This article is written by Team iPleaders. For the first time in India, a National Law University in collaboration with India’s biggest online legal and regulatory course developer iPleaders is offering an exclusive program in Corporate Social Responsibility for Indian executives.

Born to a humble family in Orissa, young Lopamudra always dreamt of sustainable social development, but simply settled for a diploma in Hotel Management and Catering technology. A little courage two years later landed her in pursuing BA from Utkal University. Working as an Industrial Trainee and Food and Beverage Assistant, her dream was still intact. She went ahead with her masters in Human Resource from the University of Luton. It was then she started pursuing her passion, and her efforts have made her what she is today, Dr. Lopamudra Priyadarshini, is presently the Head CSR of Sonalika Group – International Tractors Limited, and has been awarded prizes by Late President of India Dr. APJ Abdul Kalam and recently from Shri Pranab Mukherjee.

This is one of the numerous success stories, which has changed the face of CSR in India.

Do you know, that CSR is one of the biggest unorganized sectors in India?

Do you know, that post-2013, CSR roles have increased in size and remuneration by 40-50%?

Do you know, CSR industry currently has more than 50,000 openings on various levels and not enough qualified experts?

What was assumed to be a mere social obligation on the part of Companies at their discretion is now a mandate which companies cannot avoid. After the notification of section 135 of the Companies Act, 2013 along with Companies (Corporate Social Responsibility) Rules, 2014 the regime of CSR is on a constant uphill.

CSR is commonly understood as means for a company to achieve a balance of economic, environmental and social vitality, without compromising with the expectations of vendors, shareholders. Thus, generally, the HR managers, administrative managers, lawyers, marketing and communications individuals usually end up in the CSR department. Those with prior work experience, interest in CSR and some understanding of CSR work are likely to make the cut.

Ratification of section 135 has opened gates for professionals and freshers alike in various big corporate houses as it mandates companies having a total net worth of INR 500 Crore or more, or a turnover of INR 1000 Crore or more, or net profit of INR 5 Crore or more during a financial year to constitute a Corporate Social Responsibility Committee of the Board. The responsibility of the board is to ensure that a policy is formulated and implemented which ensures 2% investment of the average net profit of the 3 preceding years into CSR. This sudden compliance parameter has triggered the companies to go on the hiring spree and seek individuals who have relevant experience or practical knowledge about CSR.

“There is demand for people who can identify and articulate proposals, deploy projects, attract funds, work out the budget,” says Aditya Narayan Mishra, President Staffing, Randstad India, in an interview with Economic Times. In the same interview, Saket Jain, Managing partner of Vito India (executive search firm) estimates that the requirement is of 3-4 individuals in each organization, which roughly adds up to 45,000 to 50,000 new recruits needed in the industry.

Subsequent to the notification, about approximately 16,000 companies fall under the threshold limit of CSR which could result in a generation of about 22,000 Crores for CSR activities. This has further led to a reduction of state interference and growth in Company’s responsibility furthering the scope of CSR professionals. Thus, the need for managers from various sectors to manage this sort of money and take care of compliances is pivotal for every company falling within such regulatory ambit.

This step of Government has effectuated not just better corporate governance, but other healthy business ethics such as ensuring better labor care and services, better work environment for women, and manufacturing which does not hamper the environment. All these add up to the work of various HR executives and managers of all verticals. It has further lead to a never seen before need for compliance observance and management bandwidth, as budgets are big and most companies are playing in uncharted territories working or engaging with various communities resulting in a need of professionals with a different kind of skillset. Also, the need for specialized compliance professionals and auditors for CSR activities has increased as well.

Corporate Social Responsibility has diverse activities to offer. The reason for it is the affinity towards a social cause that particular organization may have. For eg., while Reliance has projects running for community development, infrastructure and environment, education and skill enhancement and community healthcare, Aditya Birla Group runs its projects around the theme of Rural Development. Not just that, CSR related opportunities can be found and bifurcated into various verticals of private, public and voluntary sectors.

What are the opportunities available to you?

As on date, the number of jobs available for this unheard profile on online portals is near about 10,000 with 8505 jobs available on monster.com, 1207 available jobs on Naukri.com, 877 on shine.com and 102 on linkdin.com which outweigh a number of other portfolios. It is pertinent to note here that these numbers are just on online platforms, where the majority of the recruiters are hiring professionals from other departments laterally. Also, it is assumed by industry standards that for every 10 jobs that are advertised there are another 80 non-advertised vacancies. So, it is only fair to assume that the number of CSR jobs available in reality is much higher.

Let us take a look at opportunities available in each of these sectors.

1) Private Sector

The larger companies are taking CSR as an opportunity rather than just compliance. Engaging communities and developing them can be extremely beneficial for a business and there are some very successful models of CSR that tremendously grew brands, created a symbiotic relationship between communities and businesses and created lasting legacies. Also, CSR is an excellent way to engage employees.

Individuals recruited for CSR are required to take care of all CSR related activities like formulation and implementation of CSR policy, coming up with plans that ensure maximum RoI from CSR activities, creating a budget and proper allocation, publicity and media coverage of CSR initiatives, an audit of CSR projects and actually ensuring the projects are successful. Bigger Companies have started coming up with a separate CSR department altogether, which ensures dedicated bandwidth and large-scale implementation of well-funded projects. Sometimes there are multiple projects being managed simultaneously, requiring larger teams. For example, Reliance is running projects around 9 major heads and Aditya Birla Group has approximately 30 projects around 5 major heads.

In several other smaller companies there may be no independent CSR teams, departments or specific CSR manager, but they may give the responsibility of CSR to any particular department or divide it amongst human resource, marketing and communications, finance, compliance or operations. For example, various companies like TCS, Capgemini, Cognizant etc., have dedicated compliance teams which execute CSR operations through the standard back office and front office departments, managed by their respective managers. Naturally, a manager here who has any credibility or past experience regarding CSR is likely to be given preference for this sort of work over others.

Opportunities are not just restricted to big corporate houses alone, legal and accounting firms are also coming up with CSR consultancy and case by case basis solutions. The pre-existing CSR client services firms have also upgraded the game and are offering good packages at an entry level.

With approximately 160 penal cases already initiated against various firms for non-compliance with CSR, even the Law Firms and individual practitioners have entered the CSR arena. Further, the mandatory disclosure requirements by the current law have made the individuals with CSR experience or fresher as one of the most required individuals in the recruitment market.

It is undeniable that the public expectations of large business houses have skyrocketed ever since the law has been notified. With an important role to play in the society and development of the country, and the power to do so, large corporations have to function in harmony with community interests, preservation of environment and nature, care about labor and human rights. It is really difficult for them to do this without support from qualified and knowledgeable professionals. As a natural consequence of the importance of CSR professionals in the business ecosystem, they tend to get paid handsomely.

According to some observers, India Inc has been binging on CSR hires.

2) Public Sector

The provisions of CSR are not applicable to private sector companies alone. They are equally applicable to all PSUs, state-managed as well as central, which inherently have a higher burden on them than private sector companies. As these corporations are intended to be run with greater public interest and welfare in mind, the role of PSUs in CSR has been pioneering in India.

The motive of CSR in public sector is not restricted to social responsibility alone but it also extends to sustainability which is a critical principle for management of PSUs, which they must pursue without hurting the sentiments and interest of stakeholders and shareholders. With changing laws, norms and time, it has become important for PSUs to deploy strong CSR teams and professionals as a part of their central strategy.

It is not uncommon to see protests and angry movements by the locals of a certain natural habitat, who generally get affected by large manufacturing or mining projects due to loss of land or livelihood. Be it the Narmada Bachao Andolan, or setting up of Tata Nano manufacturing unit at Singur, West Bengal, the protests are a major bottleneck to the smooth functioning of such corporations that take up such risky ventures in remote areas, which can at times prove to be fatal too. For instance, such a protest forced the Tatas to pull out their car manufacturing company from Singur in West Bengal. Hence, corporations are now considering if they can build deeper relations and trust with the communities which get displaced or where their projects are situated, primarily through CSR. This new opportunity is also added to the portfolio of CSR executives which has seen a steep increase in the demand. Known as, “Local People Management,” this portfolio has also seen a rise in recruitment.

The drive and need for CSR professionals can be illustrated by the fact that in 2014, Coal India recruited 120 professionals’ trainees for CSR from leading institutes all over the country. The mid-level and higher level management need is never ending as finding relevant experience and expertise on the subject is a tough nut to crack by PSUs.

3) Voluntary Sector

A more passionate and socially aware individual can also opt for career opportunities at various NGOs or social institutions. There are various industry associations as well as academic institutions, think tanks, and various government units which have been hiring professionals for teaching, learning or advocating opportunities around CSR. Also, corporates can collaborate or coordinate with various NGOs for a project. Sometimes they might even simply fund a project. CSR budgets are a good target for NGOs looking for funding to grow their impact and scale. However, to bag the right projects, they need experts who can create detailed reports, proposals and ground level databases that make a compelling case for funding.

NGOs and social organizations, both from rural and urban India, have emerged as a key recruiter of CSR professionals in the recent times. In fact, these organizations may provide more challenging and rewarding opportunities to those interested in CSR. Even various companies have social initiatives or charitable trusts that actually work at the grassroots level. These organizations are often glad to hire CSR professionals for managerial roles and their understanding of funding dynamics. Godrej Culture Lab is one of many such initiatives, which directly hires individuals from all walks of life, specifically for CSR.

NGOs working on rehabilitation and resettlement issues and other organizations concerned with forest rights, rural livelihood, healthcare regularly recruit/ consult professionals with CSR expertise.

Remuneration

Given the diversity and funds flowing in CSR, it is emerging to be one of the best paying sectors in the industry. CSR is currently attracting top talent from other sectors with top pay packages. For example, Vikas Goswami shifted from a communications role to CSR in Godrej. Maruti Suzuki hired Abhishek Patwardhan from the chemical industry to its CSR department. If media reports are to be believed, corporations are aggressively recruiting CSR professionals with up to 40-50% hike.

Larger the corporation, more the money. While the average salary of a CSR Vice President or General Manager could range from INR 60 to 90 Lakhs per annum, a fresher from an esteemed university can earn from INR 5 to 10 Lakhs per annum. To do a basic expectation setting, the following are the current remuneration scale in the CSR industry:

• Junior Level – Rs. 5 – 10 Lakh
• Mid – Level – Rs. 25 – 30 Lakh
• Senior Level – Rs. 60 – 90 Lakh
• CEO or CSR based exclusive positions can go up to a crore or more.

Qualifications

Full-time degree in CSR

Online CSR course – executive certification

Challenges

CSR might be diverse, but it has not emerged as a unique and widely accepted career path. Thus, to gain experience or expertise in the subject is a task for many. It turns out to be a major challenge as most corporations tend to hire individuals with either experience or expertise, and both of them are difficult to gain, given the paucity of courses in the country.

As per Indian Institute of Corporate Affairs, more than 30,000 CSR professionals are required to develop and execute CSR initiatives and related compliances, respectively. While experts might suggest internships, but a short span of even 3 months can also not give the required insight into core functioning, developing and executing a CSR plan. Lack of experience is the major hurdle on the way to making a career in CSR. We will strongly recommend a short-term course to get started with an understanding of CSR and how it works in India. 

Solution

For the first time in India, a National Law University in collaboration with India’s biggest online legal and regulatory course developer iPleaders is offering an exclusive program in Corporate Social Responsibility for Indian executives. The course duration is three months. The course does not just offer training material, but a credible certificate, which could be a testimony to your specialization. The practical insights you can gain from a course like this, as well as the continuous assessment and networking with the industry experts, can help you to dramatically enhance your chances.

All the best!

In this article, Shubham Prakash discusses key highlights of Association of Mutual Funds in India (AMFI).

AMFI

AMFI stands for Association of Mutual Funds in India and it is non-profit organizations which act as an umbrella for all the mutual funds. It came into existence in August 1995, listed under Securities and Exchange Board of India (SEBI). Its main duty is to expand and enhance the Indian Mutual Fund Industry on a professional basis. It seems that the interest of unitholders of the Mutual Funds is protected, preserved and promoted.

Mutual Fund

A mutual fund is a professionally-managed trust that pools the savings of many investors and invests them in securities like stocks, bonds, short-term money market instruments and commodities such as precious metals.[1] Any investor can invest in mutual funds with a little surplus of Rs. 100 at least. They buy every unit of a share of Mutual Funds which is known as investment objective and strategy. The sum of the amount which is first collected and then it is invested by the fund manager in different types of securities.

