incorporated Company/ other body corporate, Derivatives, Units issued by Collective Investment Scheme, Units/instruments issued to the investors under any Mutual fund scheme, Government Securities, such other instruments/ rights/interest therein that may be declared by the Government to be securities.

In general, tradable financial instruments or the financial instruments that can be bought and sold are usually referred to as securities. Securities may mean entitlements/rights or can mean either an ownership position or debt position or both. The key characteristic of securities is that it must be transferable. For example, Fixed Deposit with banks being non-transferable instruments is not considered as a security. Exceptionally few instruments like mutual fund policies which though non-transferable are considered as securities, notwithstanding the fact that some of the mutual fund policies are tradable on the exchange platform. 

Securities can be issued either in the form of a “certificate” or in a “non-certificated,” which is in electronic or “book entry” form.

Can Private Company Issue Securities?

From the above, it’s clear that Private companies may issue securities and have members and shareholders, but their shares cannot be traded on public exchanges. Private company shares are not issued through an initial public offering (IPO). In general, the shares of private companies are less liquid since it is traded amongst few closely connected investors and public participation is not allowed. Also, it is not easy to determine the market value of shares of private companies.

Modes of Issue of Securities by Private Company

The Private Companies can issue securities through following modes provided under the Companies Act (the ‘Act’):

Private Placement [Section 42 of the Act]

A company may through private placement make any offer or invitation to subscribe securities to selective persons (other than by way of a public offer) by issuing private placement offer letter. The conditions specified in Section 42 of the Act must be satisfied for the issue of securities through Private Placement.

• Such offer or invitation to subscribe securities through Private Placement offer can be made to a maximum of two hundred persons in aggregate in a financial year (the limit of two hundred individuals excluded employees of the company who are offered securities under employees stock option scheme and qualified institutional buyers). The said ceiling of total number of individuals is calculated separately for various types of security i.e. equity share, preference share, debenture. [Rule 14(2)(b) of the Companies (Prospectus and Allotment of Securities) Rules, 2014]
• Each person should make a minimum Investment of Rs. 20,000 of the nominal value of the securities. [Rule 14(2)(c) of the Companies (Prospectus and Allotment of Securities) Rules, 2014]
• Provisions of Rule 14(2)(b) and (c) are not applicable to ‘non-banking financial companies’ and ‘housing finance companies’.
• The price of the securities issued through Private Placement mode is determined based on the valuation report of a registered valuer.
• The private placement offer letter must be accompanied with an application form which should be consecutively numbered, specifically addressed to the person to whom the offer is being given, and must be sent either electronically or in writing within thirty days from the date of recording the name of such person as per the Act.
• The Shareholders prior approval by way of a Special Resolution is required to be obtained for the proposed offer of securities or invitation to subscribe securities. However, prior approval of the Shareholders by way of Special Resolution can be obtained one time in a year for all the proposed offer or invitations to subscribe non-convertible debentures during the year. (Form MGT 14 has to be filed with Registrar of Companies for the Special Resolution)
• Fresh offer or invitation to subscribe to securities under private placement can be made only when allotment with respect to the earlier offer or invitation has finished/offer or invitation has been withdrawn by the company.
• The person to whom the offer is made should do the payment for securities directly from their bank account subscribing to such securities, complete records of which needs to maintain by the company.
• The Securities must be allocated within 60 days of receiving of the application money. If due to oversubscription of securities / insufficient subscription or whatever other reason, the company is not able to allocate the securities within the said timeline of sixty days, then the application money is required to be refunded within fifteen days to the applicant post the expiry of sixty days. In the event of failure on part of the company to refund the amount received from the applicant within said fifteen days, the company is liable to pay interest at the rate of twelve percent on the application amount.

The company is also required to file the following forms:

• PAS-3: the return of security allotment,
• PAS-4 : Private placement offer letter and
• PAS-5 : Complete record of private placement, with the Registrar of Companies:

Rights Issue [Section 62 of the Act]

Company with existing share capital can further increase its subscribed capital by issuing further shares –

(a) to its existing equity shareholders based on the Articles of Association of the Company

(b) to employees under an employees’ stock option scheme, subject to the passing of the special resolution.

(c) to any persons, irrespective of the persons mentioned in clause (a) and (b) above, for consideration in cash or other than cash, if it is authorised by a special resolution and the price of said shares has to be determined by means of the valuation report issued by a registered valuer.

Issue of Shares on Preferential Basis [Section 62(1)(c) of the Act]

A company may issue shares in any manner whatsoever including by mode of a preferential offer, to any persons whether or not those persons are referred to in Section 62(1)(a) & (b), if approval by way of a special resolution is given by the shareholders in a general meeting. The provisions provided under Section 42 of the Act on Private Placement will have to be complied with for sssue of shares on preferential basis. It is compulsory that that price of the shares is determined as per the valuation report of the registered valuer. The special resolution considered and passed by the shareholders for Preferential allotment is effective for a period of twelve months after expiry of which fresh resolution is required to be obtained.

Issue of Sweat Equity Shares [Section 54 of the Act]

A company by way of taking shareholders’ approval through a special resolution, issue sweat equity shares to its directors or employees similar to a class of shares already issued by the company. The special resolution passed by the shareholders for issue and allotment of sweat equity shares will be effective for a maximum period of twelve months from the date of passing after the expiry of which fresh approval will have to be taken from the shareholders.

Sweat equity shares can be issued by the company only after completion of a period of at least one year from the date of commencement of business of the company. In a year, such sweat equity shares cannot be issued for an aggregate value exceeding fifteen percent of the existing paid up equity share capital or shares of the issue value of rupees five crores, whichever is higher. Nevertheless, the percentage of sweat equity shares in the paid up equity capital of the company shall not exceed twenty five percent at any point of time.

Sweat equity shares are locked in / non-transferable for a period of at least three years from the date of allotment. Shares shall be valued at a price determined by the registered valuer as of the fair price.

