In this article, Shreya Jad pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses Extent and Limitation of Liability of Partners in an LLP.

Introduction

A Limited Liability Partnership (LLP) as the name suggests, is a body corporate where the liability of the partners only extends to their professional roles i.e. their liability is not unlimited, unlike the case in a partnership. This is why it is such a popular business structure. A hybrid of a company and a partnership, this structure has been looked upon with increasing approval by aspiring entrepreneurs who wish to escape the rigorous regulatory and compliance requirements of companies but also do not wish to be held personally liable for the misconduct of any partner, as per the Partnership agreement.

Section 26-31 of the Limited Liability Partnership Act lay down the extent and limitation of the partners’ liability. This article shall analyse these sections to understand the extent and limitation of liability of partners.

Section 26, Limited Liability Partnership Act – Partner as an Agent

As per this section, every partner in an LLP is an agent for the purposes of business but is not the agent of any other partner. (Section 26, Limited Liability Partnership Act, 2008)

This section segregates the liability of one partner from that of other partners. While any act of the partner would bind the LLP as a body corporate, it would not bind a partner in his individual capacity. The provisions of agency as per the Indian Contract Act (Chapter X, Section 184-220, Indian novel Act, 1872) shall be applicable, subject to Section 71 of the LLP Act (Section 71 – Application of other laws not barred: The provisions of this Act shall be in addition to, and not in derogation of, the provisions of any other law for the time being in force.)

Indian Partnership Act, also confers the role of an agent for the purpose of partnership to its partners. They too are made agents of the partnership business and not the other partners.  In case of any discrepancy, the liability arising from the act of the partner shall be discharged, firstly from the firm’s assets, and if that falls short then from the erring partner’s individual assets.

Section 27 – Extent of Liability of Limited Liability Partnership

This section lays down the limitation of the liabilities incurred by the partners or the LLP as a whole. They can be classified as below:

1. Liability of person not authorised to act.
2. Liability of LLP if partner has incurred liability due to wrongful act or omission.
3. Obligations of LLP as an entity.
4. Discharge of liability of LLP.

1. Liability of Person not Authorised to Act

Section 27(1)(a) provides that LLP is not bound by anything done by a partner in his dealings with a person if the partner, in fact, has no authority to do so, and the person, he is dealing with knows that he has no authority to act so or does not know him to be a partner. This somewhat curtails the open authority given to the partners under section 26. It is important that no form of authority- express or implied is conferred upon the partner in relation to that act. If the LLP removes itself from the liability to be incurred, it will obviously have to be discharged by the partner in his individual capacity. The conditions to be satisfied for the LLP to be absolved of all liability are:

1. The partner has not been conferred the authority with respect to his dealings with a person.
2. The person is aware of the partner’s lack of authority.
3. The person has no knowledge or does not believe the partner’s association with the LLP.

2. Liability of LLP if Partner has Incurred Liability due to Wrongful Act or Omission

Section 27(2) holds the partners and the LLP responsible if the partners incur liability of a third person by his wrongful act or omission in course of the business and in exercise of his authority. This section clearly derives its substance from Section 26 of the Indian Partnership Act which also holds the firm liable for the partner’s misconduct. The liability, however, remains concentrated to the LLP as a whole and the erring partner and does not attach itself to other partners individually. The aggrieved party may proceed in a suit against the partner and the LLP, holding them jointly and severally liable, but may not proceed against them singly.

Since the wrongful conduct/omission was carried out by the partner in course of the LLP’s business and in exercise of his lawful authority, the ultimate liability shall fall on the LLP. In case the partner has to pay the aggrieved party from his assets, he shall be accordingly reimbursed by the firm.

For an LLP to incur liability under the Act, the following conditions must be satisfied:

1. Wrongful act or omission by partner.
2. Act/omission in course of LLP’s business or under LLP’s authority.
3. Wrongful act/omission must incur liability of third party.

Obligation of LLP as a Whole

Section 27(3) provides that any liability incurred by the LLP shall be its liability as a whole and shall not confer individually upon the partners. The LLP being an independent body corporate is eligible to enter into contracts and if such contract is vitiated, the liability rests on the LLP as a whole acting through its agents, partners etc. For instance, if the obligation is of a pecuniary nature it has to be met by the assets of the LLP and not the individual assets of the partners.

4. Discharge of LLP’s liabilities

Section 27(4) provides that the liabilities of an LLP shall be discharged from the LLP’s assets alone. This is an extension of section 27(3) which separates the liability of the LLP from that of the partners. Since an LLP is an independent entity, the liabilities incurred by it in such capacity shall be discharged from the assets of the LLP alone.

Section 28 – Extent of Liability of Partners

According to Section 28, a partner shall not be obligated as per Section 27(3) in his individual capacity merely because he’s a partner in the LLP. However, he cannot escape responsibility for any wrongful conduct done in his individual capacity, outside the ambit of his lawful authority. Furthermore, the LLP and the partner are jointly and severally liable under section 27(2), since the wrongful act done by partner was originally commissioned by the LLP, making it responsible for any loss.

The LLP can be help responsible for any loss suffered by the counterparty and both LLP and the partner can be held liable for any misdeed done by partner in the course of business-but in no event can the liability be shifted on to other partners of the LLP, the burden has to be borne by the individual partners/LLP or both but not by the other partners who had nothing to do with the act.

Section 29 – Holding Out

Section 29 lays down that any person who holds out, or allows himself to be held out as a partner of an LLP shall be held liable to the person who on faith of such representation gives credit to the LLP. This means that the partner holding out shall be bound by estoppel and prevented from escaping the liability incurred on account of any financial aid received by him or the LLP. This makes the LLP bound to the third party to the extent of the financial benefits received by them. But, that is the only liability which binds the partner by holding out and the LLP, the estoppel does not operate in a way which makes the partner by holding out partake in the LLP’s business activities. It’s only the rule of estoppel that binds the partner by holding out.

Section 30 – Unlimited Liability in Case of Fraud

Section 30 is an exception to the principle of limited liability since it imposes unlimited liability on its partners and the LLP if,

• LLP intends to defraud its creditors
• LLP is made to carry on fraudulent activities.

In such a scenario the liability of all the partners is unlimited for all or any other debts of the LLP. But even in such an event the personal assets of the partners are not to be exhausted to fulfil such other debts, but the liability extends only to the extent of the fraudulent activity carried out. The LLP can escape liability if it establishes that the fraud was carried out by the partners without the LLP’s knowledge. This would absolve the LLP of all liability and only the partner will be held liable for the fraudulent activity. Any such activity being carried out shall be punishable with imprisonment for two years and a fine. It is the responsibility of the LLP and the partner to reimburse the third party against any damages caused due to such activity.

Section 31 – Whistleblowing

This section provides reprieve from the imposition of fine or imprisonment on the partner if such partner decides to come forward and contribute valuable information about the fraud committed against which the investigation is being conducted leading to conviction of the guilty party. No partner or employee of any LLP may be discharged, demoted, suspended, threatened, harassed or in any other manner discriminated against the terms and conditions of his limited liability partnership or employment. This section, therefore tries to bring forth the fraudulent activity as expeditiously as possible.

Conclusion

The liability imposed on the partners and the LLP is mostly joint and several. The extent of such liability is determined by the nature of activities carried out by the LLP and the partners. Fraudulent activities would give rise to unlimited liability and punishment and fines. However, informing the investigating authority of the misdeeds of the company would absolve that partner of any liability and also protect his stature in the LLP.

In this article, Palak Gurjar pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses Import duty on luxury cars such as Mercedes, BMW, Audi, Bentley, Jaguar, Rolls Royce and others.

Introduction

Customs duty which is also known as import duty has been in use since time immemorial. Some of the famous scholars like Smith asserts that the practice of taxing commerce is as old as commerce itself. The scope of customs duties has evolved in scope over time so much so that people started dividing custom duties into two types. One is Specific custom duties and the other is ad valorem duty.