Governing body of AMFI

In the year 1964 the AMFI functioned under the regulatory and administrative control of the Reserve Bank of India (RBI). Then in the year 1978, it was de-linked and was administered under the Industrial Development Bank of India (IDBI). In the year 1987 AMFI made an entry to public sector mutual funds where it was regulated by Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). But with the coming of Securities and Exchange Board of India (SEBI) in the year 1992 the AMFI is governed by it. Currently, AMFI follows the regulation of SEBI and they are the governing body.

Is AMFI a government or a private body?

AMFI is a governmental body because it has been regulated by a government body like RBI, IDBI, LIC, GIC and currently it is governed by SEBI. Also, it is a non-profit organization which works for the welfare of government.

Relationship between AMFI and SEBI

As AMFI is regulated by SEBI regulations, it is important to protect the interest of the investors. In the year 1993, the SEBI increased the number of members with the coming of foreign sponsors setting up funds in India. Also, AMFI was benefited from many mergers and acquisition. There was a time when the investor was not getting any benefit from any mutual fund industry. But in the year 2012 SEBI introduced several progressive measures where many investors started investing in the mutual fund industry. Since May 2014, the SEBI guideline has brought an increase in the steady flow of Assets under Management (AUM) which is a part of AMFI.

Impact of SEBI

• For the first time within a period of 2 years, the AUM has crossed the milestone of INR 15 lakh crore in July 2016.
• The number of investors has increased from 3.95 crores to 4.98 crores within a period of 2 years.
• On an average 3.38 lakhs, new folios have been added every month in the last two years.

The growth in AMFI has been possible because of the regulatory measure that has been taken by SEBI.

Business structure of AMFI

The business structure of AMFI is regulated by SEBI which consist of a sponsor, trustee and asset management company (AMC). Although these play a major role in creating and running a fund house the custodian, registrar and transfer agent (RTA), auditors and the fund accounts play an important role in smooth functioning of a mutual fund.

Sponsor

It is the important body which establishes a Mutual fund. They are like a promoter of a company. They appoint the trustee with the approval from SEBI and sets up AMC. For becoming a sponsor of AMFI they have to follow the SEBI guideline where the sponsor should have a track record of carrying a business in the financial services for not less than five years. They should contribute to 40 % of net worth of AMC.

Trustee

The main role of trustee is to protect the interest of unit holder and the mutual fund compliances with the regulations of SEBI. It is the sponsor who appoints four trustees or establishes four trustee companies with at least four independent directors. They also enter into an investment management agreement with AMC in order to discuss its function. The entire scheme which is made by the AMC for AMFI should be approved by the trustees before its implementation. The trustee reviews the transaction made by AMC while filing reports to SEBI on half yearly basis.

Asset Management Company (AMC)

AMC is an investment manager of AMFI which operates mutual fund and manages the investor money. The trustee or sponsor after the approval of SEBI appoints the AMC. It consists of Chief Investment Officer, the fund managers and analysts who carry the schemes of AMFI.

What does AMFI do?

Integrity

• In order to operate the mutual fund industry, they maintain high professional and ethical standards of integrity in dealing with their investors, issuers, market intermediaries etc.
• As they are not a profitable organization so they represent the government, RBI and other bodies on all matters of Mutual Fund Industry.
• With the help of government and other bodies, they conduct a research and gathers information on the functioning of Mutual Fund Industry.
• They conduct and operate portfolios for the Mutual Fund Schemes, for the interest of their unitholders and not in the interest of sponsors, directors of Members, members of the board of Trustees or directors of the Trustee Company, brokers and other market intermediates and associates of the Members.
• They interact with SEBI and represent them in all the social and financial matters relating to mutual fund industry.

Due Diligence

It is defined as an investigation of a business or person prior to signing a contract, or an act with a certain standard of care.

• The member of the industry should have a good code of conduct in order to promote and recommend their business practices across India.
• The member should provide a high standard of service and due diligence to the mutual fund industry.
• For the Asset of Management Activities, the AFMI should employee adequate resources which are beneficial for their conduct.
• If there is any violation of a code of conduct from the distributor then there will be a disciplinary action against his conduct.
• At the same point in time, they protect the interest of an investor or a unitholder.

Disclosures

• It is the duty of the members of AMFI to disclose all the unit holders with adequate and accurate information of the investment objectives, investment policies and financial position of their scheme.
• There is some member of the industry which are busy in managing the activity of mutual fund including the organizations or company which are involved in the matter pertaining to capital markets and financial services.
• They conduct an investor awareness program through India, in order to promote the concept and working of mutual funds.
• It is the duty of the members of AMFI to disclose the investment pattern, turnover of the portfolios scheme and ratios of expenses on annual basis to the unitholders.
• When the member enters into the transaction of purchase and sale of securities with respect to any of the unitholders, the same details of the transaction and sale should be submitted to the Board of Trustee explaining the goodness of the scheme.
• It is the duty of the members to disclose to the compliance officer about the transaction of purchase and sale of securities at least half yearly and the same should be reported to the Board of Trustees.

Professional Practices

• The sale of products and scheme should not be persuaded fraudulently by the members of the AMFI.
• They should not exaggerate the price of a product.
• It is the duty of the members of the AMFI to provide the investors with good services and adequate information about the sale of products without misleading or exaggerating any scheme.
• If there is any defect in the sale of the products the same should be conveyed to the investor before the investment decision is made.
• On the request of the investors, the copy of prospectus, memoranda and related literature should be provided by the members of the AMFI.
• There should be fairness in allotting the share of the mutual funds unit and if there is any defect in allotting the share, the money should be refunded without any delay within a prescribed time limit.
• It is the duty of the members of AMFI to deal fairly with a complaint filed by the investors on the sale of products.
• It is the duty of the selling agent not to provide mutual funds scheme against the new share issued.
• The members shall not return the money, until and unless it is provided in offer document of scheme guaranteed by SEBI.
• The guaranteed returns should be based on the adequate resources available with AMFI.
• It is the duty of the members to convey the investor about the market and investment risk of a particular product.
• The members should offer the benefits of the sale of product and scheme to the investor but cannot induce them.

Investment Practices

• The fundamental investment policy and objective should be taken into consideration which has been offered in a document by the members of AMFI while managing the scheme.
• The interest of the unitholder should be taken into consideration while taking the investment decision.
• The member should not intentionally buy or sell securities to any director, officer or employee of the trustee company.

Operations

• The members while operating the mutual funds should avoid the conflict of interests with all unitholders, the interest of the holders should be taken into consideration.
• The members should give primary focus to the transaction of the mutual funds and should indulge in the buying or selling of the products.
• The directors, officers or employee of AMFI should give information about the transaction and investment decision to the unitholder without making it public.
• The directors, officers or employee of AMFI should not use an unfair advantage in procuring the expense of fund from the unitholders.
• The members shall not enter into a fraudulent trade of purchase, sale and redemption of units of product during the course of business.
• The members shall not disclose any secretive or sensitive information to a broker during the course of business.
• A disciplinary and strict action will be taken against the members if they work unethically or unfairly against the unitholders.
• The directors, officers or employee of AMFI should not work as an agent or a broker until and unless they have been authorized as the Trustee of Company.
• The members are not authorized to make any fundamental changes in the attribute of a scheme, without the permission of unitholders and such changes should be in relation to the regulations of AFMI.

Reporting Practices

• The policy made by the members should be standard, comparable and conventional and should follow the regulations of SEBI Mutual Funds.
• It is the duty of the member to report AMFI about the total return made by performing uniformly.
• There should be an individual separation of cash and security account made by the members.

Provision of Statutes, rules and regulations

• It is the duty of the members to follow the provisions of the Statutes, Rules and Regulations while applying the relevant activities carried on while selling the products and scheme.

Enforcement

• It is the duty of members to communicate the objective and idea of AMFI code to the entire person.
• The AMFI should provide employment to the people.
• If there is a violation of provisions of the code or there is a revocation of contract by the parties, then there will be a disciplinary action taken against such parties.
• When a person is employed in AMFI, it is their duty to read, sign and approve the statement of the code.
• The AMFI supervise, control and regulate the mechanism.
• They give power to a particular person to investigate all the possible violations made by the members and unitholders.
• The authorized person has to report to the competent authority about violation of the Code.
• The authorized person has to observe the Code and file a regular report to the Trustees on a half-yearly or annual basis.
• They have to maintain and record the transaction of past last three years, which should be reviewed by the Trustee.

Ensuring there is no Unfair Competition

• The members should not share any confidential data which is likely to harm the other members AMFI or which will put the members in any disadvantage position in relation to the sale of products.
• It is important not to share the confidential data of AMFI because that will lead to unfair competition in the market.

Where to make a complaint if AMFI’s members are involved in Unfair Competition?

If members of AMFI are involved in an Unfair Competition, then SEBI has provided with a centralized web base complaint redress system known as ‘SCORES’. But firstly the complaint should be made to the concerned/intermediary/Mutual Fund and if they are not taking action then the can directly go to the website and file a complaint.[2]

How to report grievances?

The investor has to make a complaint on SCORE website. The investors initially have to approach the concerned listed company or SEBI and file a report for the speedy redressal. The SEBI is the concerned authority that issues circulars that give direction from time to time to SCORES. The circular inter alia consolidates the following circulars/directions issued by SEBI in this regard till date and shall come into force. The report is made by the investor who has to send their details by filling the Form-A and Form-B on the website and they obtain the username and password from SCORES. The report made should be a genuine one otherwise a strict action would be taken against them.

How AMFI, as a trustee can help investors?

AMFI is regulated by SEBI which consists of a sponsor, trustee and asset management company (AMC). It is important for AMFI to act as a trustee to help the investor because they are the first-level regulatory body which protects the interest of the investor. As we know that in every mutual fund industry the investor invests in order to get maximum profit. They expect that they get profit depending on the ratio of which they have invested the money. It is the duty of the AMFI to provide maximum profit to the investor as well as the to the mutual fund industry. AMFI has a team of experts who act as trustee, they figure out in which mutual fund industry to invest at what of time they will get maximum profit. If the investors question the investment process then the trustee is liable to give the reasoning for which the loss has been incurred. According to SEBI mutual fund regulations, 1996 the investor has to make a report if there is a loss incurred.

[1] https://www.principalindia.com/knowledge_centre/mutual-fund-basics.aspx (last accessed on 12/ 12/ 2017)

[2] https://scores.gov.in/scores/Welcome.html (website at which complaint can be filed)

In this article, Prashant Gupta, of Damodaram Sanjivayya National Law University discusses the appointment of Independent Directors in a Listed Company. The class of companies which require 1/3 of the directors to be independent directors.

Prologue

Among many other amendments in the Companies Act, 2013, the Act intends to overhaul the position of independent directors in India. The present amended Act confers upon them greater power and responsibility unlike in the 1956 Act where there were no explicit provisions pertaining to independent directors. Only clause 49 of the Listing Agreement in the previous Act prescribed for the inclusion of independent directors in the Board of Directors for companies which were listed. The amended Act attempts to include independent directors on the board of listed companies to oversee corporate governance. However, it is noteworthy to mention that the amended Act fails to mention the role, duties, and responsibilities of independent directors in an eloquent manner. The independence of directors in the board is crucial for effective implementation of corporate governance. Hence, it became imperative for a comprehensive legislation pertaining to independent directors which eventually led to the overhaul of the 1956 Act.

Appointment

The amended Act obligates the listed companies to have a minimum of 1/3rd of the total board composition as independent directors. It also gives power to the Government of India to include other class of companies in the list pertaining to the appointment of independent directors. Hence, those public companies –

• Which have a paid-up capital of Rupees 100 crores; or
• Which have an annual turnover of Rupees 300 crores; or
• Which have loans/debenture borrowings in excess of Rupees 200 crores

have to appoint one-third of the total board composition as independent directors. The Government of India maintains a central database of those individuals who are express interest and are eligible to be appointed as independent directors. The listed companies which fall under the above list have the option of choosing independent directors from the above list. But the main point of contention is – Are there enough qualified individuals to fill the directorial positions? Even though the Act provides over a year to the listed companies for appointing one-third independent directors in its board, but there is a paucity of individuals with requisite skills to be qualified for this position. Hence, it becomes important that training is imparted by recognized institutions for qualified individuals so that they can develop the required skill sets that come with this position.