Conversion of Loans or Debentures into Shares [Section 62(3) of the Act]

A private company subscribed capital shall increase on the exercise of the option to convert loans raised or debentures issued by the company into shares in the company. The option must form part of the terms attached to loan raised or debenture issued by the company and such term must be previously approved by passing of the special resolution by the shareholders.

Issuance of Bonus Shares [Section 63 of the Act]

The members of the company can be issued bonus shares to be fully paid-up, in any manner whatsoever, from company’s –

1. free reserves (reserves created by the revaluation of assets not to be considered);
2. the securities premium account; or
3. the capital redemption reserve account.

Once the decision of the Board of Directors recommending Bonus Issue is announced / made public, the decision cannot be subsequently withdraw by the Board. “Rule 14 of the Companies (Share Capital and Debenture) Rules, 2014”

Advantages of Issuing Shares

There are several additional benefits to the company on the issue of shares apart from the primary objective to raise capital like it attracts new investors, purchase/acquire other businesses, enhance company revenue, increase employee interest, less Debt & Debt reduction, enhance liquidity, credit ratings, etc.

Conclusion

To conclude, a private company is a company with private ownership. Private companies can issue securities and have members and shareholders, but then its shareholders are no able to trade their stocks in the open market. Private companies function similar as the public entities, however, ownership in the private company is limited to a relatively few closely related interested investors and they need not comply with the stringent regulatory requirements as applicable to public companies.  The high costs of undertaking an IPO, stringent regulatory requirements, intent to maintain private ownership etc., are some reasons why many smaller companies stay private. If a small private company wants to raise further capital to grow, the subsequent level of funding often flows from venture capital firms who specialize and focus in making capital investment for high-risk, high-reward opportunities. Further, some sizeable institutional investors also provide financing options to private companies generally through private placement route. If a private company is able to grow exponentially, it may ultimately opt to “go public” which means it issues securities through an IPO which are then traded freely on public stock exchanges. 

In this article, Pallav Gupta pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata gives a glimpse about the working of the SFIO.

Introduction

The financial scams and corporate frauds saw a huge rise after the liberalisation of the economy and it was time for the lawmakers to deter such frauds which were causing a loss of government and public money. It became necessary to re-evaluate and implement stringent provisions to tackle Corporate Fraud. The increasing rate of white-collar crimes required stiff penalties, exemplary punishments and effective enforcement of the law with the right spirit. Some of the examples of corporate frauds include Satyam scam, Sahara scam, Bofors scam, 2G spectrum scam and many more which are still sub-judice in the different courts of our country or are under the process of investigation by different agencies. 

Legal framework – Definition of Serious Fraud

The legislation in India which contains provisions with respect to corporate frauds is the Companies Act, 2013.

Section 447 of the Companies Act 2013, includes any concealment of any fact, omission, act or abuse of position committed by any person with the connivance in any manner, with intent to gain undue advantage from, or to injure its shareholders or the interests of the company or any other person, whether or not there is any wrongful gain or wrongful loss. A wrongful loss means the loss by unlawful means of property to which the person losing is legally entitled whereas a wrongful gain means the gain by unlawful means of property to which the person gaining is not legally entitled.

An act would amount to fraud when act committed by one party in a contract with any other party with an intention to dupe or deceive the other party to enter into that contract. The acts of the parties to the contract should amount to fraud which could potentially vitiate the contract. If a person has his own committed a fraud, then he will be punished. Here, person means himself or his agent. The acts which include fraud are concealment of facts or wrong suggestions or any fraudulent act to deceive other or false promises.

Serious Fraud Investigation Office (SFIO)

The Indian Government under Mr. Naresh Chandra (former cabinet secretary) set up a Committee on Corporate Governance. The Committee inter-alia recommended setting up of the Corporate Serious Fraud Office. Thereafter, considering the recommendation of the committee in the backdrop of the failure of non-banking companies resulting in a huge financial loss to the public, the Cabinet decided to set up a Serious Fraud Investigation Office (SFIO).

Consequent to the decisions of the Cabinet, the Central Government issued a resolution constituting this organisation in 2003. In continuation of the aforesaid Resolution, charter of Serious Fraud Investigation Office stated that the responsibilities and functions of the SFIO. It is a multi-disciplinary organisation consisting of experts in the field of, forensic auditing, accountancy, company law, information technology, law, investigation, taxation and capital market for prosecuting or recommending prosecuting or detecting any frauds or white collar crimes.

Functioning of SFIO

• The SFIO is to be headed a director who should not be below the rank of a Joint Secretary to the Government of India having expertise in dealing with the matters relating to company frauds.

• Central Government has the power to appoint other experts as members from those who have experience in the field of Corporate  Affairs, Banking, Taxation,  Capital Market, Forensic audit, law and Information Technology amongst other fields as required. 

The Act empowers the Central Government with the right to investigate the affairs of the company, especially in cases of an alleged fraud or even in the oppression of the minority shareholders.

When a case has already been assigned to the SFIO no other agency of the government has the authority to proceed to investigate an offence which is committed under this Act and the same is to be transferred to the SFIO. The company and its officers and employees, who are or have been in the employment of the company, shall be responsible to provide all information, explanation, documents and assistance to the investigating officer as he may require for the conduct of the investigation

Powers to Arrest

As per the notification by the Ministry of Corporate Affairs (MCA) in August 2017 powers of arrest have also been bestowed upon by the government. Although the powers of arrest have been made limited to the Director, Additional Director and Assistant Director who during the investigation of a serious fraud have a reason to believe that a person has committed an offence under Section 212, he may arrest shall person on the prior written approval of the Director of SFIO.

In a case of investigation of a foreign company or a government company, the Director has a reason to believe to arrest a person, a prior approval of the Central Government is necessary. When a person of a government company is to be arrested, the Managing Director or the person in charge of the affairs of that company is required to be intimated. In cases where a Managing Director/Head of state of affairs is to be arrested, the secretary of that administrative ministry is required to be intimated.

On completion of the investigation, SFIO has to submit the investigation report to the Central Government and the copy of the report shall be sent to any person who demands the same. On receipt of the report, the Govt. may direct the SFIO to initiate prosecution against the company, employees or officers or any person connected with the affairs of the company. 