Historically, countries apply custom duty for two main reasons. The first was to help fill the state coffers and to protect the domestic industries. It is in between 19^th century and 20^th century most state has made then own laws related to customs duty which is the main source of revenue to the government. Tax during medieval time was so much so that people started suffering.

History of customs duty

The concept of customs duty was first introduced in India in 1786 which erstwhile went through several changes. Lately several Acts like Sea Custom At 1894, Indian Stamp Act 1894, Air custom have been covered under the India Aircraft Act of 1911 and Land Customs Act 1924 was passed by the government of India. Eventually, all these Acts were consolidated and customized in one Act known as Custom Act 1962.

After the Act of 1962 various changes had been incorporated and the custom rates started declining since 1991. The peak customs rate during 1991 is 150% which drastically fall down to 40% in 1997-98. This rate again reached its peak with the imposition of a surcharge. Country like India, has been victim of various upward and downfall of the economy. The government never stopped and the renowned economist like Manmohan Singh and Raghuram Rajan helped the economy to come to the state of equilibrium

New Economic Policy 1991 and Import Duty

With the introduction of the New economic policy in India in the year 1991 which brought globalization and liberalization required that the trade knows no boundaries. It opened the gates to the global market. During that time exporting and importing is the only way to lift economy because every country has is endowed with some or the other advantage in resources and skills but not all. Therefore, to get access to the resources that are readily available in others country it is important to make those goods available through imports.

Import duty

Overview

Import duty is the concept that came into existence since time immemorial.  It basically is duty or the tax that is levied by the government of any country and are due when any private individual or a commercial entity imparts anything within the geographical and its valuation method is CIF(Cost, Insurance and freight ).

Duty Rates and Sales Taxes

Duty can be ad valorem (as a percentage of value) or specific (rupees per unit). Duty rates fluctuation rate is very high if vary between 0% to 150% with 11.9% as an average. Goods like laptops and electronics products are never subject to duty. Till date there is no sales tax on the imported goods. All under the new Act all the goods are subject to tax regardless of their value.

History of imported goods in India

The 1^st wheel alleged to have been used for transport about 4000 years ago but it was in 18^th century that the 1^st horseless carriage actually rolled on the road. In the India in 1897 that the Indian resident from Kolkata brought 1^st car in India, subsequently in 1898 four cars were imported in Bombay one of them was owned by Jamshed Ji Tata. Generally, the import duty on all the luxury imported in India is 125% which obviously not a small cape of rate. Some few years back it was 60% which in 2014 jumped to 100%. Buyers of Lamborghini, Ferrari, Rolls Royce and Audi in India then switches to win – win situation for both the buyers and sellers where the buyer purchase second hand car from the seller. The selling price of the car might not be high in its home country but it gets costlier when it is imported because import duty on cars is calculated on CST (Cost, Insurance and Freight)  which apparently makes is costly. Buyer prefers purchasing from seller because these cars are rarely driven especially in India where you have got such a pathetic road and are available in immaculate condition and prices that are much cheaper than the brand new one. A business man in Delhi had a budget of 2 crores and he wouldn’t mind spending 50 lakhs and ergo, he purchased a second hand Lamborghini Gallardo for 2.5 crore which otherwise a new brand Gallardo would have costed him 1 crore more.

Lamborghini

The government has raised the import duty to 167 on the luxury car which is getting Lamborghini the Italian car in trouble and the company expects its sales to be lower than the last year. It was comfortable for the big market players like Lamborghini, Audi, Rolls  Royce if the government ease the import duty on the car and cap import duty at 2011 levels when it was 60% .

Rolls Royce

Rolls Royce a subsidiary of BMW has hoped to increase the sale by 70% in India but the increased import duty charges and weakness in the rupee are having an effect on price. In March, the customs duty on fully built cars coming into India whose price is US $40000 increased to 75% from 60%. Additional taxes and charges will gear up the total import casts to 140 % as against 110%.

Why so much of tax?

The reason behind the imposition of tax on the luxury car by the government is obviously to discourage the import of luxury car and encourage domestic manufacturer to build the car in the country itself which will eventually create more jobs and valuable transfer of technology takes places. It will give a good boost to the local economy. The main problem with Indian Taxation system is dealt according to  Robin Hood policy takes from rich and give to the poor.

GST and its impact

Presently luxury cars  are price as under:-

• Luxury –(less than 1500cc)Excise 22% +Cess 1.1%+VAT 14% =42.1%
• SUVs  –  (less than 1500 cc)Excise 30%+Cess 1.1%+VAT 14%=45.1%

Prior to GST, tax paid by the car manufacturer was 27.6%to 45% but after the GST it is between 17 to 18% and then it will be in the interest of the entire segment.

India is finally on the path of having a simplified taxation system and people are finally going to get rid of double taxation system. It is very important to understand the impact of GST on the car price.

1. Small cars– Cars with under four-meter length powered by a petrol engine not greater than 1.2-litre or a diesel engine not greater than 1.5-litre by displacement.
2. Mid-size cars– Cars over four-meter length powered by either a petrol or a diesel engine not greater than 1.5-litre displacement.
3. Luxury cars– Cars over four-meter length powered by either petrol or a diesel engine that is greater than 1.5-litre displacement.
4. SUVs– Cars over four-meter length and powered by either petrol or a diesel engine that is greater than 1.5-litre displacement.

Table – A

Break-up of existing taxes mentioned in Table – A is as under in Table -B:

Table – B

Effect of GST on Car Import Duty

GST implementation will possess profit as well as loss for everyone. With the coming of the GST the government seeks to remove multiple indirect taxes imposed by the central and the state government. Also, the import duty on the luxury and sports car will drastically be reduced and now the imported cars can be purchased easily without paying heavy import duty. All the import duties on the entire luxury car with power 15000cc or more will be reduced by around 42%. With the coming of GST, it is domestic manufacturer like Tata who will have to face the stiff competition as the customs duty on imported cars is to large extent liberalized.

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In this article, Jeevan John Varghese pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses Registration of Firms under the Indian Partnership Act.

Introduction

The fundamental premise of understanding of the statutory provisions associated with the area of partnership is principally derived from the understanding of the Indian Partnership Act 1932. This was one of the earlier precedent set in the Indian statutory history which fundamentally evaluates and analyses the critical junctures associated with the process of partnership in India. However this is essentially a relic of our colonial past which is undoubtedly a no forged one. The fundamental notion of partnership as an act of mutual trust is essentially not codified.

However, the principle notion associated with the development of such is act is critically evaluated as major milestone in the statutory history of Indian jurisprudence which undoubtedly requires major changes in its modus operandi. Although many judicial precedents have been in resolute, however none of them have critically made a justification. The fundamental notion of this understanding is based on the fact that partnership as an act is invariably based on the fact that partnership as an act requires a factor of mutual trust and dignity in an amicable manner which is needed in an amicable manner and can’t be forfeited. However a codification of such a document requires an invariable amount of flexibility as it necessitates a laudable amount of combination of statutory compliance and values. However the law of the land necessarily needs a value phase but in a case of fact value conjectures the fact and the matter of compliance always presides over the value. However in a rapidly changing business environment where the impersonal business entity such as a company are in prominence, the concept of partnership as a business needs much modification to gain legitimacy and value in changing business environment.

Having said that, among the number of pros and cons, the legitimacy of the partnership as a business entity needs particular speculation and analysis of the business environment as a new form of business known as the “Limited Liability Partnership” has evolved into a mainstream business establishment model where the concerned business developers can opt for a relative term of risk and liability which was fundamentally missing in the partnership agreement and was a much needed change, which is particularly appreciated by the business communities across the world for the amount of flexibility it provides for the new business commodities such as startups and other ventures. However an exclusive understanding of the registration of the firms under the Indian Partnership Act, 1932.

Partnership firms in India are administered by the Indian Partnership Act, 1932. While it is not necessary to enter one’s partnership firm as there are no fines for non-registration, it is appropriate since the certain rights are denied to an unregistered firm.