Prescribed Statutory Criteria

Requirements

The term ‘independent’ director’ is itself self-explanatory. The individual holding this position should not have any pecuniary interest in the company/directors concerned. Section 149(6) of the Companies Act, 2013 provides the criteria for independent directors. They are as follows –

• The individual concerned must possess high integrity and relevant industrial experience.
• The individual concerned must not have any pecuniary interest either in the company or in its subsidiaries if there are any.
• The individual or his/her relatives should not have any pecuniary interest in the company or its subsidiaries amounting to 2% or more of its total income or gross turnover or Rupees fifty lakhs, whichever is less, during two years preceding the current or previous financial years.
• The individual or its relatives should have held any key position in the company during the previous three fiscal years.
• The individual or his/her relatives should not have been an employee of the company during the previous three fiscal years.
• The individual should not be a promoter of the company concerned or its subsidiaries.
• The individual should not hold more than 2% voting rights in the company either by himself or his relatives combined together.

Responsibility

The criteria mentioned in the aforementioned requirements were put in rules so as to ensure transparency in the selection process and also safeguard the autonomy of the independent directors. The selected candidate for this position also has to sign an undertaking that they fulfill the criteria as mentioned above. The Act attaches great importance to an independent director. For example, in an event where a decision is taken by the board of directors in the absence of an independent director, the decision will have to be circulated to all the directors and at least one director will have to ratify the decision otherwise, the impugned decision would become null and void. An individual holding the position of an independent director can be removed from office if they fail to attend meetings with or without permission in the twelve month period. The term of an independent director is for five years and cannot exceed for more than two times. The independent director can seek for a second term provided that the board of directors passes a special resolution to effectuate the same. It is also important to mention that Section 149(11) specifies that the individual seeking reappointment after the expiry of its second term can do so only after the ‘cooling period’ of three years has passed. This rule has been included so that there can be transparency and people from diverse backgrounds can be appointed to this position.

Liability

To safeguard the independent directors from the ramifications of a non-independent directors activities, Section 149(12) provides that they can be made liable for offenses committed with their connivance, knowledge or negligence. This rule ensures that the individual can take honest decisions and instill in them a sense of confidence.

Remuneration

The Companies Act 2013 expressly prohibits the independent directors from availing stock options in the company. Also, they are not allowed to seek remuneration other than travel expenses for attending board meetings. They can be paid profit related commission but that is subject to the shareholder\’s approval. This is done so as to restrict any financial relationship of the company with the independent director. But then, such a restriction also becomes less attractive for the potential candidates fit for this position.

Committees

The independent directors are required to be there on the committees mentioned below, as per the Companies Act 2013.

Corporate Social Responsibility Committee

The Companies Act 2013 specifies that any company which has annual turnover amounting to Rs. 1,000 crores or more or a net worth of Rs. 500 crores or more or the company having a net profit of Rs. 5 crores or more during any financial year will have to form a CSR committee consisting of at least three directors out of which one director must be an independent director. CSR is mandatory in nature and commits to the social, economic causes such as poverty alleviation, eradication of hunger, promotion of education, empowerment of women among other things. The committee will have to formulate CSR policy and recommend activities that have to be done in a particular financial year. It is mandatory for the companies to spend at least two percent of the average net profits in Corporate Social Responsibility related activities.

The Act proposes that every company with a net worth of INR 5 billion (approximately US$ 80 million) or more, or turnover of INR 100 billion (approximately US$ 161 million) or more, or net profit of INR 50 million (approximately US$ 806,451) during any financial year must constitute a CSR committee with 3 or more directors out of which at least one director must be an independent director. CSR is a mandatory commitment for the company to contribute for the social, economic or environmental development activities, which includes promotion of education, promotion of gender equality and empowerment of women, eradication of hunger or poverty, contribution to Prime Minister\’s national relief fund. The designated committee has to formulate the CSR policy and recommend proposed activities in each financial year. It is mandatory for qualifying companies (as outlined above) to spend at least 2% of their average net profits on CSR activities.

Nomination and Remuneration Committee

The amended Act obligates on part of every public company to appoint at least three directors in the Nomination and Remuneration Committee out of which half should be independent directors. The Chairman of the board cannot chair NRC but can definitely be its member. The main functions of NRC are listed herein below –

• To identify suitable individuals fit to become directors in the company;
• To evaluate a director’s performance;
• To formulate remuneration policies and also the qualification, attributes, and independence of directors;
• To recommend appointment/removal of director(s).

Audit Committees

The Act stipulates that every public company must have an Audit committee in place which should consist of at least three directors out of which independent directors should be in majority. The Audit Committees have an important role of assisting the board of directors in the appointment of auditors, evaluate their performance, evaluating the internal financial control, examining financial statements provided by auditors, monitoring the utilization of funds raised through public offers. The committee also has the function of conducting the investigation into any contentious issue so as to prevent fraud.

Code of Conduct, Functions and Duties

The amended Act of 2013 provides for a ‘Code of Conduct’, functions, duties, responsibilities which raises the bar of standards and performance of independent directors. The duties of such class of directors include – attending all board/general meetings that require attendance, report unethical practices, fraud, violation of the law(s), non-disclosure of a confidential information, placing before the board concerns of the management and recording the minutes of the meeting. There is a huge responsibility on part of the independent directors in safeguarding the interests of the company without compromising on ethics. Hence, it is important that such directors possess requisite skill sets to perform their duties in a diligent manner.

Conclusion

The amended Act pertaining to independent directors has proper checks and balances so that the powers are not exercised in an arbitrary manner. The independent directors have a responsibility to act in a rational manner coupled with accountability. The amended changes are a step in the right direction and aim to better corporate governance and ensure the management of the company is conducted in a company that is in the interest of the shareholders. Such changes also aim to stop scandals in future and protect the shareholders’ interest.

In this article, Sanghamitra Sengupta of SLS, Pune, discusses whether a part of a residential house can be used for commercial purpose or not.

Using a residential property for commercial purpose has become a popular choice for thousands, in India. A cost-effective and time-saving option, you can use your residential property for commercial purpose, to effectively work from home and earn money.

You, as a tenant of your residential house, may want to start a clinic in one of the rooms of your house or a small parlor. There’s no harm in rendering these services from the comfort of your house, but, there are various things you need to remember before you allow “customers” into your house.

What is commercial activity?

Commercial activities are those which include purchase and sale of material goods and services. The activity includes capital, a risk of loss and motive of profit. These activities are different from what we call ‘professional activities’ such as services rendered by a doctor, lawyer, accountant etc.

Is there any law regulating the use of residential property for commercial activity in India?

• Yes. Zoning Law in India refers to the law made by the local municipal government or other local authority that deals with the construction of buildings and use of property on land.
• Regulations under zoning law basically spell out the use of land in a particular area. For instance, the local municipal authority in your area could make a law forbidding any establishment of industrial or commercial property, as it is a residential area.
• A zonal authority of a local area divides the town into 8 categories on the basis of their function conducted there: residential, commercial, industrial, public and semi-public, public utilities, open areas/parks/playgrounds, transport and communication, agricultural use.  
• The aim of zoning laws is to separate residential areas from commercial areas to protect the former from harmful effects of commercial activities and at the same time, aid the development of commercial areas.
• Zoning laws could decide the height of the building you erect or even the spacing between two buildings on a particular kind of land.
• For the purpose of zoning, a commercial area is any building or part of it where the sale of goods and services takes place. Goods could be merely displayed there for it to be deemed as a commercial area.
• Be it wholesale or retail, any business involving the abovementioned features taking place in a building or a part of it will contribute to its commercial nature. Moreover, even rendering professional services, operating a corporate, software office, restaurant, lodge, nursing home, cinema theatre, community hall, bank or club from a building accords it the status of a commercial area.
• As it is implied, zoning laws differ from state to state and some states allow use of a residential property for commercial use whereas some states do not.
• The Supreme Court, in a judgment, delivered in 2006 laid down directions on what activities could not be carried out in a residential area

1. Banquet Hall
2. Any trade or activity that involves use of hazardous, inflammable and polluting substance or process
3. Retail shops which deal with sale of building materials, junk food and liquor, printing, dyeing and varnishing
4. Repair shops for automobiles such as a car, auto rickshaw, bus etc.
5. Professional activities will not be allowed except by 4 professionals, i.e., chartered accountants, architects, doctors, and lawyers. These 4 professionals are only entitled to use a specified permissible percent of their residential premise for the commission of the professional activity.

What kind of activity is allowed by the zonal authority in residential and commercial areas?

Residential areas

• Residential areas may have a place of residence, i.e., dwellings, hostels for working individuals, old age homes, orphanages, places of public worship, schools, public libraries, post office, telegraph office, power company, repair places, milk collection store, etc. Anything can sustain in a residential area as long as it serves to the residents for their day to day life.
• Residential areas may also have certain establishments which can be permitted by the municipal authority, under special circumstances.
• Government offices, cemeteries, golf clubs, banks, hospitals, philanthropic organizations, fuel filling and storage stations, service industries with power up to 10 HP, power looms for silk twisting, internet cafe centres, convenience stores limited to 20 sq.m., doctors consulting room where the doctor himself must be the applicant for permission, pay and use toilets, vehicle parking, etc.
• It must be noted that all the establishments mentioned above must abide by the noise limit prescribed by Ministry of Environment and Forest, Government of India.

Commercial Area

• Commercial areas are dedicated to conducting sale and purchase and have a very economic aspect to it. This reason is why it is convenient to establish offices, shops, service establishments like beauty parlors, salons, laundries, tailoring shops, hotels, clubs, newspaper printing, banks, amusement parks, restaurants, places of worship.
• Often, establishments that may be established in a commercial area may be established in a residential area by obtaining special permission too but priority is given to residential houses in a residential area.
• It must be noted that all commercial establishments also have to abide by certain norms, such as, have proper provision for toilet facilities for customers, waste disposal management, etc.

Where to apply for a registration 

It is legal to carry on commercial activity from the comfort of your residential property, but, it is necessary for you to take prior permission, from the

1. Local municipal authority – In the case of the local municipal authority, you will have to explain the kind of commercial activity you intend on carrying out and the area you require for it.
2. Town planning authority – The Town Planning Authority demarcates areas in towns as commercial, residential or industrial. Permission of the town planning authority is highly important as initiating a commercial activity in a residential area may not be permitted by the town planning authority.
3. Landlord. Lastly, if you reside in the residential house as a tenant, you need to receive his permission in the form of a no-objection statement. The housing society could levy higher maintenance charge or parking charge from the tenant.

Is it necessary to obtain a license before starting a commercial activity on my residential property?

Yes. If you intend to carry out commercial activity at a residential property, you are obligated to obtain a license under the Shop and Establishment Act, enacted by your state. The act regulates any place where the commercial activity takes place and makes it mandatory for shops and commercial establishments to obtain a license before they start commercial operations.

If you are a legal or medical practitioner, who wants to start rendering services from a certain portion of your home, you are not required to obtain a license under this Act.

Will there be any effect on my electricity bill if I conduct commercial activity from my residence?

If you are carrying out commercial activity from your residence, your electricity bill is effected. Your electricity bill could be charging you either on a “domestic” rate or a “non-domestic” rate.

Domestic Rate

The domestic rate is available to the following types of residents/consumers:

• Residential consumers
• Hostels of recognized or aided institutions funded by any government or local authority of the country
• Cooperative Group Housing Societies
• Registered Bed and Breakfast Establishments
• Places of Worship
• Shelter Homes approved by the government of the particular state
• Electric Crematoriums

The consumers mentioned below must be funded by any government or local authority of the country

• Dispensary and Hospitals
• Public Libraries, Schools, College, Working Women Hostels
• Orphanage
• Charitable Homes

Lastly, the most important consumers who are charged the domestic rate are:

• Professionals, i.e., people who provide service based on their personal skill and intellect, such as doctors, lawyers, architect, chartered accountant, company secretary, cost and works accountant, engineer, town planner, media professional and documentary maker

These professionals are entitled to use domestic electricity connection at their residence, provided, they are engaged in consultancy services. These professionals can also not exceed the area meant for “professional use”, as prescribed by the concerned municipal authority.