Limitations Faced By SFIO

Despite giving so many powers by the Act, SFIO still has to face a lot of hurdles and challenges while performing their functions some of them are:-

• Measures not pre-emptive in nature
• Dependence on Central Government for accountability and intimation of an investigation.
• The inadequacy of resources and manpower.

Cases Investigated by SFIO

Satyam Scam

SFIO investigated the Satyam scam and had opined in their report that the directors of the organisation were not involved in the accounting fraud in the company. The SFIO had a 14,000-page report submitted to the government, marking the end of a three-month-long investigation. SFIO had investigated and interrogated the directors and opined that the fraud was done allegedly by the chairman and other top executives of the company. The Central Government after it was admitted by the chairman that there is a fraud of around 7,000crores at the company, probe by SFIO was ordered into the scam. The independent directors came under scanner when Satyam had said that the proposal of taking over two firms was taken unanimously, though the independent directors had given their disclosure before the SFIO that they had no knowledge of the same.

Deccan Chronicle Holding Ltd (DCHL)

This Hyderabad based company which owns two English daily newspapers namely Asian Age and Deccan Chronicle came under the scanner of SFIO which found it to be running in contravention of about 20 sections of The Companies Act which included those provisions having a punishment of imprisonment. The Deccan Chronicle later on registered with BIFR. But it did not the lenders to take action against the company.

Conclusion

The Act uses the term “person” which has not only extended the applicability of it to the directors, officers, employees but any other person who is into the affairs of a company. Under any other person, it includes consultants, advisors, auditors, independent directors or any key managerial person can be held liable if the said acts are done within their knowledge. The data of the SFIO shows that they have probed nearly 200 cases in the last few years and nearly 100 of the cases came under the scanner. Considering the latest scam in our country, the MCA has ordered 110 companies to be investigated through SFIO and some of the companies are also listed ones and linked to Mr.Nirav Modi and Mr.Mehul Choksi. Although it has been opined by many industry experts supporting the SFIO as an organisation acting as a watchdog for the Indian Corporate the Central Government itself does not take it seriously.

In this article, Sai Manoj Reddy, pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses on the forfeiture of shares and its effects.

Introduction

What is forfeiture of shares?

Forfeiture of shares is a process where the company forfeits the shares of a member or shareholder who fails to pay the call on shares or instalments of the issue price of his shares within a certain period of time after they fall due. In other words, when the shareholder fails to pay the full amount of share which he agreed to pay in instalments the company can cancel his shares.

Legal Framework

When the shares are issued by the company, generally the shareholders are not asked to pay the whole amount of share at once. It happens in instalments. The company makes these calls on shares when it requires further capital.

The company may call up the unpaid money from the shareholders when it is needed from time to time. The board of directors are required to pass a resolution for making a call on shares. The articles of the company should contain the provisions regarding this call on shares and if nothing is mentioned in the articles then Regulations 13-18 of table F of Schedule I of Companies Act, 2013, will apply.

Those provisions provide that

1. the amount called must be not more than one-fourth of the face value of share;
2. the dates of two consecutive calls must differ by at least a month;
3. a minimum of fourteen days’ notice must be given to members;
4. the notice has to mention the time, place and amount of the call on shares.

Generally, the company will give 14 days’ notice to the shareholder and after 14 days if the shareholder is not willing to pay the money due to the company will forfeit the shares of that shareholder.  

The relationship between shareholder and company

Now if we look at the relationship between a shareholder and the company, it is a contractual relationship. The shareholder applies for an offer from the company and gets shares allotted. This process is nothing but the shareholder entering into a contract with the company as the offer and acceptance along with some consideration become a valid contract between him and the company. This contract makes it binding upon the shareholder to pay-up the amount due on the issue price of the share when company calls for it through the call on shares.

So the non-payment of call on shares amounts to a breach of contract by the shareholder, and therefore as per the terms and conditions of the issue of shares and after allowing the shareholder prescribed time and opportunity, if he still fails to pay the money due, the company can forfeit the shares of that shareholder. Shares which are forfeited will no longer remain the shares of that shareholder. The money paid by that shareholder is also not refundable by the company.

What happens after the shares are forfeited?

After the shares are forfeited, they may be either disposed of or they may be reissued to some other person. The only condition in reissuing the forfeited shares is that the price which will be fixed by the company for reissue of the forfeited share (i.e., the price of the reissued share + amount paid by the former owner of the share) should not be less than the face value of the share. This is done to ensure that the shares are not allotted at a discount.

If the previous shareholder (whose shares has been forfeited) requests the company to cancel the forfeiture, the board of directors can at any point before the reissue or disposal of such shares can cancel the forfeiture of shares in terms as the board thinks fit. For this, the board of directors has to pass a resolution to cancel the forfeiture.

Illustration

Pilot Ltd. has issued 1,00,000 equity shares of face value of Rs. 1000 each. The company set up its amount on the share as Rs. 100 at the time of application, Rs. 200 at the time of allotment, Rs. 300 per share on making the first call, and Rs. 40 on the final call.

Mr. Manoj has been allotted 400 shares by the company and while the final call of Rs. 400 is made by the company he was unable to pay the money for that final call. The company gave prescribed time period and notice to Manoj and even after that he failed to pay the money.

Now the company can forfeit the shares of Manoj and he ceases to be a member of the company and loses all rights on the shares he held.

Now Pilot Ltd. decided to reissue the forfeited shares to Mr. Rishvik and the minimum price at which the shares can be issued should not be less than Rs. 400. This is because the amount of money paid by Manoj (previous holder) is Rs. 600 and the face value of the share is Rs. 1000. Hence Rs.600 + Rs.400 will amount to 1000 and any amount which is less than Rs. 400 will amount to issuing the shares at a discount which is prohibited under section 53 of Companies Act,2013.