Fundamentals Problems Faced By Not Registering a Firm

The following can be understood as the principle disadvantages faced by a partner if he/she does not register the firm under Indian Partnership Act, 1932:

(1) A partner is not entitled to file a suit in any court of law against the other partners or the firm for the execution of any right emerging from any undertaking or right bestowed by the Partnership Act.

(2) A right evolving from an undertaking cannot be implemented in any Court of law by or in support of one’s firm against any other firm.

(3) Moreover, the firm or any of its associates cannot assert a set off (i.e. fundamental negotiation of debts possessed by the argufied parties to one another) or other actions in a disagreement with a third party.

The Process of Registering a Partnership under Indian Partnership Act, 1932

The primary initiative regarding the process of registration or incorporation of partnership firm is to forward an application filling Form No. 1. As per the provision of section 58 it should include following details:

1. The name of the firm.
2. The full names and permanent resident address of the partners.
3. The timespan of the firm.
4. Business the date when each partner effuse to the firm.
5. The principal place of business transaction of the firm.
6. The names of any other places where the firm carries its functional obligations.

This undertaking is needed to be signed by all the associate partners, or by their respective agents principally given authority in their behalf.

Secondly, all partners should necessarily solicit their signature application form or their authorised agents in their behalf in the occupancy of a witness who must be Advocate, Gazetted Officer, Vakil or Magistrate of Registered Accountant. If a partner declines to sign the application form, registration cannot happen unless that partner’s name is dribbled.

The application as mentioned above has to be sent to the Registrar at the enumerated address along with the prescribed fees. As per section 71 of Indian Partnership Act, states are authorized to make their own regulations with respect to prescribe the fee structure for registration or incorporation of partnership. However, Schedule I of Indian Partnership act states the at most or maximum prescribed fees that can be charged by the states. As per Schedule I, the maximum registration fees for a statement under section 58 is Rs.525.

When is Partnership Registered

As provided in the Section 59, a partnership is said to be registered when a registrar is well pleased with the fidelity of application filed according to section 58 and an entry of statement in the register known as Register of Firms is recorded.

Proof of Registration

According to Rule 9 under Indian Partnership Act, a documented proof of registration or incorporation for that matter is a registration certificate signed by Registrar.

Business Name of the Firm

Alteration of Particulars

Whenever an amendment or change is made in any of the understated particulars then it should be conveyed to the Registrar of firms and a satisfactory alteration is rendered in the register. The change to be rendered is sent in a stipulated form and with the stipulated fees. Following amendments or alterations are to be sent to the Registrar:

1. Any alteration in the name of the firm.
2. Any alteration in the principle place of business transaction. The alteration in name or principle place of business transaction almost requires a fresh new registration. These alterations should be sent in a stipulated form and should be rendered signature by all the partners.
3. Whenever the constitution of the firm is altered i.e., an old partner may retire or a new partner may be added.
4. Any alteration in the name of a partner or his residential/official address.
5. When a minor partner gains the age of maturity and he is left to the discretion whether to elect to become or not to become a partner.
6. When the firm is subjected to dissolution.

Advantages of Registration

The registration of a firm is done not only towards the benefit of the firm but also for those who deal with it. The following benefits are obtained from the registration of a firm:

(i) Benefits to the Firm

The firm gets an unmitigated right towards the third parties in civil suits for getting its rights discharged. In the non-existence of registration, the firm is not entitled to sue outside partners in courts.

(ii) Benefits to Creditors

A creditor can employ any partner for recuperating his money due from the firm. All partners whose names are set in the registration are personally accountable to the unknowns. So, creditors can restore their money from any partner of the firm.

(iii) Benefits to Partners

The partners can seek the help of a court of law against each other in case of disagreement among partners. The partners can sue external parties also for restoring their amounts, etc.

(iv) Benefits to Incoming Partners

A new partner can contest for his rights in the firm if the firm is registered. If the firm is not registered then he will have to rely upon the trustworthiness of other partners.

(v) Benefits of Outward-bound Partners

The registration of a firm acts as an advantage to the outward-bound partners in numerous ways. The outward-bound partners may be divided into two categories:

(i) On the demise of a partner,

(ii) On the superannuation of a partner.

On the demise of a partner his heirs are not accountable for the obligations acquired by the firm after the date of his demise. In case of a superannuation partner, he remains to be accountable up to the time he does not give public notice. The public notice is not recorded with the Registrar and he terminates his liabilities from the date of this notice. So, it is vital to get a firm registered for getting this benefit.

Challenges Faced By Every Business Partnership

1) Problems with Partnerships

With all partnerships originate potential glitches. We all recall when Enron recognized that the partnerships they shaped were used unsuitably, expanding the company’s financial reports which depositors and thousands of Enron staffs trusted on in pivotal to buy or sell its stock. These partnerships, fixed with other major accounting errors, ruined the public’s assurance in the company and Enron sank into insolvency.

2) Liability

Commonly partners are 100% liable for the activities of other partners. If one general partner marks a blunder, all general partners are responsible for that error and any supplementary debt or other responsibilities that go along with that error.

3) Raising Capital

It is problematic to elevation capital in general partnerships since all common partners have unrestrained liability. Selecting an LP or LLP may be more striking to investors, as it allows a limited partner to participate without taking on any accountability. As stated above, however, there are limitations to LPs and LLPs that must be taken into thought. Moreover, LPs and LLPs are more affluent to form than a general partnership.

4) Protecting Your Stake in a Partnership

There are several benefits to forming a partnership, but also numerous entities to watch out for when acquiring on a partner. In all cases, partners must have a legal covenant that places limitations on each partner’s decision-making abilities. The agreement must condition, among more things, how choices will be made, profits will be allocated, and disagreements will be determined. If in case the partnership does not work out, the legal covenant should also designate in facts how partners can be credited out, how fresh partners will be acknowledged to the partnership, or what steps would be taken if the partnership wants to be suspended.

Conclusion

On a concluding note it can be observed that the essential notion associated with the partnership and its associated statutory provision needs an essential visitation as the relics of the colonial past are fundamentally needed to be polished to accommodate them to our social realities which requires a visitation to our social realities.

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References

• Benjamin Gerald A and Margulis Joel (2001): The Angel Investor & Handbook: How to Profit from Early-Stage Investing, London: Bloomberg Press.
•  T, Michale (2005): Hands –On Partnership, London: University Press London.
•  In focus Institute: Page on Partnership in India.
•  Business Standard Article Dated: 18/05/2016
•  Indian Partnership Act, 1932

In this article, Nidhi Mahesh Shetty pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses the legality of the usual practice where Big accountancy firms in India have their captive law firms.

Introduction

Law as a profession has seen unprecedented development tearing through the traditional sense of practice. In India, post the iconic economic liberalisation in 1991, global access was re-defined. The scope of work for professionals like chartered accountants and lawyers gained impetus as India stood at the threshold of economic prosperity. Numerous companies cropped up in the domestic scenario either in conjunction with global or local investment. The roles and responsibilities of professionals in the field of accountancy and law were brought into spotlight for driving this economic liberalisation in terms of company incorporation, audit, taxes and dissolution.

When the Chartered Accountants Act was enacted in 1949, it enabled chartered accountants to perform duties relating to the legal aspects of companies such as incorporation or representation of the company before the Tax tribunal. Though such duties would be familiar to a lawyer, as such duties were classified as an imminent part of the legal functioning of a company, the Companies Act of 1956 expressly authorised chartered accountants to perform such duties.

Post-1991, corporate activity in India found urgent prominence. It formed a complex web of statutes, rules and regulations that every legal entity had to mandatorily abide to. This further lead to the establishment of specialised law firms dealing with corporate law and such activities.

The Big Dissent

However, the complexities gave rise to an enormous battle between accountants and lawyers. This battle focussed on clear demarcation of the roles and responsibilities of both the parties. Arguments were raised over chartered accountants encroaching the roles of advocates in terms of providing legal advice, compliance, and support that traditionally advocates are authorised to do. The bone of contention still exists as no clear relief has been notified.