Non Domestic Rate

If you are carrying out a business or commercial activity from your residence and not engaging in a profession, you will have to pay for your electricity, as per the “non-domestic rate”. The non-domestic rate is slightly higher than the domestic rate, owing to the commercial activity conducted in the residence.

Will the property tax I pay be affected due to the commercial activity?

Property tax is the amount paid by the property owner or landowner to the government. In case of the commercial activity being of such a nature, which requires you to convert your residential property to a commercial property, with the permission of the local municipal authority and housing society, you will have to pay a different property tax. In case of commercial property, property tax is higher than that paid for the residential property.

Case

1. Providing professional services from your residential property

• V. Sasidharan vs Peter & Karunakar & Ors (1984)– This was a Supreme Court judgment in which, it was decided that the office of a lawyer or advocate at his residential property does not amount to a commercial establishment. The office, therefore, requires no license under the Shop and Establishment Act, in order to continue functioning.
• Philipose and Company Vs. State of Karnataka (1989)- This Karnataka High Court judgment decided that the services rendered by a chartered accountant, from his residence, does not amount to commercial use of the property. A chartered accountant uses his skill, proficiency in the subject and intellect while rendering these services. Earning of fees cannot be equated to the “profit” a commercial establishment earns.

Conclusion

Conducting commercial activity from the comfort of your residence is an economically feasible option, to many. Costs like that of renting another space for commercial activity and of transport are reduced substantially. But, what needs to be kept in mind is that the usual norm disallows such establishments in residential areas. Seek permission from the housing society you reside in, local municipal authorities, zoning authorities before you set off with commercial activity at a residential space.

This article is written by Shristi Borthakur, of Symbiosis Law School, NOIDA, where she discusses the meaning and process of forensic audit.

Contrary to the name, a forensic audit has got nothing to do with forensic sciences, or criminology for that matter. A forensic audit, also known as forensic accounting, refers to the application of accounting methods for detection and gathering evidence of frauds, embezzlement, or any other such white-collar crime. It is the application of accounting skills to legal questions. As of now, it has taken up an important role in both public and private organisations, especially in advanced economies.

What is the difference between a financial audit and forensic audit?

Engaging an audit is an important strategy to run a business, and all business-owners should know to identify the times when an audit is needed. However, forensic auditing is not the same as financial audit, both in terms of objective and procedure, leaving no scope for overlap. A financial audit is aimed at mere examination of the entity’s financial statement, and adds credibility to the reported financial position and performance of a business. For example, sometimes, lenders and suppliers ask for an audited financial statement before they are willing to carry forward with the end of the deal. However, the object of a forensic audit is much beyond that. Forensic audit/accounting is a specialised branch of accounting, that requires a specialized skill set for fraud detection. A forensic auditor examines a company’s system of internal controls to identify any weaknesses in the controls designed to safeguard assets and to determine whether anyone in the company has exploited control weaknesses to misappropriate assets for personal gain, including corruption, bribery, extortion, embezzlement, misappropriation, etc. It adds a legal substance to the auditing procedure. Thus, where a financial audit is done, and there is a suspect-asset-fraud, a forensic audit is done to identify that.

Who are forensic auditors and what are their roles?

Forensic auditors/accountants do not differ from other financial accountants. However, they possess special skills to detect fraud, and ways to document it. Their role goes beyond just looking into statements, that includes investigation, bringing out evidence, writing reports, understanding the legal scope of the evidence, and ways to prove it in court. Thus, a forensic auditor is need of a little more professional scepticism and has to conduct critical assessment throughout the audit of all essential material, which is known as forensic thinking. It can be understood that the work of a forensic auditor is two-phased.

• Investigation Services – At first the auditor begins with an investigation; looking into the accounts and statement, and identifying defects in it. It then moves on to find ways to deal with such defects, which is a reactionary function.
• Litigation Services – It is entirely possible the frauds detected be resolved within the company itself. However, there are times when they need to be resolved through legal channels. During such situations, forensic auditors give litigation support to the advocates. Their advice and consultation about the legalities of commercial disputes are very essential. Moreover, they also provide research assistance by giving relevant documents and facts to support a legal claim, and also help decide the extent of damage that is required. They are also called up by the Court as an expert witness for further investigation.

Are all chartered accountants equipped to conduct a forensic audit?

Analysing the above roles and responsibilities of a forensic auditor, not all chartered accounts are equipped to conduct a forensic audit, as it is a specialised field within accountancy, requiring a distinct skill-set. In light of this, CAs need to take up special training in order to qualify as a forensic auditor. The key point to note here is that the work of a forensic auditor extends beyond the mere concepts of accountancy. It includes the understanding of different tools and software to analyze the goals of an audit, along with knowledge of fraud psychology, criminal laws, legal documentation, etc. Moreover, a forensic auditor also plays a crucial role in the court proceedings and is often called on to given expert testimony on issues and questions which may not also be easily answerable by a CA. Thus, becoming a forensic auditor requires expert training, to that point that there are specialised courses and degrees available in this regard.

What are the things that are investigated in a forensic audit? (Types of Investigation)

Corruption

Corruption is a major obstacle at corporate levels, and also to socio-economic development. It has far-reaching consequences, even total closure of the company. It can have ill-effects on the image of the business/company and jeopardize it drastically. It includes any illegitimate use of the office and its resources, or dishonest behaviour. In such instances, a forensic auditor tries to look for accounts of bribery and extortion, or anything that will amount to a conflict of interest.

• Bribery – It refers to dishonestly influencing one’s role/ position to receive something, and at the same time promising something favourable to the party proving such benefit. The problem with bribery arises due to the fact, that not always does on stand in such a position to offer anything. It hampers the interest and profits of the company when one acts beyond his authority. It is also illegal to do so.
• Extortion – Taking a step ahead from bribery, extortion involves the use of threat, force or violence to extract money from another party/person. This may be done on the pretence of ‘protection money’ for small businesses, sophisticated schemes of cyber extortion, etc. the identification of extortion in company finances reduces its credibility in the eyes of its clients, suppliers, etc. which is the primary reason for having a solid financial statement.
• Conflict of interest – On a related note, anything, including bribery, that is done with the intention to gain personal benefit, and which is detrimental to the company, forms the objective of a forensic audit.

Asset Misappropriation

This is the most common form of fraud that is prevalent in company finances. This included misappropriation of cash, raising fake invoices, payments made to non-existing suppliers or employees, misuse of assets or theft of Inventory. It happens when people who are entrusted to manage the assets of a company/organisation, steal from it. The biggest possible detriment of such an act is that it may lead to infiltration by other organisations to take control over the control of the victim organisation. The direct hit is on the cash flow of the organisation.

Financial Statement Fraud (FSF)

Financial statement fraud is the deliberate misrepresentation, misstatement or omission of financial statement data for the purpose of misleading the reader and creating a false impression of an organization’s financial strength. The most common practice here is deferring revenues or expense in a different time period to give the appearance of consistent earnings or growth. Towards the other extreme, it includes overstating of revenues. It diminishes the confidence of capital markets and market participants in the reliability of financial information and decreases the effectivity of the capital market.

Most of the times, corruption and fraud in a company can be regulated and eradicated, without having to go for a forensic audit, and taking drastic legal steps thereafter. The easiest way to ensure this is to implement Anti-Money Laundering (AML) courses among employees, and also harbour an honest work environment. It is pertinent that there exists expressed reliability and accountability mechanisms to help foster such work environment, along with an environment of control. Such techniques reduce the probability of corruption in a company and its ill-effects. Prevention can be considered even at the time of recruitment by way of thorough background checks and vetting processes.

How is forensic auditing investigation conducted?

Step 1 – Accepting the Investigation

A forensic audit is always assigned to an independent firm/group of investigators in order to conduct an unbiased and truthful audit and investigation. Thus, when such a firm receives an invitation to conduct an audit, their first step is to determine whether or not they have the necessary tools, skills and expertise to go forward with such an investigation. They need to do an assessment of their own training and knowledge of fraud detection and legal framework. Only when they are satisfied with such considerations, can they go ahead and accept the investigation. 

Step 2 – Planning the Investigation

Planning the investigation is the key step in a forensic audit. The auditor(s) must carefully ascertain the goal of the audit so being conducted, and to carefully determine the procedure to achieve it, through the use of effective tools and techniques. Before planning the investigation, they should be clear on the final categories of the report, which are as follows,

• Identifying the type of fraud that has been operating, how long it has been operating for, and how the fraud has been concealed
• Identifying the fraudster(s) involved
• Quantifying the financial loss suffered by the client
• Gathering evidence to be used in court proceedings
• Providing advice to prevent the recurrence of the fraud.

Fraud Triangle and Fraud Risk

A fraud triangle is a tool used in forensic auditing that explains three interrelated elements that assist the commission of fraud- Pressure (motive), opportunity (ability to carry out the fraud) and rationalization (justification of dishonest intentions). Fraud risk is the vulnerability a company/organisation has to those who are capable of overcoming the three elements in the fraud triangle. Fraud risk assessment is the identification of fraud risks that exist in the company/organisation. The planning involves the formulation of techniques and procedures that align with the fraud risk and fraud risk management.

Planning also includes the identification of the best way/mode to gather evidence. Thus, it is necessary that ample research is done regarding certain investigative, analytical, and technology-based techniques, and also related legal process, with regard to the outcome of such investigation.

Step 3 – Gathering Evidence

In forensic auditing specific procedures are carried out in order to produce evidence. Audit techniques and procedures are used to identify and to gather evidence to prove, for example, how long have fraudulent activities existed and carried out in the organization, and how it was conducted and concealed by the perpetrators. In order to continue, it is pertinent that the planning stage has been thoroughly understood by the investigating team, who are skilled in collecting the necessary evidence.

The investigators can use the following techniques to gather evidence,

• Testing controls to gather evidence which identifies the weaknesses, which allowed the fraud to be perpetrated
• Using analytical procedures to compare trends over time or to provide comparatives between different segments of the business
• Applying computer-assisted audit techniques, for example, to identify the timing and location of relevant details being altered in the computer system
• Discussions and interviews with employees
• Substantive techniques such as reconciliations, cash counts and reviews of documentation.

Forensic Data Analysis (FDA)

FDA is the technology used to conduct fraud investigations; the process by which evidence is gathered, summarized and compared with existing different sets of data. The aim here is to detect any anomalies in the data and identify the pattern of such anomalies to indicate fraudulent activity. Such an analysis requires three kinds of expertise,

• Data analyst to perform the technical steps and write the queries
• Team member with extensive experience of the processes and internal controls in the relevant area of the investigated company
• A forensic scientist who is familiar with patterns of fraudulent behaviour

Step 4 – Reporting

The reporting stage is the most obvious element in a forensic audit. After investigating and gathering evidence, the investigating team is expected to give a report of the findings of the investigation, and also the summary of the evidence and conclusion about the loss suffered due to the fraud. It should also include the plan of the fraud itself, and how it unfolded, basically the whole trail of events, and suggestions to prevent such fraud in the future.

Step 5 – Court Proceedings

The last stage expands over those audits that lead to legal proceedings. Here the auditors will give litigation support as mentioned above. The auditors are called to Court, and also included in the advocacy process. The understanding here is that they are called in because of their skill and expertise in commercial issues and their legal process. It is important that they lay down the facts and findings in an understandable and objective manner for everyone to comprehend so that the desired action can be taken up. They need to simplify the complex accounting processes and issues for others to understand the evidence and its implications.

What is the regulatory stance on forensic audits?

Reserve Bank of India

The Reserve Bank of India has made forensic audits mandatory for large advances and restructuring of accounts. In light of this, the RBI recently came up with the concept of creating a ‘forensic audit pool.’ It was reported that it wants banks to create a common pool of forensic audit firms so that they can pick one of them quickly whenever a high-value fraud needs to be investigated. The aim was to ensure that there wasn’t any wastage of time in the garb of evaluating the eligibility criteria of auditing firms. It was seen that such a step could pave way for Banks to investigate instances of high-value frauds is that banks can quickly take appropriate action, including fixing staff accountability, lodge complaints with law enforcement agencies, and invoke penal measures, such as debarring fraudulent borrowers from availing bank finance or raising funds from capital markets, explained the official.