Now if Mr. Manoj comes and pleads with the company to cancel the forfeiture of shares after the reissue of the forfeited shares to Mr. Rishvik. This cannot happen because the board of directors has the power to cancel the forfeiture only before the disposal or reissue of shares as per regulation 31(2) of Table F, Schedule I of Companies Act, 2013.

Procedure for forfeiture of shares

Forfeiture of shares is a serious step since it involves in depriving a person of his property as a penalty of some act or omission. Accordingly, shares of members cannot be forfeited unless the articles of the company confer such power on the directors. The forfeiture of a share should happen only for the non-payment of the call on shares by the members and in accordance with articles of the company. But forfeiture can also be made for any other reasons which are specified in the articles of the company. Companies normally have their own rules and regulations regarding the forfeiture of shares and in case if those provisions are not present then the Regulations 28-34 of Table F of Schedule 1 of Companies Act, 2013 will apply.

The following is the procedure:

• In accordance with articles

Forfeiture of shares must be in accordance with the provisions contained in the articles of the company to be treated as valid forfeiture. The power of forfeiture of shares must be exercised bona fide and in the interest of the company. Thus, where the articles of the company authorize the directors to forfeit the shares of a shareholder, who commences an action against the company or the directors, by making a payment of the full amount of his shares, was held that such a clause was invalid as it was against the rights of a shareholder [Hope v. International Finance Society (1876) 4 Ch. D. 598]

• Proper notice

A proper notice under the authority of board must be served on the defaulting shareholder. The notice should mention that the shareholder has to pay the amount on a day specified which would not be earlier than fourteen days from the date of notice served. This is provided under Regulation 29 of Table F. the notice should also mention that in the event of non-payment, the shares will be liable to be forfeited.

The objective of sending the notice is to give the defaulting shareholder an opportunity to pay the call money, interest and any other expenses and hence notice should disclose enough information with particulars to the shareholder.

“A proper notice is a condition precedent to the forfeiture of shares and even the slightest defect in the notice will invalidate the forfeiture”. [Public Passenger Services Ltd. v. M.A. Khader [1996]]

A notice sent for forfeiture by registered post was returned unserved, the forfeiture will be held invalid” [Promiela Bansali v. Wearwell Cycle Co. Ltd. [1978] 48 Comp. Cas. 202 (Delhi).]

A notice sent to the holder of a partly paid share after his death is not a proper notice. Notice in this kind of situations is to be sent to the legal heir [George Mathai Noorani v. Federal Bank Ltd. [2007] 76 SCL 528 (CLB).]

• Resolution for forfeiture

If the defaulting shareholder does not pay the amount within the specified period mentioned in the notice properly served to him, the directors of the company may pass a resolution forfeiting the shares under regulation 30 of Table F. in the absence of such resolution the forfeiture shall be invalid unless the notice of forfeiture incorporates the resolution of forfeiture as well. For example, the notice may state that in the event of default the shares shall be deemed to have been forfeited.    

Effects of forfeiture

Cessation of membership

A person whose shares have been forfeited ceases to be a member in respect of forfeited shares. This is provided under regulation 32(1) of Table F of schedule 1 of Companies Act, 2013.

Cessation of liability

The liability of a person whose shares have been forfeited comes to an end when the company receives the payment in full of all such money in respect of shares forfeited. This is provided in Regulation 32(2) of Table F.

However, notwithstanding the forfeiture of shares, shareholder remains liable to pay to the company all money which, at the date of forfeiture, were payable by him to the company in respect of forfeited shares. Thus, the liability of unpaid calls remains even after the forfeiture of shares.

Liability as past member

The liability of a former shareholder remains as a liability of a past member to pay calls if liquidation of the company takes place within one year of the forfeiture.

Forfeited shares become company’s property

The forfeited shares become the property of the company on forfeiture. Accordingly, these may be re-issued or otherwise disposed of on such terms an in such manner which the board of directors thinks fit. This provided under Regulation 31(1) of Table F.

In the same Regulation clause (2) provides that at any point of time before a sale or disposal of forfeited shares the board may cancel the forfeiture of shares in terms as they think fit.

In this article, Daksh Gautam, pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses whether a company director can be an employee of another.

Introduction

Who is a director?

A director is a person from a group of managers who leads or supervises a particular area of a company. The company that uses this term often has many directors spread throughout different business functions and roles.

Director under Companies Act, 2013

In Section 2 clause (34) of the Act prescribes that “director” means a director appointed is a person appointed to perform the duties and functions of the director of a company in accordance with the provision of the Companies Act 2013

Types of Directors

There are various types of directors. They include:

• Residential Director
• Independent Director
• Small shareholders Director
• Additional Director
• Alternate Director
• Shadow Director
• Nominee Director

In simple words, there are two main types of directors known as “Executive” and “Non-executive” Director.

An executive director can be a whole time Director of the company i.e. a person who devotes his whole time of working hours to the company and has a significant personal interest in the company as a high source of income.

In contrast, the non-executive director is a Director who is not a whole time Director he does not get involved in the day-to-day work but is involved in planning exercises of the company and policymaking.

Role and Functions of a Director

A Director is a person who determines future of a company. All essential decisions of the company or organization are taken by a director. He focuses on:

1. Effective management and
2. Efficient performance

A director of a company has various roles to play – as a legal officer, an employee, an agent of the company etc. With the variety of roles comes various functions and responsibilities.

Read on the duties of a director here

Can a Company director be an employee of another company?

Definition of an employee

An employee is an individual who was hired by an employer to do a specific job. the employee is hired by the employer after an application and interview process results in his or her selection occurs after the applicant is found by the employer to be the most qualified applicant to do the job.

Under Companies Act 2013 – what does it say?

The Companies Act, 2013 was introduced to bring forth changes in company law to match current business trends. There is no provision that expressly mentions that a director can be an employee of another company nor does it prohibit the same.

The director is on the driver’s seat for the company, the director is responsible for its company’s existence and future depends on the director’s intellect and his ability to predict a situation.

In short if one is an executive director then it is quite difficult for one to be an employee, for obvious reasons as it could be challenging and pushing human limits and ability.