Chartered accountants are professionals governed by their quantified law i.e. the Chartered Accountants Act, 1949 and advocates are professionals governed by the Advocates Act, 1961. However, allegations have surfaced in the recent past over accountants doing work that they are not authorised to perform.

Allegations have especially been levelled against the Big 4 accountancy firms, that have operations in India too. The firms were alleged of carrying out functions primarily designated to lawyers like advising clients, providing legal opinions, appearing for the clients and so forth. The legal fraternity in India raised concerns and voiced their dissent to the Bar Council over such multi-disciplinary approach of the firms. Dissent arises also from the fact that accountancy firms employ graduates from the field of law solely to cater to their clients, which is against the provisions of law.

Though many economies around the world, one of them being UK have permitted for such multi- disciplinary approach of accounting firms, India is yet to warm up to the idea. The largest economy in the world, United States too hasn’t opened up to the multi-disciplinary approach of big accountancy firms.

The Big Explanation

Over the years, however, it has been observed in India that global accounting firms like the Big 4 have “friendly” relations with some law firms that handle substantial of their work. Such international accounting firms seem to have tapped into markets where their accounting services are a big hit, but fall short in providing legal advisory to their clients. Given that, such huge accounting firms already possess the prestige and reputation, clients do not have to think twice before approaching their “friendly “law firms for any legal complications. Also, with the ever dynamic market of India, many advisories of mergers & acquisitions, fund raising, venture capital, complex tax matters and so on, have found huge significance. Clients having familiarity with big accountancy firms can trust their captive law firms for such complicated matters.

Chartered accountants have denied accusations of any sorts relating to encroachment upon legal profession. Stating reasons that the coursework of chartered accountancy itself provides for students to study subjects relating to company law, securities law, industrial and general laws, the question of encroaching on legal domain does not arise. Knowledge is universal and cannot be confined to particular sections only, is what is reasoned.

It is also to be noted that under the Chartered Accountants Act 1949, the Advocates Act 1961 and the Bar Council of India Rules 1966, the only legal work CAs were not allowed to perform was to represent their clients in the lower and higher courts of law in India. Providing legal advice or not, isn’t particularly debarred. Many accountants argued that if their clients approached them out of familiarity and trusted their opinions on legal matters pertaining to various scope of corporate law, nothing illegal could be made out of it. Arguing that knowledge doesn’t belong to anyone and is a universal domain, CAs seem to wiggle out of the sticky situation.

Big accountancy firms are also of the opinion that clients might prefer one stop solutions for their legal as well as accounting & taxation problems. Taking the advantage of such situations and leveraging for the “benefit of their clients” cannot add up to an illegality.

Legal firms have made a hue and cry that their practice is directly affected because of the accounting firms aggressive poaching on their clients. Such firms have set up huge law practice simultaneously claiming it to be some of their subsidiary company, when in fact they are actually incorporated bodies.

The Big Sly Move

The fact that such a dissent has arisen over accountancy professionals illegally rendering legal services, comes from the realization that they cannot practice the lucrative litigation. Earlier, existed a time when accountancy firms and law firms worked hand in glove, with accountancy firms providing referrals of law firms to their clients. These law firms were separate legal entities, and not in-house. Such a system existed because the market was rigid and exclusive. With the times and markets evolving with every legislation, the demarcation became blur.

Big firms began to wonder the reason behind referring their clients to outside law firms. Accountants have always been efficient regulatory compliance work. But, when their clients faced difficulty to the point of facing litigation, the accountants had to give them up to their “friendly” law firms. On understanding the potential market the accountancy firms are losing out on, these big firms (Big 4) created virtual independent law firms consisting of advocates only. This was to give an appearance that the accountancy firm and the law firm were distinct in their approach and businesses.

The apparition of separate entities was created, when in fact such entities work nearly exclusively with each other. Such law firms entertain clients brought to them by the subordinate accountancy firm. Revenue sharing agreement is also established between such firms; it is believed but could not substantially be proved. Big accountancy firms began literally poaching on the partners of big corporate law firms under the guise of separate legal firm of their own. It could be established that such captive law firms held files of the CA firm and mandated their actions through the directions of the accountancy firms. Such an approach has directly hit the law firms with direct competition. Law firms now have to compete not only with other law firms but also with such huge accountancy firms.

Big accountancy firms, until few years ago provided major referrals and recommended law firms to their clients. Now that such approach has been put to a back burner, law firms have to establish their own edge.

Arguments have been made that if the accountancy firms only seek consultancy from such law firms then it cannot be a matter of contention, as nowhere it has been a restriction on accountancy firms to seek legal consultancy from outside.

Fee splitting with such accountancy firms still is a matter of concern as it could affect the independence and proper judgement of advocates. However, many are also of the opinion that legal firms need not create mole out of a mountain. Legal firms have their own specialised niche carved. Offering of such services in terms of the standards and techniques that can be solely assured by a law firm only cannot be threatened. Instead, it is the accountancy firms that have to vigorously fight the reputed law firms for the international standard of work committed by them.

The Big Example

Taking the case of E&Y, it can be established that big accountancy firm have entered into the domain of legal work. PDS legal is termed to be the “best friend law firm” of EY, as PDS legal has been inducted as an affiliate firm of E&Y Global Limited. [1] PDS legal is a law firm consisting of lawyers and that cater to legal framework. However, the nearly exclusive manner that EY and PDS legal work with each other cannot be ignored. Though no direct evidence of any revenue sharing arrangement can be established between them, it also cannot be denied on face that EY has in the guise of a captive law firm, engaged in law practice.

Conclusion

Thus, establishing illegality or borderline defiance of law is only a technicality. Drawing a line is pertinent. Understanding the principle and respecting the essence of it, is important and should be made clear cut. What cannot be done directly should not be done even indirectly.

In this article, Kapil Mishra pursuing M.A, in Business Law from NUJS, Kolkata discusses Legal framework and Regulations protecting Whistle-blowers in India.

Index of the research undertaken

Background and Genesis of Whistle-blower Laws in India

• This section gives the context and the evolution of whistle-blower policies in India.

Definitions, Framework, and relevance

• This section helps you understand definitions, Framework of the Act and how these can affect a case and the concerned Whistle-Blower.

Challenges and Aspects of Possible Improvement

• This section gives an understanding about key challenges – from both practical and technical perspectives, coupled with the aspects of improvements in the Act.

Conclusion

• Brief take home message about Whistle blowing in India and possible steps to check the true merits of a case to blow the whistle.

Laws related to Whistle-blowers in India

Background:

Monday, May 13, 2013 – Court in Maryland, USA; exactly after five years and one month since a case was filed by a senior executive of a leading (and largest) Indian Pharma company; court announced a settlement between various Government departments and the Pharma company whereas the company pleaded guilty in this federal case.

This settlement made a distinct mark in Indian corporate world,  as well as in USA, to be one of the largest ever settlement by any Indian company in which company agreed to pay $500mn to govt. agencies of US – which was a whopping Rs.3,000 crore in Indian currency.

All of this started and happened for a very simple reason that an executive decided to notify regulators against some of the wrong practices he noticed in the company- means he became a WHISTLEBLOWER against the incorrect practices. This whistle-blower had not only updated the agencies but also filed a case in 2007 and fought for 5 long years resulting in such a huge settlement. Despite of battery of lawyers and attorneys, company had to plead guilty and pay an amount never heard of in Indian corporate world. This case was an example of the power vested by law in Whistle blowers, albeit the ones with god faith, and also a case study in which being on the side of truth made the whistle-blower get almost $49mn (Rs270 crore) as compensation.

With this hindsight, this article is going to explain the law governing Whistle-blowers, their roles and how the legal framework is laid out to address such issues structurally.