Also, by mandating forensic audits, the RBI operationalised a Central Fraud Registry (CFR), a web-based searchable database of frauds containing data for the last 13 years, in January 2016. This was aimed at timely identification and mitigation of frauds and also serve as a potent tool for banks in making informed business decisions. Determined to ‘clean up’ the Indian banking system, the RBI also directed a self-conducted forensic audit for 10 defaulters, on top of the audits done by the Banks, ‘to know whether lenders followed established practices and processes while sanctioning those loans.’

Enforcement Directorate (ED)

The ED is a law enforcement agency and economic intelligence agency responsible for enforcing economic laws and fighting economic crime in India. It is part of the Department of Revenue, Ministry of Finance. It comprises officers of the Indian Revenue Service, Indian Police Service and the Indian Administrative Service. The ED along with the Serious Fraud Investigation Office has increasingly depicted the need for and importance of forensic audits following the rise in money laundering and wilful default cases that are plaguing the banking system. The recent probe into the Mallya PMLA case by the ED to conduct forensic audits is a stunning example in this regard. This was declared in May, 2016 when the ED declared the possibility of conducting a forensic audit of the electronic platforms on which the accounts and transactions of the group companies of liquor baron Vijay Mallya were being conducted in order to take forward its money laundering probe against him in the alleged Rs 900-crore IDBI bank loan fraud case.

In another recent case, the ED seized mutual funds valued at Rs 10.35 crore under the FEMA law of a company “controlled” by businessman and former IPL Chairman Chirayu Amin in the Panama Papers Case.

How can forensic audits prevent generation of non-performing assets in banks?

“A non-performing asset (NPA) refers to a classification for loans on the books of financial institutions that are in default or are in arrears on scheduled payments of principal or interest. In most cases, debt is classified as non-performing when loan payments have not been made for a period of 90 days.” The problems that a bank face while dealing with NPA can be summed up as follows,

• It reduces the cash flow of that particular bank, as it all depends on the cycle of lending and repayment.
• The reduction in cash flow directly hits on the overall capital that is available to the bank to give subsequent loans.
• Also, the earnings of the bank are solely based on the repayment of loans it has lent. The loss caused by NPAs are set off against the earning, ultimately reducing the earning and credibility of the bank.

To deal with NPAs, the banks are always expected to bring about change in their policies to stop classification of NPAs, by restructuring the loans. However, a proactive role that a bank can play in this regard is to conduct forensic audits on loan-taking entities to ensure the security of payment. This may be the only effective way to discover financial discrepancies at the time of giving a loan, and throughout the period of repayment. This is also a safety-net that is available to banks. It is not uncommon to discover companies with huge cash reserves being identified as NPAs. This was also conceptualised on the authority level wherein the rise in the numbers of NPAs was termed as a “potential damage to the growth story” of the Indian economy. Keeping this in the background, the Finance Standing Committee of Parliament has called for an immediate forensic audit of all restructured loans that had turned into bad debts, earlier this year. The panel also asked the apex bank to form empowered committees at the level of RBI, banks and borrowers to monitor large loans.

What are the legal consequences that a person will attract if he/she is caught in a forensic audit?

In order to understand the legal consequences that a person attracts on being caught in a forensic audit, it is necessary to know about the various statutes that talk about the implementation of forensic audits in India.

• • Sections 235 and 237 of the Companies Act, 1956- Empowers the Central Government to inspect the books of accounts of a company, to direct special audit, to order an investigation into the affairs of a company and to launch prosecution for violation of the provisions of the Act.
  • Provisions of Sick Industrial Companies Act incorporated into the Companies Act, 1956-
    • The Section 424A(5) of the Companies Act, 1956 empowers National Company Law Tribunal (NCLT) to examine as a preliminary issue whether the company is a sick industrial company u/s. 2(46AA).
    • Section 424B of the Companies Act, 1956 empowers the tribunal to make such inquiry as it may deem fit for determining whether any industrial company has become a sick industrial company.

• SEBI Act, 1992- Regulation 11 C of the SEBI Act, 1992 empowers the SEBI to direct any person to investigate the affairs of intermediaries or brokers associated with the securities market whose transactions in securities are being dealt with in a manner detrimental to the investors or the securities market.
• Insurance Act, 1938- Section 33 of the Act empowers the IRDA to direct any person (Investigating Authority) to investigate the affairs of any insurer.
• Prevention of Money-Laundering Act, 2002– Section 3 of the Act defines the offence of money laundering as the involvement of a person in any process or activity connected with the proceeds of crime and projecting it as untainted property, where the scope of integrating forensic audits can be clearly seen.
• The Companies (Auditor’s Report) Order, 2003- The Act requires the auditor to report to the effect that if a substantial part of fixed assets have been disposed of off during the year, whether it has affected the going concern status.

Refer to this link to understand in detail.

In light of these statutory authorities, the following penalties may be faced by a person, if he/she is caught in a forensic audit, by way of white-collar penalties.

• Penalty under the Prevention of Corruption Act, 1988 (PC Act)
• S. 168 of the IPC- Public servant unlawfully engaging in trade

“Whoever, being a public servant, and being legally bound as such public servant not to engage in trade, engages in trade, shall be punished with simple imprisonment for a term which may extend to one year, or with fine, or with both.”

• S. 171 B- Bribery, read with S. 7 of the PC Act

“Whoever commits the offence of bribery shall be punished with imprisonment of either description for a term which may extend to one year, or with fine, or with both. Provided that bribery by treating shall be punished with fine only” as per S. 171E.

• S. 403- Dishonest Misappropriation of property
• S. 405- Criminal Breach of Trust

“Whoever commits criminal breach of trust shall be punished with imprisonment of either description for a term which may extend to three years, or with fine, or with both” according to S. 406.

• S. 417- Cheating
• S. 463- Forgery
• Punishment for fraud u/s 477 of the Companies Act, 2003

“Whoever commits forgery shall be punished with imprisonment of either description for a term which may extend to two years, or with fine or with both” according to S. 465.

• Penalties under Prevention of Money Laundering Act, 2002
• Penalties under the Income Tax Act, 1961 for tax evasions.
• Section 43 and 44 of the IT Act- lays down penalty for the following
  • Unauthorised copying of an extract from any data.
  • Unauthorised access and downloading files.
  • Introduction of viruses or malicious programmes.
  • Damage to a computer system or computer network.
  • Denial of access to an authorised person to a computer system.
  • Providing assistance to any person to facilitate unauthorized access to a computer.

Refer to the following links

1. https://blog.ipleaders.in/analysis-white-collar-crimes-india/
2. http://shodhganga.inflibnet.ac.in/bitstream/10603/54474/9/09_chapter%202.pdf
3. http://www.prsindia.org/administrator/uploads/general/1302844978_PRS%20Note%20on%20corruption%20laws.pdf

How can you reduce liability and instances of fraud?

The increasing instances of white collar crimes in India stem out of two basic ideas of greed and an attitude of “not a crime”. Thus, the courts take a strict view of such instances to decide on such matters and eradicate the rising rates of such crimes, which are also a major hindrance to the growing state of the economy. In order to decrease the possibility of such crimes, and also eventually reduce liability, companies can keep the following points in mind for mitigating fraud risk.

• It is highly recommended that companies harbour a “stop before it starts policy” by creating a transparent working environment.
• Employ teams to conduct a frequent analysis of the fraud triangle keeping in view the working atmosphere in the company.
• Come up with policies to work on the ‘rationalisation’ aspect of the fraud triangle to strike at the root of the problem.
• Follow a dynamic approach while defining fraud in the company transactions keeping in mind the ongoing scenario of white collar crimes.
• The institution of strong internal controls and anti-fraud technologies in the electronic platform.
• Thorough and frequent evaluation of the company’s code of conduct.

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In this article, Shubham Kumar of HNLU, Raipur discusses Kisan Credit card and its benefits.

Introduction

India is an agro-based country. 52% of India’s population is engaged in farm-related activities directly or indirectly. Agriculture contributes to 17.32% in GDP with a value of around INR 23.83 lakh crores. To support the agriculture sector government launches various schemes. One Such scheme launched is Kisan Credit Card (KCC). The KCC scheme was launched by NABARD in 1998. It aims to fulfil short-term credit needs of the farmers.

Why was Kisan Credit Card launched?

Indian farmers face difficulty in acquiring adequate finance from banks. The process of acquiring a loan is difficult since it needs a lot of documentation, security and the process is time taking. Due to illiteracy among the farmers, they often get trapped by the rural money-lenders who provide them a loan in a short period but at a very high rate and the farmers often get trapped in the debt web. To remove this complication, KCC scheme was launched to provide cost-effective credit to farmers for agricultural purposes promptly.

What are the objectives of the scheme?

The objectives of the scheme are:

• Provide short-term credit requirement for cultivation.
• Provide for expenses incurred after cultivation. Ex: Expenses of marketing, Expenses for transportation of crops to market.
• Provide money for purchasing farm tools and machinery.
• Provide for consumption requirement of farmer household.

Who are eligible to avail benefits under KCC scheme?

• Farmers who own the land and cultivate the land.
• Farmers who have taken land on rent or lease.
• Self Help Group of farmers.

What amount of loan can be availed under the scheme?

For all farmers other than marginal farmers (farmers who own less than 1 acre of land):

• If a farmer is cultivating only one crop every year, for the first year, he will be eligible for a loan amount equal to scale of finance for the crop as determined by the District Level Technical committee x Extent of area cultivated + 10% of limit towards post-harvest consumption requirement + 20% of limit towards repairs and maintenance expenses of farm assets + crop insurance + assets insurance. For example, a farmer is growing wheat. The scale of finance for 1 acre is INR 10000. For the first year, he will get a loan equal to (10000) x no. of acres + 1000 + 2000.
• If the farmer is cultivating the same crop the second year and subsequent years till 5 th year he will be eligible for a loan equal to the amount of first-year + 10% of the scale of finance of every successive year.
• If the farmer is cultivating more than one crop in a year, he will get a loan equal to the limit as determined above.
• The maximum limit for a loan is INR 3 lakhs.
• For a detailed calculation of loan amount, refer to this link.

For marginal farmers

• They are entitled to a loan up to INR 10000 to INR 50000

What is the period of repayment of loans?

• The repayment period is fixed by the banks as per anticipated harvesting and marketing period of the crops.
• Loans given for the purchase of machinery are normally repayable within a period of 5 years which can be extended by the bank.

What is the rate of interest on such loans?

The rate of interest varies from banks to banks. Normally, the rate of interest is 7%.

What security is to be given to banks?

• For loans up to INR 1 Lakh banks are to waive any security requirement.
• For loans up to INR 3 Lakhs banks may consider hypothecation of crops.
• Collateral security may be obtained at the discretion of Bank for loan limits above Rs.1.00 lakh in case of non tie-up and above Rs.3.00 lakh in case of tie-up advances.

Why take a loan under KCC scheme instead of a general loan?

The following benefits are given only to Kisan Credit Card holders:

• It offers flexible repayment.
• Disbursement of the fund is simple.
• Single credit can be availed for all agricultural requirements.
• Cash discounts can be availed from merchants of seeds, fertilizers, etc.
• There is no restriction on the number of cash withdrawals tilas long as it is within the limit of the card.
• Repayment can be done once the harvest is over.
• Lower interest rates.
• The fund can be withdrawn from any of the bank branches.

Other features of the KCC

• Farmers who are eligible for the Kisan Credit Card is offered a passbook or a card-cum-pass book.
• If a farmer is eligible for a production credit of Rs. 5000 or more, then he/she is eligible for a Kisan Credit Card.
• As per the concerned bank’s discretion, sub-limits may be fixed.
• The facility of revolving credit is available for any amount of withdrawals and repayment made within the credit limit. The credit limit is fixed based on the individual’s land holdings, the scale of finance, annual production credit needs, etc.
• Based on the annual review, the credit card can be valid up to 3 years.
• Repayment of the amount borrowed can be made within a period of up to 12 months.
• Credit limits will be increased to accommodate change in cropping pattern, increase in costs, etc. as an incentive for good record on credit card usage.
• Operations will be either through PACS in the case of Cooperative Banks or issuing branch in case of other banks, at the sole discretion of the bank.
• Conversion/rescheduling of loans also permissible in case of damage to crops due to natural calamities.
• Security, margin, the rate of interest, etc. are set as per RBI norms.

How to get a Kisan Credit Card?