It is easy to become an employee or a director in another company/organization when you are on the non-executive part of directorship.

Example

Mr. A, an employee in company VCF Ltd. wants to start his own startup, Intelligent Biz Solutions Ltd. and act as a director in the same. Will he be allowed for the same?

Possible hiccups

Employment Contract

If the employment contract between Mr. A and VCF Ltd. strictly prohibits Mr. A from taking up another employment during the term of his present employment, then he may face legal challenges prohibiting him from working in both places at the same time. He will have to choose one of the options.

Time constraints

He may not have the time to provide both the jobs with his best. He will be able to focus fully on being an employee at VCF Ltd. by meeting deadlines and other employment related activities or he can focus on getting investments, approvals etc as a director in the startup. Doing both is a far cry.

Low efficiency

As stated before, the director plays an important role in the company –  from making decisions to taking responsibility for the company in crisis. Working in two jobs will lower the efficiency of the person as a director of one company as well as an employee of the other company.

Conflict of Interest, Breach of confidentiality etc.

In the case where both the business concerns pertain to the same field, there is a high chance that certain business concerns may overlap. This could result in various issues such as possible conflict of interest/breach of confidentiality etc.

Conclusion

Director is a proper/trusted authority of a company but there is nothing that prohibits him from being an employee of any other company. Also, it becomes easy if we can determine his position in the company. The act doesn’t prohibit it and it can rather be said that act is silent on it and there is no laid provision regarding it, neither there is any leading case where it has been opposed because anyway he can be director of 20 companies at a time. So, mere employment won’t have any effect on the company where he holds the position of director.

Points to be kept in mind

• You can be an employee of another company while being a director of a company – Companies Act, 2013 does not clearly specify or prohibit the same.
• There are possible hiccups that one may face while being in such a situation – Low efficiency, time constraints, conflict of interest etc.
• Check your employment contract thoroughly before signing – some contracts contain specific clauses which prohibit the employee from having two jobs at the same time

In this article, Sandip Ghosh, a student pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses the laws to be kept in mind while naming your company

Introduction

Why is Company name important?

The Company name whatever we choose plays a monumental role in the brands’ growth and perception, i.e. it can completely make or break a Company. We are aware of the power of brand image in today’s world for e.g. Apple, Amazon etc. and how their names are creating magic in people’s mind. The Company name puts a deep impact on the Customer’s mind in various ways. Some of the ways how a company’s name plays a significant role are discussed below:

It’s the first thing the customer sees

The first thing a Customer sees is the name of the Company which creates an impression in his/her mind about the nature of the business. A catchy name will always help in putting the Brand’s presence in the customer’s mind and help in retention as well.

It tells about the company’s nature of work

Let’s take the example of Apple, the specific values and beliefs are attached to the name, and the brand is also solidified because of the same.

It provides a unique take on the Industry

There could be different companies which deliver similar kind of services or sales product. The name of the Brand or Company creates the difference in Customer mind.

The above-mentioned things clearly state that how important it is to choose the correct name for a Company. 

Guidelines as per Company Act 2013

The draft rules under the Companies Act 2013 talk about the naming of the Company such as (Private Limited, Limited or LLP). As per the Act, the name should be unique and desirable.

Conditions to be followed for a name to be ‘unique and desirable’

• The proposed name should not be identical with another surviving name: To identify the name is identical or not following measures are to be taken.
• Plural Version:  The plural version of any words appearing in the name of an existing Company does not make a name unique. For e.g., If a company exists with a name of” Axe Foundation Private limited Company” already then the name “Axes Foundation Private Limited “will not be allowed or be treated as unique.
• Types, Letter case, Spacing or Punctuation marks: Changes made in the name as mentioned are not treated as unique. For e.g., If a company exists in the name of “Duplex India Private limited” then the names such as “DUPLEX India Private limited”, “DuplexIndia Private Limited”, “Duplex-India Private Limited “ are not allowed.
• Joining or Separating Words: For e.g. If a company exists with a name of” Acme Foundation Private Limited” then “AC ME Foundation Private Limited” or ”ACMEFOUNDATION Private Limited” is disallowed.
• Using different tense or number with the word: For e.g., If a company exists in the name of “Duplex India Private limited” then “Duplex’s India Private Limited” or “Duplex 1 India Private Limited” is disallowed.
• Different Phonetic variations or spelling variations: For e.g. If a company exists in the name of “D.P. Private limited” then” D and P Private Limited” or “Dee Pee Private Limited” is disallowed.
• Misspelling of the word intentionally: For e.g. If a company exists in the name of “Duplex India Private limited” then “Duuplexx India Private Limited “ is disallowed.
• Adding Internet designations: For e.g., If a company exists in the name of “Duplex India Private limited” then “ Duplex India.com Private limited” or “Duplex India DOT COM Pvt Limited”  is not allowed.
• Addition of Common Names or titles:  The name such as New, Modern, Shri, Shree etc. does not provide a unique identification. For e.g., If a company exists in the name of “Duplex India Private limited” then” The Duplex Private Limited “ or” New Duplex India Private Limited will not be allowed.
• Addition of name of Place: Only adding a name of a place does not make it unique. It may be done only if no objection has been obtained from the existing Company by submitting Board resolutions. For e.g., If a company exists with a name of” Acme Foundation Private Limited” then” Acme India Foundation Private limited” will not be allowed.
• Combination difference of the same words: For e.g., If a company exists with a name of” Contractors & Builders Ltd” then “ Builders & Contractor Ltd” will be disallowed.
• Translation of words: If the proposed name is found to be the translation or conversion of Hindi or English of the existing company it will be disallowed.

The proposed name should not be undesirable

The name is considered to be undesirable if it violates the following rules:

• Emblem and Name Act: The proposed name should not violate rule no 3 of the Emblems Act 1950.
• Violation of the rules of trademark: The name that had been proposed should not violate the rules of a registered trademark or a trademark which is subject of 8 applications for registration unless the consent of owner or applicant of registration is obtained.
• Offensive words: The proposed name should not contain any words that are offensive to any section of people.