Genesis of the Legal Framework around Whistleblowing

In certain cases which reached the door of Supreme Court of India and were involving instances where the person, who blew the whistle against corrupt and wrong practices in some of the government organisations, were killed. Notably the case of NHAI engineer Satyendra Dubey, who was killed after he wrote letters to Prime Minister’s Office about colluded corruption by contractors, Govt. Officers and Politicians in the Golden Quadrilateral project in 2003. As this case provoked national debate and protests to save people who stands-up against wrong practices – Supreme Court pressed Government into issuing an office order-known as Public Interest Disclosure and Protection of Informers, 2004 appointing Central Vigilance commissioner as the nodal agency.

This dialogue between Judiciary and Government spurted the framing of Whistle-blowers Protection Act, 2011 – which was passed by Lok Sabha in 2011, Rajya Sabha in 2014 and finally enacted after President’s assent in 2014. Post its enactment it has gone through few amendments in 2013 and 2015.

Definitions, Framework, and Relevance

Definition of Whistle Blowers Act is described as (quoted as it is)- “An act to establish a mechanism to receive complaints relating to disclosure on any allegations of corruption or wilful misuse of power or wilful misuse of discretion against any public servant and to inquire or cause an inquiry into such disclosure and to provide adequate safeguards against victimisation of the person making such complaint and for matters connected therewith and incidental thereto.”

i. Who is a Whistle-blower:

The term Whistle-blower and its use has been rather recent in legal as well as corporate history of India, however as concept this has been in existence for long. In general context a ‘Whistle-blower’ can be a person or a group of persons, who are exposing the fraud, corruption, wilful wrongdoing or similar unethical acts those may be non-permissible under law, these whistle-blowers can be employee or former employee or vendors or affiliates of any organisation deviating from the good management practises.

There are different types of whistle blowers which are described as following –

a. Internal

When whistle blower, while being employed with the organisation, reports the wrong conduct or activities of an official or a colluded effort by a group of people in an organisation.

b. External

When the issues pertaining to the wrong practises or wilful misdeeds are reported by people who are outside the system – these people can be individuals or in the form of organisations such as media, public interest groups or any other such agency. Such whistle blowers are known as external whistle blowers.

c. Alumni

When the whistleblowing is done by a person who is no more employed by the organisation but he is acting on the willful wrongdoings he has witnessed during his employment with the organisation. Such ex-employees can unearth such deliberate mismanagements with the relevant authorities.

ii. Framework

In the corporate world, the most important factor of reliability is ‘Transparent Governance’. Ability of an organisation to inculcate a transparent governance system, which promotes adoption of ethical business practises, can provide a significant thrust to have sustainable growth and continued business for longer term. This can be achieved by establishing efficient management systems and robust policies to detect and minimise acts of frauds, corruption in the company.

The existence of such policies in the form of legislative act has been there even before the enactment of Whistle-blower Act, it was well recognised under Section 177(9) of Companies Act that all public listed companies have to mandatorily establish a vigilant mechanism for employees and senior executives. On top of that it has been made mandatory to establish a whistle blower policy with clear and adequate safeguards against victimisation of whistle-blowers.

Viability of a whistleblowing policy depends solely upon the intent with which an organisation firstly wants to create it and secondly wants to implement it. Such policy should not only give direction to complaints regarding any violation but also should specifically convey the results and in worst case even the failure to report should also fall into the violation of policy. Some of the key points to understand the framework can be as following –

• The policy must provide a mechanism and channel to report violation on any level. Such channels should be presided by the chairman of the board.
• Entire Pyramid of hierarchy, right from an entry level employee to the director should be allowed to report any violations of the policy. Discriminations, wilful negligence of quality, colluded frauds, and misappropriation of budgets are some of the events those should get reported.
• In the event of such reporting, the senior management shall take-up the investigation and any false evidence shall be dealt with seriously.
• Zero harassment should be assured to the whistle-blower by the management in the policy itself and no retaliation in whatsoever form should be tolerated.
• Full confidentiality shall be maintained at all the times to safeguard the whistle-blower.
• Such policy should have exception to not protect a whistle-blower from disciplinary action if allegations are proven unfounded and with wilful malicious intent.

iii. Whistle-blower Policy and Legislation in India

With the Pharmaceutical company’s case in which an Indian executive of an Indian company took up the case of wrong practises in the US courts under False Claim Acts of USA, it was evident that the Whistle-Blower Policy and the framework around it was not considered to be strong enough. However Whistleblowing should be seen in conjunction with the recent structural change Indian corporate world has gone through which includes multiple new bills and amendments in numerous old bills. In the context of Whistleblowing in largely corporate settings (Public/Private both), it is wise to understand it in the light of Companies act and the relevant regulators such as SEBI and others.

a. The Companies Act and Whistleblowing

In the hindsight of numerous scandals and syndicated corruption through Private and Public Sector companies alike, it was obvious to have certain changes the way Business world is governed through different Acts and Statute of Law. One such important step was the enactment of The Companies Act 2013, which has put more thrust on eliminating loopholes through stricter compliance and vigilance mechanism.

Different sections of the Companies Act 2013, covers complete framework of inquiry, investigation and inspection – all under one chapter of the Act through sections 206 to 229. These provisions increases identification of wrong practises by an external agent and thus the agent can play an important role to become an external whistle-blower. Section 208 of the act empowers an Inspector (other than registrar) to go through the records and recommend a further investigation in such matters of doubt; whereas Section 210 of the Act empowers Central Govt. to order an investigation on the receipt of such recommendations from registrar or Inspector or in public interest or on intimation of a special resolution passed by company to be investigated. In the same lines Section 211 has led to the formation of Special Fraud Investigation Office (SFIO) with power to arrest for offences specified as fraud. In previous context Auditors were not legally empowered to ascertain a fraud and they were just supposed to be primarily reporting such misappropriation. However now it is their onus to act as whistle-blowers and directly report any such act to Central government or concerned authorities.

b. Securities & Exchange Board of India (SEBI) and Whistleblowing

SEBI – The regulatory body for management of Public Limited companies,following its mandate to strengthen corporate governance standards in India, amended the Principles of Corporate Governance by incorporating clause 49 of the listing policy which mentions the formation of Whistle-blower Policy for companies. However it is not mandatory to put a policy in place, although numerous companies have adopted it wholeheartedly as it improves the compliance and governance standards – on the other hand it is mandatory to disclose adaption of such policy and number of events reported under such policy along with the number of cases resolved or pending.

c. The Whistle-blower Protection Act

As a bill passed by the Parliament in 2014 and consented by the President in May, 2014 – Whistleblower Protection Act, 2014 replaces the government resolution of 2014 which empowered Central Vigilance Commission to act on complaints from whistle-blowers.

In this act under section 3, any public servant or any other person which may include any non-governmental organisation may make a public interest disclosure to a competent authority. Any such disclosure to the competent authority shall be treated as Public interest disclosure in the context of this Act. The Act provides empowerment to the competent authorities to give direction to the relevant bodies/authorities for the protection of complainant or witness.

This Act has few exclusions to be reported if it fall under any of the categories of national importance such as,

1. Nation Security issues.
2. Economic/Scientific issue of Importance.
3. Cabinet Meetings/Proceedings.

Any such public interest disclosure falling into the excluded categories, when received by competent authority shall be forwarded to an authorised government office/body and the competent authority will be taking a decision on such matter whereas that decision shall be binding.

On the other hand this Act comes with few control mechanism on complainants, such as

• Penalty of up to two years imprisonment and a monetary fine of up to 20,000 rupees for individuals found to be filing false complaints or the ones with wilful vendetta.
• Along with this the Act provides a time limit of seven (7) years to file a complaint dating from the time of occurrence of such corruption or wilful act.

Challenges and Aspects of Improvements

The Whistle-blower Protection Act has got its own challenges which have been identified and discussed by many national international experts and people working against corruption. The Biggest challenge that remains to be a major shortcoming of the Act is about the Anonymity of a Whistle blower.