Kisan Credit Card can be availed from any branch of any bank. The procedures to get the card may vary in different banks. The operation of this facility is simple and straightforward. Based on the land holdings and the income earned from it, banks issue farmers Kisan Credit Cards. The farmers should have a good credit history to be eligible for the same. Those who receive the Kisan Credit Card, get facilities like: passbook with the name, particulars of landholding, address, validity period, credit limit, etc., which serves as the customer’s unique identification as well as a system for tracking their transactions. In addition to the passbook, beneficiaries also get a debit card for use in ATMs, PoS machines powered by MasterCard or VISA. Generally, the documents required by every bank are,

• Duly filled in application form.
• Identity proof- Voter ID card/PAN card/Passport/Aadhar card/Driving License etc
• Address proof- Voter ID card/Passport/Aadhar card/Driving license etc.
• Currently, there is no bank accepting online application for a credit card.
• Application form of the Axis Bank can be accessed at this link.

Comparison of KCC issued by different bank

How are the funds disbursed?

• Withdrawal can be done through a branch.
• Withdrawal can be done through cheque.
• Withdrawal through the cards in any ATM.
• Withdrawal through PoS available with dealers/merchants.
• Transfer through mobile or online banking.

Personal Accident Insurance Scheme under KCC

The KCC scheme covers risk against death or permanent disability. In case of death or loss of both limbs or permanent disability, due to accident INR, 50,000 is awarded to the KCC holder. In the case where there is a loss of one limb, INR 25,000 is provided to the card holder. The premium payable is Rs.15 per year.

Can I take loan from any bank under KCC scheme?

Yes, loan can be taken from any branch of any bank. The govt. has notified all banks under private as well as public sector to extend credit to farmers under the scheme.

Can I take loan from more than one bank under KCC scheme?

No, if a loan has already been taken under the KCC scheme from a bank, another loan under the scheme cannot be taken from other banks.

Recovery of loan under KCC scheme

The process of recovery of loan differs for every bank, however, the process of recovery of loan extended under KCC scheme is similar to the process of recovery of general loan. Sometimes the govt. Waives off the loan taken by farmers under KCC scheme. Ex. In 2009 UPA govt. waived off the loans given to marginal farmers.

Conclusion

Since the inception of the scheme, 14.64 lakhs of KCC cards have been issued. The total crop loan extended under the scheme is INR 6,35,412 crore, but the farmer’s suicide has been increased by 40%. Last year, 12,412 farmers committed suicide due to debt related issues or crop failure. This number shows that though scheme for farmers welfare exists, the benefits under the scheme is not reaching the beneficiaries. It is found out that most of the farmers do not know about any such scheme. They are also less enthusiastic about crop insurance scheme since settlement in most cases is delayed. The illiterate farmers in India do not know how to use debit cards, and also non-availability of ATMs in rural areas add up to their problems. To get the best possible out of this scheme financial literacy programs should be started by the government. The banks should actively engage in promotion of KCC schemes. Farmers should be taught how to use debit cards. Agriculture in India has tremendous potential. If harnessed properly India could become the leading exporter of agro-based products.

In this article, Shristi Borthakur, of Symbiosis Law School, NOIDA, discusses the most common income tax penalties in India.

As per the Union List in the Constitution of India, the Central Government has the power to levy a tax on any income other than agricultural income, which is defined in Section 10(1) of the Income Tax Act, 1961, which is the charging statute of income tax in India. Income tax is the annual tax levies on the income of businesses and individuals, wherein businessmen and other individuals are required to file their income returns to the central government every year to determine the amount of tax they owe to the government. It is the key source of funding available to the government. As per the Income Tax laws in India, income tax is imposed by the government on,

• Individuals
• Hindu United Families (HUF)
• Companies and firms
• Limited Liability Partnership (LLP)
• Association of persons, a body of individuals
• Local authority and any other artificial juridical person

This is imposed on both earned and unearned income, and can be in the form of direct tax, paid directly to the government on your income, and indirect tax, that is charged by various service providers, such as GST. Furthermore, this is applicable to anyone who earns income in India, thus, even to NRIs. The Income Tax Department has classified income into 5 categories, which are as follows,

1. Income from salary- wages, pensions, commissions, etc.
2. Income from other sources-savings bank account interest, fixed deposits, prize money, if any, etc.
3. Income from house property- from rents
4. Income from capital gains- shares, mutual funds, etc.
5. Income from a business- income from self-employed areas.

To calculate the amount of income tax particular business/ individual owes, the above categories are further categories into tax slabs based on their income range. These tax slabs, however, are not fixed and are subject to exemptions and deductions. The tax slabs for the year 2017-18 are as follows,

The taxpayer is supposed to file his income tax return, which is a statement of earning from various sources, before the specified date for each year, that determine the following,

• Whether the taxpayer owe tax in the first place,
• What is the amount of tax the taxpayer owes
• Is he/she eligible for any tax refund

Non-payment of income tax is a punishable offence, and various penalties accrue for various kinds of default by taxpayers. The Income Tax Act lays down the various tax defaults, and the penalty that they attract, as amended by the Finance Act, 2017. Also, not all penalties are mandatory, and some are at the behest of the discretion of the tax authorities.

Explore this comprehensive list of most common Income Tax penalties

Refer this link for more details.

This article is written by Shristi Borthakur, of Symbiosis Law School NOIDA, where she discusses the legality of pre-natal diagnostic techniques in India.

Pre-natal Diagnostic Techniques (PND) are diagnostic or pre-symptomatic tests carried out on a developing fetus. The prenatal diagnostic techniques involve the use of technologies, such as ultrasonography, amniocentesis, chorion villi biopsy, foetoscopy, maternal serum analysis, etc. After PND is carried out, if the fetus is found to be affected by a genetic condition, both parents (or the mother) have the alternative to either (in jurisdictions where abortion is permitted) terminate the pregnancy (for medical reasons) or continue with the pregnancy and prepare for the future knowing that the child will be born with a genetic condition. There has always been an extreme discourse on the legality and morality of the use of pre-natal diagnostic techniques. There exists a divided thought process regarding the extent to which such technologies should be allowed, or whether they should be allowed in the first place, regardless of its success.

What is the law in India?

The law governing the practice of PND in India is provided for in the Pre-Conception and Pre- Natal Diagnostic Techniques Act, 1994 (PC-PNDT Act). The Act was enacted in 1994, amended and effectively implemented in 2003 and strictly amended in 2011. It was enacted with the intent to prohibit prenatal diagnostic techniques for determination of the sex of the fetus leading to female foeticide, in light of the declining sex- ratio in the country. That is to say, the preliminary object was to put a check on female foeticide.

What does the Act regulate?

Since sex determination, the act of identifying the sex of the foetus and elimination of the foetus if it is of the unwanted sex was the primary object, the regulation was laid down for both before and after contraception. The blanket protection of the Act provides that it is not possible to use pre-natal diagnostic techniques to abort fetuses whose sex and family history indicate a high risk for certain sex-linked diseases or to choose a fetus whose sex is less susceptible to certain sex-linked diseases. While it is legally permissible to abort a fetus at risk of serious physical or mental disabilities, as per the Medical Termination of Pregnancy Act, 1971, it is not permissible to select a fetus of a sex which is less likely to suffer from a sex-linked disease. Consequently, it allows the use of pre-natal diagnostic techniques only for the detection of the following discussed below.

• Genetic abnormalities
• Metabolic disorders
• Chromosomal abnormalities
• Haemoglobinopathies
• Sex-linked disorders.
• Certain other congenital abnormalities and diseases, as may be specified by the Central Supervisory Board

What is the Central Supervisory Board?

The Board is constituted by the Central Government to exercise the powers and functions for the purpose of this Act. The constitution of the Board is laid down in the Act in Chapter IV. It is also required that each State and Union Territory having a Legislature constitute a State Supervisory Board, or a Union Territory Supervisory Board respectively, for implementation of the policies of the Act, and various other purposes. Further, the Act provides that there be an Appropriate Authority for each State and Union Territory, and an Advisory Committee for every Appropriate Authority, according to Chapter V of the Act.

What are the specifications for the patient on whom such techniques/ procedures can be practised?

No points for guessing, that PND techniques cannot be performed by anyone not qualified/ authorised under the Act, and in a place that is not mandatorily registered under the Act. Further, for such a person to perform these techniques, he/she needs to necessarily record certain conditions of the patient concerned (pregnant woman). The following conditions should be satisfied to obtain a valid ground to perform such techniques.

• She should be above the age of 35,
• Should have undergone 2 or more spontaneous abortions or foetal loss,
• Had been exposed to potentially teratogenic agents such as drugs, radiation, infection or chemicals,
• The pregnant woman or her spouse has a family history of mental retardation or physical deformities such as spasticity or any other genetic disease,
• Any other conditions as may be specified by the Board.

Moreover, such procedures cannot be conducted without first explaining all known side-effects, pros and cons, etc. of said procedures and a written consent for the same by the concerned pregnant woman.

Who are the qualified persons under the Act?

The Ministry of Health and Family Welfare, Government of India, brought out a Handbook on the Rules and Amendments of the PC-PNDT Act, in the year 2006. It contained the guidelines regarding qualified persons, procedures and requirements of registration, policies, etc. in accordance with the Act. The Handbook laid down the qualified persons under the  Act to perform PND techniques as follows-

• Gynaecologist
• • • For Genetic Counselling Centre– 6 months experience in genetic counselling (OR) 4 weeks training in genetic counselling
    • For Genetic Clinic- “should have performed at least 20 procedures in chorionic villi aspirations per vagina or per abdomen, chorionic villi biopsy, amniocentesis, cordocentesis foetoscopy, foetal skin or organ biopsy or foetal blood sampling etc. under the supervision of an experienced gynaecologist in these fields.”
• Medical Geneticist- possess Degree/Diploma in genetic science in the fields of sex selection and pre-natal diagnostic techniques (OR) 2 years experience in any of these fields
• Paediatrician- possess postgraduate qualification ins paediatrics.
• • • For Genetic Counselling Centre- (further qualifications) 6 months experience (OR) 4 weeks training in genetic counselling
• Registered Medical Practitioner- possess recognised medical qualification as per the Indian Medical Council Act.
• • • For Genetic Clinic- (further qualifications) should have a post-graduate degree or diploma or six months training or one year experience in sonography or image scanning.
• Laboratory technicians (in Genetic Laboratory)-
• • • B. Sc. Degree in Biological Sciences (OR) Degree/Diploma in medical laboratory courses
    • At least one year’s experience in conducting appropriate prenatal diagnostic techniques, tests or procedures.
• Radiologist
• Sonologist or Imaging Specialist – possess any recognised medical qualification under the Indian Medical Council Act (OR) postgraduate qualification in ultrasonography or imaging techniques or radiology.

All you need to know about Registrations under the PC-PNDT Act in India

Minimum Requirements

Genetic Counselling Centre

• Adequate space
• Contain educational charts/models/ pieces of equipment for carrying out genetic counselling
• Must have any one of the following
  • Medical geneticist
  • Gynaecologist
  • Paediatrician

Genetic Laboratory

• Adequate space for conducting tests
• Should have or acquire the pieces of equipment as may be necessary to conduct studies allowed for by the Rules of the Act
• Must have both a medical geneticist and a laboratory technician in its employment

Genetic Clinic

• Adequate space
• Should have or acquire necessary pieces of equipment

Procedure for Registration and Certification

• The application has to be made to Chief Medical Officer of the district, and Medical officer forming the Appropriate Authority for the sub-district.
• Should be duly accompanied by an Affidavit, containing
  • An undertaking to the effect that the Genetic Centre/Laboratory/Clinic/ Ultrasound Clinic/Imaging Centre/combination thereof, as the case may be, shall not conduct any test or procedure, by whatever name called, for selection of sex before or after conception or for detection of sex of foetus except for diseases specified in the Act nor shall the sex of foetus be disclosed to anybody; and
  • An undertaking to the effect that the Genetic Centre/Laboratory/Clinic/ combination thereof, as the case may be, shall display prominently a notice that they do not conduct any technique, test or procedure etc. by whatever name called, for detection of sex of the foetus or for selection of sex before or after conception.

• Acknowledgement of the application should be taken by Appropriate Authority
• Application fee should be submitted with application form
  • By Demand Draft
  • Drawn in favour of Appropriate Authority
  • On any scheduled bank payable at the headquarters of the Appropriate Authority concerned.