The other conditions behind the above rules

• The proposed name should be in consonance with the principal object of the Company set out in the memorandum of association.
• If the companies main business is of finance, chit fund, investments, securities etc., the Company must put the same indication in their proposed name also.
• The name that indicates a separate type of business constitution or legal person such as co-operative, Inc., shekari, trust, LLP, partnership etc. then it is not allowed.
• The name containing British India is not allowed.
• The name which is associated with an embassy, foreign government or consulate is not allowed.
• Any name proposed that implies of any Patriotic person, highly positioned person in government or a national hero, then that name will not be considered.
• The abbreviation or vague words used in names are not considered.
• If any Company had been dissolved as a result of the liquidation processing same name could be used after two years from the date of dissolution.
• The proposed name if found identical to the name of the Company under Section 248 of the Act was struck off, then it is not allowed up to twenty years from the publication in the official gazette being so stuck off.
• The name that is identical of an LLP or LLP under liquidation process or stuck off for five years is not allowed.
• If the proposed name carrying the following in it such as Bank, Institute, Stock Exchange etc. then it is mandatory to take clearance from the respective regulators such as IRDA, RBI, SEBI, MCA etc.
• The word “state” can only be used in case of Government Company.
• The names that contain a generic name such as a continent, country, state, city such as, Haryana Ltd, Gujarat Ltd etc. and general one like Cotton Textile Mills, Silk Manufacturing Ltd are not allowed.
• If a proposed name contains any name of foreign country or states of foreign countries, it can only be allowed if the applicant can produce a relevant document such as MOU with that country. No one is allowed to use the name of any enemy country.
• Approval required from Central Government for using the following listed names in the Company such as Board, Commision, Authority, Undertaking, National, Union, Central, Federal, Republic, President, Rashtrapati, small-scale industries, Khadi and village industries corporation, Chief Minister, Minister, Forest Corporation, Development scheme, statute or  statutory, court or judiciary, Governor, development scheme, state, India, Bharat, etc.

Companies Incorporation Act Amendment rules 2016

The Ministry of Corporate Affair (MCA) had made an amendment on rule no.8, 9, 36 of Companies Incorporation Act 2014 (hereinafter referred as the principal rules) vide notification dated January 22, 2016.

The changes in the principal rules that are made stated as follows:

Amendment in Rule 8

Rule no. 8 of the principal rules state the names that are undesirable for incorporating a name for a Company. The Government had made some changes by omitting the following conditions in the rules by the amendment:

• The name which is not in consonance with the principal objects of the Company as set out in the memorandum of association.
• The proposed name is vague or an abbreviated name such as “ABC Limited” or “23K limited” or abbreviated name based on the promoter.
• The name of the Company will be considered undesirable if it does not disclose the scope of the scale of the activities which would be beyond the resource of its disposal.
• If the Company changes its activity, the name of the Company must be changed in a line of the activity within six (6) months’ time period complying with all the provisions that are applicable for changing the names.
• If the name that is proposed is other than the name(s) of the promoters or their close blood relatives, no objection from such person should be attached with the application of the name. In case the name used is of the relatives, a copy of proof need to be attached along with the application to furnish the significance for using of the coin words made out of the name of promoters or their relatives.

Amendment in Rule 9

Reservation of name

The application for reservation of the name must be made through the form no. INC 1 along with the fees as provided in the Companies (Registration and fees rules 2014), which may be rejected or approved by the Registrar “Central Registration Center. Therefore, it is mandatory that all the application for names will be approved by Registrar “Central Registration Center, New Delhi.

Amendment in Rule 36(12)(ba)

After resubmission of the form for two times, a third opportunity must be provided to rectify the same by the Registrar if he founds the documents is incomplete or defective.

A time limit of 30 days is allotted for resubmission.

In the principal rules, the Rule 36 (12) (c) for the opportunity of two submissions has been revised with three submissions.

The Form INC -1. has also revised.

With the introduction of the Digital system in the Country, Government had taken steps to introduce digitalization in filling incorporation of a Company in the year 2018.

The MCA vide notification GSR_E dated 20.01.2018 in an exercise of the power conferred by subsections (1) and (2) of Section 469 of Company Act 2013(18 of 2013) has made an notified the Companies Incorporation Act 2018, further to the amendment of Company Act 2014. It had been introduced on 26.01.2018.

The major changes in key points have been highlighted here

• The incorporation of the Company can be done with the prior approval or using spice form wherein the incorporation form is included in the name is acceptable to MCA. The entrepreneurs can now submit their unique name of the company through the SPICE form saving valuable time and money. If they wish to use an existing name of a Company or LLP or trademark then prior approval can also be obtained from MCA.
• The introduction of RUN form has also simplified to reserve a Company name even before obtaining the digital signature. A fee of Rs.1000/-only is to be provided irrespective of whether the name is approved or not.
• To apply with the RUN web-form one have to create a free MCA account. After logging into the account, the Entrepreneur can choose a type of Company he wishes to register and provide a single name to get it checked against the MCA database of Company and LLP name.
• With the submission of Rs.1000/-, the requested name will be checked by the MCA personnel at the Central Registration Center (CRC) against the company, LLP or trademark after it is found to be a unique name and conforms to Company Act 2013 as per the database an email of confirmation will be sent to the registered email id of the applicant.

The Company name availability can be checked through here

The MCA is constantly trying to provide a simplified way to the applicants for incorporation of the Company. They had offered zero fees for new Startups hence the entrepreneurs can save few thousands at the time of incorporation. Though the incorporation fees have been made zero for the SPICE form, eMOA, eAOA but the stamp duty will remain there as per the state of incorporation.

Conclusion

The importance of the name of the Company is not only just a name; it’s the identity of an entire brand. It deserves time and attention, and when handled properly, it’ll change a business forever. With the changing world and increasing interest Government is also moving a step ahead to simplify the mode of incorporation through digitalization helping and inviting the new business entrepreneur to fulfil their dreams.

In this article, Varsha Jhavar pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses on legal compliances needed for biodiversity-related activities in India.