Under the Act, a whistle-blower can’t file a complaint anonymously. It is clearly stated in the act that no action shall be taken if any such disclosure does not express the identity of the complainant. This is a serious shortfall of the Act – while in this provision whistle-blower cannot remain anonymous, the authority receiving complaint is supposed to safeguard the identity of the complainant. Hence complainant is solely dependent upon the authority to protect his/her identity – whereas in contrast US laws provides complete anonymity for registering a complaint and even for receiving monetary rewards such complainant can remain anonymous provided he acts through a legal counsel.

This can be understood in the context of two separate case from India and US – one in which an executive (Sherron Watkins) of Enron corporation was hailed as a star by the corporate world and society alike, She was given full confidentiality and protection from government agencies and only at her will she disclosed her identity wherein her expose led to the fall of a multibillion dollar corporation. However on the other hand in India, when a government engineer (Satyendra Dubey) blew the whistle and wrote to PMO with details of syndicated corruption and very soon all of his details reached the people alleged for corruption leading to the unfortunate event of him being murdered. This event was widely criticised across sections of society and acted as an eye opener to the government.

Although in Indian context after few such instances of killing of whistle-blowers, Whistleblower Act has empowered Central Vigilance Commission to assess public disclosure requests and safeguard such whistle-blowers. The CVC has got powers to order the restoration to the position from which Whistleblower might have been fires in retaliation – moreover the onus is on the employer to prove that any action taken against employee (whistle-blower) is not in retaliation. Another important feature of the Act is the power vested upon CVC to penalise any officer who has disclosed whistle-blower’s name without proper approval and such punishment can be up to   Rs.50,000 fine and imprisonment of up to 3 years. However the Act does not empower authorities to provide criminal penalties for any sort of physical harassment or attack on whistle-blowers. Likewise the Act does not provide much clarity for civil penalties for workplace discrimination and retaliation.

Overall, the improvement can start on all of the above mentioned aspects and the topmost priority can be defining the important terms such as “Victimisation” – so that it can be used to safeguard whistle-blowers without any ambiguity. Similarly it is suggested by many experts that the vary definition of “Disclosure” is very narrow and should be broadened to have better effectiveness while covering such cases as in the form disclosure of any wrongdoing by a volunteer.

Another interesting aspect of being a whistleblower is to have the dilemma of Professional responsibility versus Organisational Loyalty. In this case a potential whistleblower has to face a lot of intrinsic questions before taking the plunge to become one – such risks include the risk of job , professional relations and sometime risk of life as well. This can be better dealt with the detailed policy framework and strict enforcement of the same.

Conclusion – Whistleblowing in India and Steps to Assess the Merit of a Case

There has been numerous examples and case studies which can act as a guiding book for someone who wants to either formulate a whistle blower policy in an organisation to make governance more transparent and efficient or if one wants to volunteer against any wilful fraud going on in an organisation.

Whistleblower policy if implemented effectively, can become a big deterrent to people with malign intents. Cases from the past suggest that a case fought solely on merits and with full preparation coupled with supportive legislative framework, can lead to expose of very high level syndicated fraud such as Enron Corporation and of many companies from Pharma and Defence sectors – whereas if the framework and its implementation is weak such as we have seen in past in India, honest whistle blowers have faced very high discrimination, victimisation and in some cases they lost the life also.

Now the question comes that what should be one’s strategy to implement strong policy in an organisation as an executive; whereas on the other hand as an executive or an employee what should be the step by step process to take the plunge and risk one’s career and may be life also to make sure that wrong practises are exposed to the world and competent authorities take action on it? This can be understood and implemented in the structural way by answering few questions to himself by the Whistleblower such as –

1. Person who is volunteering to expose a wrong act or a fraud, should first assess that if this will fall into a case of personal interest or a case of larger public interest. In the situation where it looks like a personal interest and just an individual case – one should assess whether he has explored the available grievance or anti-harassment mechanism or not.
2. One must ascertain about his own role and responsibility towards serving the public interest against the urge towards organisational loyalty one might have. Generally such dilemma comes up with every such case of whistle blowing where one has to compare moral values and business ethics versus relationship with colleagues and employer.
3. Willingness and mental preparedness to confront retaliation and lots of undercurrent by your known people and colleagues.
4. By blowing the whistle against wrongdoings, a whistle blower disagrees with the authority of that organisation and that will obviously bring a lot of risk where not only authority but also hierarchy is violated by such act. In such an extreme situation, the volunteer must be sure about the content and specificity of the issue. If the issue cannot be articulated in a manner that it gets substantial and correct type of audience, it will get washed out and will not serve the correct purpose.

In order to have a corporate ecosystem free from all scams and frauds, following high level of integrity and transparent governance, The Whistleblower Act is a step in right direction albeit it needs some more teeth and nails. The Whistleblower Act coupled with The Companies Act 2013 makes up the deficit which Indian Legal system has been facing however there have been shocking cases of victimisation of whistleblowers and no one can deny that corrupt practises can only be decreased and probably not eliminated completely. Possibly the Act can have a second level escalation mechanism which is a big missing point as of now – due to which many complaints are watered down due to external factors and the Whistle-blowers have no resort to complaint against a wilful negligence against his complaint.

Success or failure of The Whistleblower Act is not much dependent upon the quantified outcomes in the short term and it should not be considered as a magic wand which will eliminate all wrongdoings in our routine life – rather in longer term it may act as a supporting tool to employees, professionals and organisations which have an intent to maintain integrity and transparent governance free from all possible corruption. It is only the active participation from all stakeholders, which will make the Act useful and instrumental in a collective fight against corruption and all wrong practises.

In this article, Minali Pathak pursuing M.A, in Business Law from NUJS, Kolkata discusses evolution and development of Competition Law in India.

Introduction

In India, the decade of 80s and 90s has been a crucial one, specifically due to the introduction of new economic policy and opening up of the Indian market to the world. The New Economic Policy of 1991 which brought about Liberalisation, Privatisation and Globalisation of the Indian Economy, progressively widened the space for market forces and reduced the role of Government in business and various other economic sectors. It was realised that a new competition law was also called for because the existing Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) had become obsolete in certain respects and that now there was a need to shift focus from curbing monopolies to promoting competition in the Indian market. A high-level committee was appointed in 1999 to suggest a modern competition law in line with international developments to suit the Indian conditions. The committee recommended the enactment of new competition law, called the Competition Act, and the establishment of a competition authority, the Competition Commission of India, along with repealing of the MRTP Act and the winding up of the MRTP Commission. It also recommended further reforms in Government policies as the foundation over which the edifice of new competition policy and law would be built.

The Competition Act came into existence in January 2003 and the Competition Commission of India was established in October 2003. The Act states that it shall be the duty of the Commission to eliminate practices having an adverse effect on competition, to promote and sustain competition, protect the interests of consumers and ensure freedom of trade carried on by other participants, in markets in India.

Evolution of Competition Laws across the Globe

Competition Law is the key tool to promote competition. The scope, application and implementation of Competition Law vary widely across jurisdictions. As Fox Eleanor M. puts it “Even within a particular national system, the goals of competition law may evolve and transmogrify, often depending upon the state of industrialisation of the economy, the strength of the political democracy, the power of the judiciary and the bureaucrats, and the exposure of the domestic firms to global competition.”[1]

Competition laws have a long history. Some authors claim that the first laws against anti-competitive practices date as far back as the middle ages, when cartels, the so-called guilds, were formed in most European cities. The first prohibition of contracts that restrain trade can be traced to English common law of the early fifteenth century.^[2]

The first modern body of competition law can be traced back to the enactment of the Sherman Act of 1890 and the Clayton Act of 1914 in the United States. In the second half of the nineteenth century, the United States and Canada experienced a turbulent process of economic change. Railroads and steamships expanded the scope of many markets, and managerial innovations led to larger corporations and trusts.