• Fees collected by the Appropriate Authority for registration shall be deposited by the Appropriate Authority concerned in a bank account opened in the name of the official designation of the Appropriate Authority concerned.
• Fees shall be utilized by the Appropriate Authority in connection with the activities connected with the implementation of the provisions of the Act and these rules.
• Appropriate Authority will transfer the application to Advisory Committee, after verification, for advice, if any.
• Appropriate Authority, after considering the advice, will grant certification. It may also reject the application, and has to accordingly lay down the grounds for rejection.
• The Appropriate Authority can, at any time, on its own or on receiving a complaint, issue show-cause notice for cancellation or suspension of registration, and should mention the grounds for the same in the notice.
• An appeal is allowed within 30 days of such cancellation/suspension/rejection.
• Every certificate of registration will be valid for 5 years since its issuance. Application for renewal should be filed 30 days before the date of expiry.

What are the offences and penalties under the Act?

• The offences under this Act are cognizable, non-bailable and non-compoundable.
• The act prohibits the advertisement, including visible representation to that effect, relating to the prenatal determination of sex, in any form, by any person or organization. Contravention of such order, by anyone, shall be punishable with imprisonment for a term which may extend to three years and with fine which may extend to ten thousand rupees.
• If any qualified person under the Act, who owns or is a part of any Genetic Counselling Centre, or Genetic Clinic, or Genetic Laboratory, contravenes any provision of the Act or rules made thereunder, will face the same penalty as above, and on any subsequent conviction, with imprisonment which may extend to five years and with fine which may extend to fifty thousand rupees.
• Further, such person will be reported to the Appropriate Authority for taking necessary action, including suspension and removal of name from the register of the Council.
• Any other person who seeks the help/assistance of qualified persons and registered places for the purpose of any procedure prohibited by the Act on any pregnant woman, shall be punishable with imprisonment for a term which may extend to three years and with fine which may extend to fifty thousand rupees for the first offence and for any subsequent offence with imprisonment which may extend to five years and with fine which may extend to one lakh rupees.
• The above penalty does not apply to a pregnant woman who has been compelled to undergo such procedure or selection.

How can you file a complaint against such offences?

• To report an offence under the Act, and file a complaint therewith, one must approach the Appropriate Authority (AA), via a written complaint.
• The AA acknowledges the receipt of the complaint.
• They are required to take action within 15 days of such complaint and file a complaint to the court of Metropolitan Magistrate or Chief Judicial Magistrate. This can also be done suo moto by the AA.
  • In certain cases, it can also issue a show-cause notice to the entity against whom the complaint has been made, before filing the complaint in court.
  • Before filing a complaint, the AA should call an Advisory Meeting, and pass a resolution for the filing of case and suspension of registration of centre.
  • They need to ensure all documents are available- statements of accused, visit and inspection report, statement of decoy and witnesses, panchanama of seized material.
• If the AA takes no action within 15 days, the complainant can go to Court with the acknowledgement receipt. Alternatively, can also approach a social organisation like an NGO working on women’s rights issues in the area or State.

Who can file a complaint with Appropriate Authority?

• Any person, who has given a notice to the appropriate authority and who had expressed his intention to make a complaint to a Court, by giving 15 days notice to the AA, could lodge a complaint. This person need not be even in any way personally connected with the incident.
• As per the definition of ‘persons’ in the Act, a complainant can also be a social organisation.
• Apart from the appropriate authority, an officer authorized by the Central Government or the State Government could also file a complaint.

Who is the Appropriate Authority?

• State Appropriate Authority- Three member team ( Officer of a rank of Joint Director or above of Department of Health and Family Welfare, Eminent women from NGO, Officer of Law and Judiciary Department)
• District AA – Civil Surgeon/ CMO
• Corporation AA – Medical officer of Health

What are the documents that need to be attached for filing a complaint by the AA (along with case sheet)?

• Notification of appointing person as AA, and authorization letter
• Inspection/visit report
• Panchnama in original
• Statement of witness
• Notice calling a meeting of Advisory Committee, and the resolution passed.
• Original registration certificate along with order suspending registration prepared at the time of inspection.
• Statement of accused and co-accused, if any
• Understand the Standard Operating Procedure (SOP) for offences under the Act from this link.
• Other supporting documents and evidence
  • F Form Register
  • OPD Register
  • Whether consent was given by of the pregnant woman, or not
  • Declaration stating sex of the foetus will not be revealed
  • Referral Slip
  • CCTV Recording
  • Computer and Printer
  • File with Ultrasonography reports

This article is written by M. Ratchanya, a B.Com LLB (Hons) student, from School of Law, Sastra Deemed University, which discusses the issue of GST being a boon or a bane.

Introduction

India is a democratic nation which is capable of rendering a beacon of endurance to each and every citizen of the nation amidst a divergent economic crisis evolving day by day in the nation. It is a nation which put in force a bunch of strategic endeavors such as the ‘Make in India’ and ‘Digital India’ campaign. In addition to this strategic undertaking, the nation implemented a very significant effect on taxation in the nature of “One nation, One market and One tax” i.e., the Goods and Services Tax (GST). This new tax regime stimulates the economic progress in the society thereby involving the process of transforming the existing basement of indirect tax regime into the free flow of goods in the market. The most eminent role played by GST is that it eliminated the cascading effects of tax which is considered to be a rivalrous effect as it imposes a tax on the tax basis. The implementation of GST enabled the Indian products to be well competing in both domestic and international markets. This new tax regime is most expected by each and every individual in the society to have sustainable economic growth in the whole nation. The main object of GST is to fill all the loopholes prevailing in the society and to boost the Indian economy by unifying the indirect tax for entire states all over India.

Benefits of GST on Indian economy

It is a very known fact that the final price of the goods in the market cannot be determined by GST alone but is dependant on some other determinants like sellers profit margin, etc. The following are the benefits which are derived from GST.

• GST will boost the economy in the long run;
• There exists a less and simplified tax compliance policy in comparison with previous tax regime;
• A complete removal of the cascading effects of tax;
• A comparatively lower burden on the shoulders of the common man. For instance, the public will shed lower price on the similar products which were costly in the previous tax regime;
• Upsurge in the demand and consumption of goods due to which there is automatic upsurge in the supply of goods ultimately paving the way for rise in the production of goods[i];
• Eradication of bundled indirect taxes like VAT, Service tax, Excise, CST, CAD AND SAD;
• Effective control on the circulation of black money as there exists a mandatory check upon every traders and manufacturer in the market.

The above benefits of GST can be derived only if the actual benefit of GST is moving forward to the final consumer in the market.

GST purged Indian economy by framing the compliance bar high

GST is described to be a technology-driven and a self-policing system. The only interface between the authorities and the taxpayer is the technology, which is ushered by a new paradigm variation in the taxation system. But how so ever, the difficulties which arise during the process of catering to this new tax regime by the taxpayers cannot be solely blamed upon the technology glitches. During the previous tax regime, the tax credits were made available merely by the existence of invoices issued by the supplier, though the supplier himself has not submitted the tax to the government which he received from his customer. This process involved huge risk of fraud during transactions. Such fraud risks are substantially reduced under the new tax regime, as GST is described to be the ‘watchdog and game changer of the Indian economy’ [ii]. The significant features of GST are as follows,

• It involves the acquiescence of details of all the transaction at a more advanced level the
• The learning curve of tax practitioners and assesses are taken up to a steep level thereby ensuring a level of complete discipline under the regime of GST.

GST benefits are apparently visible in sectors like that of logistics in terms of effectiveness which enhance the economic growth rate in the entire nation. GST had largely eradicated the inefficiencies of the tax system which exists in the nation. It has been seen as the biggest tax reform in independent India by bringing together the entirety of India’s 1.3 billion population into a common market in one stroke by demolishing the interstate tariff barriers. The tax slabs of 0%,0.25%,3%,5%,12%,18%,28%,31% have subsumed the central, state and the local taxes into the line of ‘One nation, one market and one tax’ system. The businesses have also acquired a rebate for the taxes paid on the raw materials and services which makes them more competitive in the market. The severance in the GST is directed towards the informal sector of the economy and has enabled the informal sector to be integrated with the formal sector by way of tax rebates to the registered assesses. This process has left small firms with two options, i.e., either sign to the GST or to lose the competitiveness.

Indian economy has fallen prey to the elegance of GST

GST has eroded the circulation of black money in the economy by imposing a mandatory check on each and every trader and manufacturer, thereby acting as a frequent inspector for the payment of taxes. There is a thin line of demarcation between the organized and unorganized sector. The organized sector is described by the Central Statistics Office, by taking the instances of the manufacturing sector, as an enterprise in which the same will employ 10 workers if they involve electricity and 20 workers if the electricity is not involved by the enterprise. The other is depicted as an unorganized sector in the natural sense. Thus the interrelation between the Indian economy and the GST can be understood by the famous words which read as “All that is solid that melts into air, all that is holy is profaned, and man is at last compelled to face with sober senses his real conditions of life, and his relations with his kind”[iii].

There have been serious implications in the Indian economy by the implementations of GST which has brought the entire informal sector into the universe of the formal sector, thereby corroding away the flexibility of the economy and consequently killing off what is left behind. Small producers in the market render big credit to the large producers by way of accepting the delayed payment for their supplies. Large companies in this scenario sidestep the law on minimum wages and working conditions by involving the method of outsourcing their larger amount of their work to the small informal sector which is beyond the scrutiny of the state. But, due to the implementation of GST, there is a compulsion of every unit to be registered with the GST network and to file the returns, thus, drastically reducing instances of bending the law. Compliance of norms arising due to the implementation of GST is necessary in order to curb the appraisal of fraudulent activities in the society. Thus, GST is posed to rip apart any concealing veil in the economy.

GST – Disruptive v. Developmental

GST is considered as a boon for one section of people in the society and, a bane for other sections, as GST is not just a tax collection system but it is also a regime which brings about changes in the core of the national value system. The motto behind this new tax regime is to clean the society from all the evil tendencies. Hence, it creates a compulsory sphere for all businesses and traders to comply with it, and get registered under this new tax regime. Under GST, the MRP is more likely than not to create retail price collusion, as it becomes the de facto uniform price in the market. There have been many objections and strong disagreements regarding the implementation of GST. This is because of the fact that many socially wrong and habitual activities like liquor drinking are taxed at 0% slabs in the new tax regime but taxes on hotels and restaurants’ were at higher slab at the beginning of this new tax regime, though it has reduced at present. Therefore, an added confusion exists regarding whether GST is disruptive or it is developmental to the whole economy.[iv] The solution for this can be obtained only by day by day improvement in the Indian economy by the impact of GST. It is developmental in the sense that it clearly and completely eradicates the tax discrimination between every state in the same country by introducing ‘One nation, One market, One tax’ in a country like India.

Overall impact of GST on Indian economy

It should be understood that GST is not a tax concession system but a single Revenue Neutral Rate (RNR) on the goods and services in the society so that the total tax revenue of the central and the state prevails the same. The previous tax regime was considered as a major impediment to India’s economic growth and competitiveness. For instance, cascading effect on taxes made indigenous manufactures less attractive in the market. In this scenario, the implantation of GST is considered crucial for the growth of Indian economy. GST replaces the tax barriers with seamless credit which leads India in the common market as an economy which scales in production and efficiency in supply chain, thereby expanding the trade and commerce in the market. Sectors like organized, logistics, industry, and modernized warehousing, have received favorable impact by the introduction of GST in the economy. The integration of multiple taxes into a single tax reduced the cost of tax compliances and transaction tax. The new tax regime has also facilitated ease of doing business in the country.

The electronic processing of tax returns and tax payment and tax refunds through GSTNET without human intervention have curbed corruption and tax evasion activities.[v] The stable, transparent and predictable tax under GST has encouraged local and foreign investments in India, thereby creating significant job opportunities for the people of the country. Major beneficiaries under GST include FMCG [Fast Moving Consumer Goods], pharma, consumer durables, automobiles, logistics and the warehousing industry. As the previous tax regime was myriad with tax clauses, the new tax regime has reduced the tax burden on the producers and foster growth through increasing the scope for production. GST has extended the tax base and provides credit for the producers on the taxes paid by them during the chain of goods and services. It has further has removed the customs duty which was imposed on exports. Due to this, there are chances of the nation’s competitiveness increasing in the foreign market on the account of lower cost of the transaction.