Introduction

India is a country with varied topographies, the mighty Himalayas spanning in the north, the desert to the west, the wetlands to the east, and the Indian Ocean to the south.

What is biodiversity?

The word ‘biodiversity’ is a portmanteau of the words ‘bio’ and ‘diversity’. It means the variety and variation in life forms like plants, animals, microorganisms, or an insect found within the biosphere. It includes microscopic single-celled organisms as well as highly complex organisms. It is the existence of these different plants, animals, habitats, ecosystems that make our planet so unique and our life interesting.

The ecosystem we live in would not be possible without biodiversity. We depend on biodiversity for satisfying our basic needs for survival like food, clothing and shelter.

Biodiversity in India

India occupies only 2 per cent of the available landmass but harbours 8 per cent of the world’s diversity. It is one of the 17 megadiverse countries in the world. The number of varied terrains and climates existent on the Indian subcontinent is unique and home to more than 50,000 species of plants and 40,000 species of animals. With a long coastline of 7516 km and the land frontier of 15000 km, it is one of the richest countries in terms of biodiversity.

India is home to 7.6 per cent of species of mammals all over the world, 12.6 per cent of species of birds, 6.2 per cent of species of reptiles, 4.4 per cent of species of amphibians and 11.7 per cent of species of fishes. India is home to four of the thirty-four biodiversity hotspots all over the world. Two of them, the Himalaya and Western Ghats lie entirely within the territory of India.

The loss of biodiversity is irreversible and hazardous. The cultural diversity that exists today is a result of biodiversity and when biodiversity is at stake so is cultural diversity. It affects the food chain and livelihood and the culture of millions.

The Biological Diversity Act, 2002

The Biological Diversity Act, 2002 was brought into force to fulfil the obligations under Convention on Biological Diversity (CBD) which was ratified by India.

The Biodiversity Act, 2002 also did the task of filling the gap in the legislation left by the previous environmental legislations like the Indian Forest Act, 1927, Wildlife Protection Act, 1972, Environment Protection Act, 1986.  A strong legislation was needed to protect India from bio-piracy after it became an open economy in 1991. Hence the Act was passed in 2002, with the objective of conservation of biological diversity.

The Act was enacted to regulate the use and exploitation of biological resources of the country. The purpose was to protect the knowledge of biodiversity held by the local communities. It also involves the constitution of committees for implementing the provisions of the Act. The Act intends to protect and rehabilitate threatened species.

Legal compliances for biodiversity-related activities

Persons who cannot undertake biodiversity-related activities

Section 3 of the Biodiversity Act, 2002 states the persons who cannot undertake biodiversity-related activities without the permission of the National Biodiversity Authority.

• Subsection (1) of section 3 states that no person referred to in subsection (2) shall without previous permission of National Biodiversity Authority get any biological resource present in India as well as knowledge associated to it for research or commercial purposes.
• Subsection (2) of section 3 contains the list of people who are required to take permission, persons who are not citizens of India, a non-resident citizen as defined under Clause 30 of Section 2 of Income Tax Act, 1961, and a body corporate, association or organization which has not been incorporated or registered in India and also an organisation though incorporated and registered in India but has in share capital or management non-Indian participation.

Transfer of results of research

Section 4 of the Act is regarding the transfer of results of research relating to any biological resources to a non-citizen or non-resident Indian for monetary consideration, it cannot be done without previous permission of the National Biodiversity Authority. The transfer does not mean publication of research papers or dissemination of knowledge in seminar or workshops.

Sections 3 and 4 not to apply to certain collaborative research projects

• Subsection (1) of Section 5 states that the provisions of Section 3 and 4 do not apply to collaborative research projects which involve the transfer or exchange of biological resources or information thereto among institutions, including Government sponsored institutions of India, and such institutions in other countries, if the conditions mentioned in subsection (3) are fulfilled.
• Subsection (2) of Section 5 of the Act states that all collaborative research projects other than the ones mentioned in subsection (1) shall remain in force except for the provisions of the agreement that are not consistent with the provisions of the Act. According to subsection (3) of section 5 of the Act, the collaborative research projects should conform to the guidelines issued by the Central Government and should be approved by the Central Government.

Application of intellectual property rights

Section 6 is concerned with the application for intellectual property rights for any invention based on any research or information collected on a biological resource obtained from India.

• Subsection (1) states that application of intellectual property rights should not be without the prior approval of National Biodiversity Authority. If a person applies for a patent, he can seek permission after applying for the patent but before the sealing of the patent by the patent authority.
• Subsection (2) of Section 6 states that the National Biodiversity Authority can, while giving approval levy a benefit-sharing fee or royalty or both or impose conditions comprising the distribution of financial benefits arising out of commercialization of such rights.
• Subsection (3) states that the provisions mentioned under section 6 shall not apply to any person who is applying for any right under a law relating to the protection of plant varieties enacted by the Parliament.
• Subsection (4) of section 6 states that where a right has been granted under subsection (3) then the authority granting approval shall endorse a copy of such document to the National Biodiversity Authority.

Compliance for Indian citizens for obtaining biological resource for certain purposes

Section 7 of the Act discusses the legal provisions which have to comply with by Indian citizens. It states that any citizen of India or a body corporate, association or organization which has been registered in India, shall take biological resource for commercial use or bio survey and bio utilization for commercial use without obtaining prior permission from the concerned State Biodiversity Board. The above provisions shall not apply to the local people and growers and cultivators of biodiversity, vaids and hakims.

Penalties

Subsection (1) of Section 55 states the punishment a person will get if he contravenes or attempts to contravene the provisions of Section 3 or Section 4 or Section 6, he will be imprisoned for a period extending to five years or fine which may extend to ten lakh rupees and if the damage caused is more than ten lakh rupees, the fine will be proportionately adjusted or both. Whosoever contravenes the provisions of Section 7 or any order under subsection (2) of Section 24 shall be punished with imprisonment for a period extending to three years or with fine up to 5 lakhs or both

Establishment of National Biodiversity Authority

The National Biodiversity Authority is established under Section 8 of the Act. The section states that the National Biodiversity Authority shall be a body corporate having all the features of a company like perpetual succession, common seal etc.