At the same time, agricultural prices fell as a consequence of monetary stringency associated with the gold standard. Farmers and small business owners discovered that they had to pay high prices for the inputs charged by the trusts while receiving lower prices for their own outputs. They subsequently lobbied for legislation to limit the trusts’ power.  Their movement was successful and led to the adoption of competition laws in Canada (1889) and the United States (1890).^[3]

The turn of the century also saw the formation of many cartels in Germany and other parts of Europe. Cartels steadily expanded their economic importance in countries such as Austria, Switzerland, Italy, France, the Scandinavian countries and were even recorded in Japan. With the practice of cartelization reaching its peak during the great recession of the 1930s, European countries began to follow the United States’ lead in enacting competition laws.

After World War II, the Allies, led by the United States, introduced tight regulation of cartels and monopolies in occupied Germany and Japan. In Germany, despite the existence of laws against unfair competition passed in 1909 (Gesetz Gegen Den Unlauteren Wettbewerb or UWB), the industry was dominated by a few large cartels. Similarly, in Japan, business was organized along family and nepotistic ties, and a few business houses controlled much of the industry. Thus after the end of the World War II more strict competition laws based on the US legislations were introduced in these countries.

Further developments in competition law, however, were considerably overshadowed by the move towards nationalization and industry wide planning in many countries. Making the economy and industry democratically accountable through direct government action became a priority. Coal industry, railroads, steel, electricity, water, health care and many other sectors were targeted for their special qualities of being natural monopolies. In contrast, Commonwealth countries were slow in enacting statutory competition law provisions. The United Kingdom introduced the (considerably less stringent) Restrictive Practices Act in 1956. Australia introduced its current Trade Practices Act in 1974.

Competition laws have been adopted more recently in developing countries compared to the more developed counterparts. Argentina and Mexico, were the early entrants amongst the developing countries, and adopted competition laws in 1923 and 1917 respectively. Competition laws were introduced in Chile, Brazil and Colombia in the 1960s.^[4]

In the early 1990s, there were only about 35 developing countries with a competition law in place, but with rapid industrialization and integration into the world market, several other developing countries have taken steps to introduce competition laws and presently the number of developing countries with competition related statutes is estimated to exceed 100, with several more in the process of adopting a competition legislation very soon.^[5]

Evolution and Development of Competition Law in India

India adopted its first competition law way back in 1969 in the form of Monopolies and Restrictive Trade Practices Act (MRTP). The Monopolies and Restrictive Trade Practices Bill was introduced in the Parliament in the year 1967 and the same was referred to the Joint Select Committee. The MRTP Act, 1969 came into force, with effect from, 1 June, 1970. However, with the changing nature of business, market, economy on the whole within and outside India, there was felt a necessity to replace the obsolete law by the new competition law and hence the MRTP Act was replaced with the Competition Act of 2002.

The enactment of MRTP Act, 1969 was based on the socio – economic philosophy enshrined in the Directive Principles of State Policy contained in the Constitution of India. The MRTP Act, 1969 underwent amendments in 1974, 1980, 1982, 1984, 1986, 1988 and 1991. The amendments introduced in the year 1982 and 1984 were based on the recommendations of the Sachar Committee, which was constituted by the Govt. of India under the Chairmanship of Justice Rajinder Sachar in the year 1977.

The Sachar Committee pointed out that advertisements and sales promotions having become well established modes of modern business techniques, representations through such advertisements to the consumer should not become deceptive. The Committee also noted that fictitious bargain was another common form of deception and many devices were used to lure buyers into believing that they were getting something for nothing or at a nominal value for their money. The Committee recommended that an obligation is to be cast on the seller to speak the truth when he advertises and also to avoid half truth, the purpose being preventing false or misleading advertisements.

However, as the times changed, the need was felt for a new competition law. With introduction of new economic policy and opening up of the Indian market to the world, there was a need to shift focus from curbing monopolies to promoting competition in the Indian market. As pointed out by the then Finance Minister in his budget speech in February, 1999–

“The MRTP Act has become obsolete in certain areas in the light of international economic developments relating to competition laws. We need to shift our focus from curbing monopolies to promoting competition. The Government has decided to appoint a committee to examine this range of issues and propose a modern competition law suitable for our conditions.”

In October 1999, the Government of India constituted a High Level Committee under the Chairmanship of Mr. SVS Raghavan [‘Raghavan Committee’] to advise a modern competition law for the country in line with international developments and to suggest legislative framework, which may entail a new law or suitable amendments in the MRTP Act, 1969. The Raghavan Committee presented its report to the Government in May 2000.

The committee inter alia noted: In conditions of effective competition, rivals have equal opportunities to compete for business on the basis and quality of their outputs, and resource deployment follows market success in meeting consumers’ demand at the lowest possible cost.

On the basis of the recommendations of the Raghavan Committee, a draft competition law was prepared and presented in November 2000 to the Government and the Competition Bill was introduced in the Parliament, which referred the Bill to its Standing Committee. After considering the recommendations of the Standing Committee, the Parliament passed December 2002 the Competition Act, 2002.

Hence, the Monopolies and Restrictive Trade Practices Act, 1969 [MRTP Act] was repealed and was replaced by the Competition Act, 2002, with effect from 1 September, 2009.

Salient Features of Competition Act, 2002

The Competition Act provides for establishment of a Competition Commission of India which will be a quasi judicial body bound by principles of rule of law (i.e. predictability in reasoning and uniform and consistent application of law) in giving decisions and the doctrine of precedents. The CCI has all the powers of a civil court for gathering evidence.

There are three major elements in the Competition Act

• Anti-competitive Agreements (Section 3)
• Abuse of Dominant Position (Section 4)
• Combinations (Section 5 and 6)

Anti-competitive Agreements

Anti-competitive Agreements are prohibited under the Competition Act. The following agreements entered into by enterprise, association or persons are considered as anti-competitive:

1. Agreement having appreciable adverse effect on competition(AAEC) – no one shall enter into any agreement in respect of production, supply, distribution storage, acquisition or control of goods or provision of services which causes or is likely to cause appreciable adverse effect on competition within India. Following factors are to be considered by the Commission to determine whether an agreement has appreciable adverse effect on competition in India:

• Creation of barriers to new entrants in the market
• Driving existing competitors out of the market
• Foreclosure of competition by hindering entry into the market
• Accrual of benefits to the consumers
• Improvements in production or distribution of goods or provision of services.

2. Any agreement entered into, including cartels engaged in identical or similar trade of goods or provision of services, which:

• Determines purchase or sale prices
• Limits or controls production, supply, markets, technical development, investment or provision of services
• Shares the market of source of production or the provision of services by way of allocation of geographical area of the market, or type of goods or services, or number of customers in the market or any other similar way
• Results in bid rigging or collusive bidding having AAEC in India.

3. Agreement at different stages or levels of the production chain in different markets, in respect of production, supply, distribution, storage, sale or price of, or trade in goods or provision of services, including:

• Tie-in arrangement
• Exclusive supply agreement
• Exclusive distribution agreement
• Refusal to deal
• Resale price maintenance

If the aforesaid agreement causes an AAEC in India, then such agreements will be considered as anti-competitive agreements and such agreements are prohibited under the Act.

Remedies available against Anti-competitive Agreements

Section 27: Competition Commission of India has the following powers in this regard:

• Passing an interim order during the pendency of inquiry
• Serve a cease and desist notice directing the offending parties to a cartel to discontinue and not to repeat such agreements in future
• Order the offending parties to modify the agreement
• Impose on each member of the cartel a hefty pecuniary penalty

Abuse of Dominant Position

The Act defines dominant position (dominance) in terms of a position of strength enjoyed by an enterprise, in the relevant market in India, which enables it to: a operate independently of the competitive forces prevailing in the relevant market; or an affect its competitors or consumers or the relevant market in its favor.

The relevant market (Section 2(r)) means “the market that may be determined by the Commission with reference to the relevant product market or the relevant geographic market or with reference to both the markets”.

Factors that Determine Dominant Position

Section 19(4) of the act mentions the factors that help in determining dominant position in the market.