Conclusion

Thus though GST is considered to be stringent in the economy, the benefits and impacts rendered in the economy are marvellous and mind-blowing. GST has made India a brighter economy by merging a large number of central and state taxes into a single tax system. It has made the taxation very ease for the industries by eradicating the inconvenient cascading effects of the tax. As the nature of GST is transparent it is very easy to administer and thereby promote sustainable growth in the economy by making the products competitive in the domestic and foreign market. Though there may be some drawbacks, the same can be fine-tuned like recent trimming of slabs in the hotels and restaurants. As mentioned earlier, it should not be viewed as a tax collection system but a regime which has a huge social and business ethics implication. Thus, through fear of possible retrospective tax inspection and survey lies at the heart of chorus against GST, GST stands against this negativity by culminating and rendering the positive impacts and effects to the societies in the long run for sure.

[i] GST Benefits and Impact on Indian Economy Available at

http://www.deskera.in/gst-benefits-and-impact-on-indian-economy/

[ii] GST shakes up Indian economy by setting the compliance bar high Available at http://www.livemint.com/Politics/O5U4s67gDJbXHPUYdSfYaK/GST-shakes-up-Indian-economy-by-setting-the-compliance-bar-h.html

[iii] A defining feature of India’s economy has just fallen prey to the beauty of GST Available at https://economictimes.indiatimes.com/news/economy/indicators/a-defining-feature-of-indias-economy-has-just-fallen-prey-to-the-beauty-of-gst/articleshow/60763110.cms

[iv]GST: Disruptive but developmental Available at http://www.livemint.com/Opinion/JgAhYGv5lsmOKGv9UKMZiM/GST-Disruptive-but-developmental.html

[v] Impact of GST on Indian economy Available at https://www.vccircle.com/impact-gst-indian-economy/

In this article, Sanjeev Sirohi, a practising advocate discusses how Judges taking over executive power violates the principle of separation of powers.

Let me begin at the very beginning by pointing out that while crossing swords with the judiciary, the government on November 25 questioned judicial activism and criticized the “trend” of courts appointing retired Judges to head Committees and wondered aloud how Judges would feel if other organs stepped in to do their job. The government certainly has a valid point. As for instance, we saw how the Supreme Court stepped in to decide whether it was correct to send back those thousands of Rohingyas refugees who had illegally crossed over to India following the persecution they faced in Myanmar.

If Government feels that they are a potential threat to the national security and must be sent back that should be final. Judiciary must refrain from stepping in an area which exclusively belongs to the executive. We all know how our national security gets compromised as it had been in the past when we allowed crores of Bangladeshis to illegally stay back in India even after their country got independence from Pakistan! Why should India allow Rohingyas to go and settle in Jammu and Kashmir from where Kashmiri Hindus and those Indian Muslims sympathetic to them were forcibly evicted and compelled to live as refugees in their own country! Why is no voice raised for them? Do they don’t have human rights?

Why is it being treated so casually that Rohingyas entering India and being transported not to some other state close to Myanmar so that they can be deported easily when things calm down but to such sensitive places like Jammu and Kashmir which is directly attacked by Pakistan time and again which can never be good for the national security? Why should Supreme Court even think about allowing them to stay there after PIL is filed in their favour? How can human rights of foreigners who have nothing to do with India be bigger than our paramount national interests? How can it be ignored that many Rohingyas had killed about 100 Hindus and burnt their houses before fleeing to India and have links with dreaded terror organizations like Lashkar-e-Taiba? How can Hafiz Saeed’s open call to Rohingyas to kill Indians be ignored while they are in India?

To put things in perspective, while leading the charge was Union Finance Minister Arun Jaitley, who, addressing a session at the National Law Day function said that, “I have often heard an argument that judicial activism is born out of a phenomenon that other institutions are not doing their job, somebody has to fill the gap. It’s a flawed argument. It is flawed because if any organ of the state is not doing its duty, it can be directed to do its duty. Usurpation of power…by any other organ would never be the correct constitutional approach. What if the same argument was used the other way round against the judiciary? Arrears were pending, judges are not doing their job. So must somebody step in and now exercise that power? The answer is no…And therefore, it’s extremely important that the dividing line on separation of powers is maintained. And therefore, by creating arguments, the thin dividing line itself cannot be lost. Once it is lost, there is no limitation on which area it will go into.”

What Arun Jaitley has said must be treated with utmost respect because he is not just any other Minister or Finance Minister who in the past has also handled Law Ministry but he was also one of the most revered senior lawyer of Supreme Court who even represented Central Government on many occasions till a few years back before ultimately plunging himself fully into politics and becoming a Minister! He thinks a lot before speaking anything and is not the sort of person who would say anything just to remain in news! This alone explains why Centre has very rightly handed him the key Finance portfolio and even the Defence portfolio has also been handled by him apart from Law!

Be it noted, the session, titled ‘Judicial Review and Parliamentary Democracy – Balancing the Separation of Powers’, was organized by the Law Commission of India and Niti Aayog. Calling for caution while exercising judicial review, Jaitley said, “While exercising the power of judicial review, one has to bear in mind that separation of powers is maintained in its entirety. The executive is not trained to exercise either legislative or judicial power. Parliament is not trained or really an institution to exercise judicial power. Judiciary is similarly not trained nor does it have that administrative maturity of exercising legislative power. In fact, if judiciary gets into the process of exercising executive or legislative power, directly or implicitly, the very institution of judicial review itself will suffer.” Judiciary must always bear this in mind what Jaitley has said!

It also must be borne in mind that Jaitley went on to talk of the “latest trend” of courts appointing “retired judges” to various committees to discharge executive functions. He said that “Also this…new trend…alright, I don’t exercise the power myself (but) I will appoint my nominee to exercise the executive power, the nominees may be equally unsuitable to exercise the executive power because they have not been trained. Retired judges have been trained to write judgments…not to run sports organisations…Therefore this temptation of taking over executive power and exercising it yourself or through your nominees clearly violates the Lakshman Rekha (of separation of powers).”

The moot question that arises here is: Why when judiciary exercises so much restraint that it has never till date ever ordered the creation of a single bench of high court in any part of India even though it is a judicial function and it understands the implications fully well of creating a bench in far off places due to which people have to face so many unnecessary inconveniences , it has never so ordered and always left it to the government to decide! The people of Uttarakhand from 1947 to 2000 till it became a separate state had to travel thousands of kilometers all the way to Allahabad to attend court hearings as there was no bench there but only one single bench had been created way back on July 1 in 1948 for such a big state like UP and that too in Lucknow which is just about 150 km away from Allahabad but Supreme Court never stepped in to save people from the huge inconvenience of travelling so far to Allahabad! Even now people of West UP about more than 9 crores of about 26 districts are compelled to travel all the way to Allahabad which is about 700-800 km away from all these districts and benches and high courts of 8 states are nearer to West UP as compared to Allahabad still Supreme Court never stepped in!

As if this was no enough, Justice Jaswant Singh Commission headed by former Supreme Court Judge – Justice Jaswant Singh had recommended 3 benches of high courts to be created for West UP and hilly areas (now Uttarakhand) at Agra, Nainital and Dehradun but not a single bench was created even though on its order a bench was created at Aurangabad in Maharashtra, Jalpaiguri in West Bengal and Madurai in Tamil Nadu! Yet Supreme Cout never said a word on it! In 2012, Centre created 2 more high court benches for Karnataka which already had a bench at Hubli for just 4 and 8 districts at Dharwad and Gulbarga but not a single bench for more than double of the districts – 26 of West UP yet Supreme Court never said a word on this! The 230^th report of Law Commission had recommended the creation of more high court benches in big states in 2009 but Centre implemented it only in Karnataka which till now remains the only big and sole beneficiary of it yet Supreme Court did not say a word on it!

This despite the fact that Ban ki Moon who was UN Secretary General had slammed UP and not Karnataka as “rape and crime capital of India” and maximum pending cases are in UP about 10 lakhs and in Karnataka, it is less than 2 lakhs yet it was awarded 2 more benches but Supreme Court said nothing! West UP accounts for more than half of pending cases of UP as was testified by Justice Jaswant Commission yet Supreme Court never ordered creation of a bench here! Even former PM Atal Bihari Vajpayee demanded creation of a bench in Parliament but again Supreme Court kept aloof! It is no secret that maximum crime, maximum killings take place in West UP yet it has no bench and UP tops the number of killings list of states and Bihar comes second yet UP has least benches in India and Bihar has none whereas peaceful states like Maharashtra, Karnataka and Assam have either 3 or 4 benches yet Supreme Court never stepped in even though it comes under its purview!

Truth be told, the lawyers of West UP have gone several times on strike as for instance for 6 months from July to December 2001, for 3 to 4 months in 2014-15 and have been striking work for more than 36 years every Saturday from May 1981 to December 2017 and is still continuing but judiciary has never stepped in to resolve this vexed issue! It has always chosen to kept aloof! Why has it never intervened for such a long time?

Truly speaking, the people of West UP who are litigants are compelled to travel whole night more than 700-800 km all the way to Allahabad without reservations many times and face many other inconveniences but judiciary never intervened! Why? When it can exercise itself restraint on this count where so many people have to face so many inconveniences which is a talking point everywhere especially in West UP then why can’t it act similarly in other cases also?

Warning that there would be no limits if the “Lakshman Rekha” is crossed, Jaitley said, “You probably (will) have a court saying where security forces are to be deployed is something which I will decide…” He added that if every high court were to decide on where security forces are to be deployed, for instance, “it’s an invitation to anarchy.” The Kolkata High Court had in October stayed the Centre’s move to withdraw Central forces from Darjeeling and Kalimpong districts, where they had been deployed during the recent Gorkhaland protests. This was subsequently lifted by the Supreme Court.

It has to be borne in mind that in his inaugural address, President Ram Nath Kovind who earlier has himself practised in Delhi High Court and Supreme Court too touched upon the need for separation of powers between the judiciary, legislature and executive, saying, “They need to be careful not to cross into each other’s defined spaces or give the opportunity to read transgressions where none is intended. This can occur in many circumstances. For instance, when extraneous comments and obiter dicta come to dominate public debates, crowding out of substantive understanding and deliberation of a well thought out judgment.”

It also cannot be lost upon us that earlier, addressing the inaugural session, CJI Dipak Misra asserted that judiciary was duty bound to stand with citizens if other organs of state encroached on their fundamental rights. He said that, “The fulcrum of governance – let it be legislature, let it be judiciary, let it be executive – is that the citizens have been guaranteed fundamental rights and the governing entities are not expected to encroach upon it. The moment they encroach upon it or there is an apprehension there shall be encroachment, the judiciary is obliged to stand by them.”

It is also of immense significance that the CJI sought to allay fears of judicial activism but stressed that it was the job of the courts to interpret government policies. He said that, “There is a perception that there is judicial activism. I must clarify. Protection of fundamental rights of each and every citizen is the sacrosanct duty of the judiciary which has been conferred on it by the Constitution. Fundamental rights have been expanded from the date the Constitution came into existence. Expansion of fundamental rights is done by the process of interpretation. Nobody intends, nobody has the desire to enter upon policy making areas. We don’t make policies, we interpret policies and that’s our job.” He has a point!

Well said but again I must ask, why Supreme Court has never ordered the creation of more high court benches in big states like UP and Bihar which are notorious for their lawlessness when even Union Cabinet Ministers like former Satyapal Singh have in past demanded the creation of 5 more benches at Meerut, Agra, Jhansi, Gorakhpur and Varanasi and considering the indisputable fact that Allahabad High Court is oldest in India completing its 150 years in 2016 and I the biggest court in whole of Asia yet has least benches in India! All high courts come under the jurisdiction of Supreme Court still why has it never taken any action on this score?

Why UP sends maximum MPs, maximum MLAs and maximum elected representatives and has maximum population more than that of Pakistan still has least benches and why when even Justice Jaswant Commission recommended creation of bench here in Agra was not a bench created here? Why Supreme Court till now has chosen to look the other way? Why has it never shown any activism in this regard not just in UP but for any other state as well? Why can’t it exercise such restraint in other areas also? It is high time and some serious introspection must be done and it must be always remembered that “Even Judges are not infallible”! A good rapport is needed between executive, legislature and judiciary for running the country smoothly and clashes must be avoided by paying heed to what Arun Jaitley has said so elegantly! This is what our nation needs now!