Subsection (3) of Section 8 states that the head office shall be located in Chennai and offices can be set up at other places with the previous permission of the Central Government. The National Biodiversity Authority consists of a Chairperson, an eminent person having knowledge in the field of biodiversity and three ex-officio members one representing Tribal Affairs ministry and two others representing Environment and Forest ministry. All of them shall be appointed by the Central ministry.

The organisation

A three-tier system was set up under the Biodiversity Act, a National Biodiversity Authority at the centre, state biodiversity boards (SBBs) at the state level and biodiversity management committees (BMCs) at the local level. The functions of these authorities include the regulation of the activities of, advising the Government in matters of biological diversity, sustainable use of its components, and equitable sharing of profits. It also includes granting of the approval under Sections 3,4 and 6 of Biodiversity Act, 2002.

Conclusion

India has made a framework regarding biodiversity which holds great significance in the protection of the environment. The present policy has some deficiencies which need to overcome. The solution is to make amendments and focus on implementation and adopt a stronger proactive community involvement. Through the creation of awareness, the citizens can be mobilised and change can be brought about in the current situation of biodiversity. Once the people are aware and know the consequences they can work towards protection and preservation of the environment. Awareness has to be created at the grass root level, the local communities need to be made aware of the Biological Diversity Act. Together we are stronger rather than few individuals trying to make a difference.

In this article, Yash Kansal discusses the provision of Res Judicata under the CPC.

Introduction

Under the Roman law, “ex captio res judicata” means “one suit and one decision is enough for any single dispute”. The doctrine has been accepted in all civilized legal system. In India, it is governed under Section 11 of Civil Procedure Code, 1908 which provides that once a matter is finally decided by a competent court, no party can be permitted to reopen it in a subsequent litigation. In Satyadhyan Ghosal v. Deorjin Debi [1], it was held that the principle of res judicata is based on the need of giving finality to judicial decision. Further, in the absence of such a rule, there will be no end to litigation and the parties would be put in constant trouble, harassment, and expenses.

Object

The doctrine is based on three maxims:-

• No man should be vexed twice for the same cause.
• It is in the interest of the state that there should be an end to litigation.
• A judicial decision must be accepted as correct.

Conditions for application of Res Judicata (Section 11 of CPC,1908)

• There must be two suits – One former & other subsequent: Former suit means previously decided suit. It doesn’t matter when the suit was instituted. What it matters is when the decision came from the court. For example,

• Matter directly and substantially in the subsequent suit: It means that matter must be directly related to the suit. It must not be collateral or incidental to the issue. For example, ‘A’ and her mother filed a suit against her father’s brother for claiming a share in the property of her mother. The question of marriage expenses was not directly or substantially in issue. The claim of partition was dismissed by the court. However, the principle of res judicata doesn’t bar ‘A’ to file a subsequent suit for her marriage expenses as the matter was not directly in issue in the former suit.
• There must be same parties: The parties to a suit are those whose name appears on the record of the suit at the time of the decision. A party who withdraws or whose name is stuck off is not considered as a party. Further, a minor not represented by the guardian for the suit is not a party to the suit. Where any decision made by the court in favor of or against any party then it not only binds the party but also their successors too. For an instance, a suit filed by any person for recovery of possession and ownership title and the court decided in his favor, then his legal heirs also considered as the parties after his death and res judicata will apply.
• There must be the same title: ‘Same title’ means ‘in same capacity’. It has been held in the number of cases that ‘a verdict against a man suing in one capacity will not stop him when he sues in another capacity’. For example, ‘A’ file suit against ‘B’ as the owner of property and suit is dismissed by the court. Later on, he filed a suit to claim his right as mortgagee will not bar him to institute a subsequent case. So where the suit is filed in a different capacity then it is considered to be a valid suit and doesn’t bar by this doctrine.
• The decision must be made by the competent court: The Former decision must be given by competent court having jurisdiction on the case. If the case is decided by the court has no jurisdiction over the subject matter then res judicata will not apply. For an instance, revenue courts exercising authority under the Act can be held to be a court of limited jurisdiction and decision by it within its competence will operate as res judicata.
• Heard and finally decided: The matter directly & substantially in issue in subsequent suit must have been heard and finally decided by the court in a former suit. “Heard and finally decided” means that the court has exercised its judicial mind & after argument and consideration came to decision on contested matter and decision is made on the merits of the case. In following cases the matter is deemed to be finally decided on merits even if the former suit is disposed of in the following manner:

1. By ex parte
2. By dismissal
3. By decree on an award
4. By oath tender under section 8 on Indian Oath Act,1873
5. By dismissal owing to plaintiff failed to produce evidence at the hearing.

Does Res Judicata Apply To Writ Petition?

In Daryo Singh v. State of U.P. [2], the petitioner has filed a writ petition in High Court of Allahabad under Article 226 and it was dismissed. He further filled writ petition in Supreme Court under Article 32 of the constitution for same relief and same ground. The Supreme Court dismissed the petition and upheld the contention of High Court. Hence the principle will also apply to writ petitions.

However, it may be noted that the doctrine of Res Judicata will not apply to a writ of “Habeas Corpus”.

Foreign Judgements

Sectio  13 provides that foreign judgements may operate as res jusicata except in following six cases:-

• Where the decision is not given by the competent court.
• Where the decision has not been given on the merits of the case.
• Where the judgement is found to be incorrect with the view of international law.
•  Where the judgement opposed to the doctrine of natural justice.
• Where the decision has been obtained by fraud
• Where the judgement found to be on breach of law enforced in India.

Note – Res Judicata is not violative of Article 14. Hence, reopening of such decision on the ground that it is violative of Article 14 is not permissible.

References:

[1] A.I.R. 1960 SC 941

[2] A.I.R. 1961 SC 1459

Book referred – T.P Tripathy ( CPC,1908)