Dominance has been traditionally defined in terms of market share of the enterprise or group of enterprises concerned. However, a number of other factors play a role in determining the influence of an enterprise or a group of enterprises in the market. These include: a market share, a the size and resources of the enterprise; a size and importance of competitors; a economic power of the enterprise; a vertical integration; a dependence of consumers on the enterprise; a extent of entry and exit barriers in the market; countervailing buying power; a market structure and size of the market; source of dominant position viz. whether obtained due to statute etc.; a social costs and obligations and contribution of enterprise enjoying dominant position to economic development. The Commission is also authorized to take into account any other factor which it may consider relevant for the determination of dominance.

Abuse of Dominance

Dominance is not considered bad per se but its abuse is. Abuse is stated to occur when an enterprise or a group of enterprises uses its dominant position in the relevant market in an exclusionary or/ and an exploitative manner.

Section 4 (2) of the Act specifies the following practices by a dominant enterprises or group of enterprises as abuses

• directly or indirectly imposing unfair or discriminatory condition in purchase or sale of goods or service;
• directly or indirectly imposing unfair or discriminatory price in purchase or sale (including predatory price) of goods or service;
• limiting or restricting production of goods or provision of services or market;
• limiting or restricting technical or scientific development relating to goods or services to the prejudice of consumers;
• denying market access in any manner;
• making conclusion of contracts subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts;
• using its dominant position in one relevant market to enter into, or protect, other relevant markets.

Abuses as specified in the Act fall into two broad categories:

• Exploitative (excessive or discriminatory pricing) and
• Exclusionary (for example, denial of market access).

Predatory Pricing

The “predatory price” under the Act means “the sale of goods or provision of services, at a price which is below the cost, as may be determined by regulations, of production of goods or provision of services, with a view to reduce competition or eliminate the competitors” [Explanation (b) of Section 4]

Predation is exclusionary behaviour and can be indulged in only by enterprises(s) having dominant position in the concerned relevant market.

The major elements involved in the determination of predatory behaviour are:

• Establishment of dominant position of the enterprise in the relevant market
• Pricing below cost for the relevant product in the relevant market by the dominant enterprise [‘Cost’, for this purpose, has been defined in the Competition Commission of India (Determination of Cost of Production) Regulations, 2009 as notified by the Commission.]
• Intention to reduce competition or eliminate competitors This is traditionally known as the predatory intent test

Powers of the Commission

After inquiry the Commission may pass inter- alia any or all of the following orders

• Under section 27 the Commission may direct the parties to discontinue and not to re-enter such agreement; direct the enterprise concerned to modify the agreement. direct the enterprises concerned to abide by such other orders as the Commission may pass and comply with the directions, including payment of costs, if any; and pass such other orders or issue such directions as it may deem fit.
• The Commission can impose such penalty as it may deem fit. The penalty can be up to 10% of the average turnover for the last three preceding financial years upon each of such persons or enterprises which are parties to bid-rigging or collusive bidding.
• Section 28 empowers the Commission to direct division of an enterprise enjoying dominant position to ensure that such enterprise does not abuse its dominant position.
• Under section 33 of the Act, during the pendency of an inquiry into abuse of dominant position, the Commission may temporarily restrain any party from continuance with the alleged offending act until conclusion of the inquiry or until further orders, without giving notice to such party, where it deems necessary.

Regulation of Combinations

As per the Competition Act, Combinations include Mergers, Acquisitions, and Amalgamations. The term combination according to the Act means:

• Section 5(a): Acquisition of control, voting rights or assets;
• Section 5(b): Acquisition of control by a person over an enterprise where such person has control over another enterprise in similar or identical business;
• Section 5(c): Mergers and Acquisitions.

Section 6 provides for regulation of combinations so that they do not have an adverse effect on competition. As per this section, No enterprise should enter into any combination that is likely to cause an AAEC. When any enterprise enters into a combinations and if the value of assets or turnover increases beyond a threshold declared by the government such enterprise shall give notice to the Commission in the prescribed form by disclosing the details of the proposed combination and any such combination shall not come into effect until 210 days have passed from the date on which the notice has been given to the Commission.

Investigation of Combinations

• The CCI can either by itself or through a Director General conduct an investigation to determine the proposed combination is likely to cause appreciable adverse effect on competition within India.
• If the CCI is of the opinion that a combinations is likely to have an AAEC then it will issue show cause notice to the parties and they have to respond within 30 days of receipt of the notice.
• After receipt of the reply to show cause notice, the CCI can call for the report from the Director General.
• Within 7 days of receipt of reply from the parties or of the recpt of the report from the Director General, the CCI will direct the parties to publish the details of the combination to the public.
• CCI can invite affected or likely to be affected parties or members of the public to file written objections to the combinations.
• CCI can call for additional information from the parties to the combination within 15 working days of the expiry of the time for filing objections from the affected parties or the members of the public.
• Additional document s are to be filed by the parties within further 15 days.
• On receipt of the requested information the CCI must deal with the case within 45 days.

Final decision can be taken by the CCI to accept, reject or modify the combination within an addition 180 working days. If the CCI does not give its final decision then the combination is deemed to be approved.

Conclusion

India and the world was going through a new phase of globalisation, liberalisation and privatisation and these changing times were bringing newer challenges and the existing MRTP Act had become obsolete in the modern era. Hence the new Competition Act came into being in order to suit the need of the hour. The new act is based on the regulation of conduct or behaviour of the players in the market and is result oriented rather than being procedure oriented like the MRTP Act.

Further its main purpose is to protect and promote competition in the market. Competition is very essential as it benefits: the Consumers as they get wider choice of goods and services, better quality and improved value for money; it benefits the Businesses as a level playing field is created and a redressal of anti-competitive practices is available, the inputs are competitive priced, they tend to have greater productivity and ability to compete in global markets and finally it also benefits the state as there is optimal realisation from sale of assets and there is enhanced availability of resources for social sector.

Thus, by protecting competition in the market the competition law helps benefit all the players in the market which in turn is beneficial for the economy as a whole.

References

[1] Fox Eleanor M., “Anti Trust Law on Global Scale: Race up, down and sideways”, Public Law and Legal Theory Working Paper Series, Working Paper 3, New York University School of Law, December 15, 1999)

[2]Passmen Berend R., “Multilateral Rules on Competition Policy: An Overview of the Debate”, Comercio Internacional Serie 2, International Trade Unit, Santiago, Chile, December 1999.

[3] Ibid.

[4] Passmen Berend R., “Multilateral Rules on Competition Policy: An Overview of the Debate”, Comercio Internacional Serie 2, International Trade Unit, Santiago, Chile, December 1999.

[5]Competition Commission of India, available at http://www.competition-commission-india.nic.in/

In this article, Lakshmi CM pursuing M.A, in Business Law from NUJS, Kolkata discusses Acquisition and transfer of immovable property in India.

The procedure and regulation for acquisition and transfer of immovable property in India by Non-Resident Indians is governed by the Foreign Exchange Management Act, 1999 (FEMA). The FEMA empowers the Reserve Bank of India to frame regulations to restrict, prohibit and regulate the acquisition or transfer of immovable property in India by Residents outside India. The regulations governing acquisition and transfer of immovable property in India are notified under Notification No. FEMA 21/2000-RB dated May 3, 2000, as amended from time to time. Part II of the “Master Direction 12/ 2015-16 – Acquisition and Transfer of Immovable Property under Foreign Exchange Management Act, 1999” issued by the Reserve Bank of India details the provisions for acquisition and transfer. The provisions of the Master Direction have been detailed in the following paragraphs.

Important Definitions defined under the Master Direction

Regulation 2.1: ‘Non-Resident Indian’ (NRI) is a citizen of India resident outside India.

Regulation 2.2: ‘Person of Indian Origin’ (PIO) means an individual (not being a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan) who at any time, held an Indian Passport or who or either of whose father or mother or whose grandfather or grandmother was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955).

Regulation 2.3: ‘Repatriation outside India’ means the buying or drawing of foreign exchange from an authorised dealer in India and remitting it outside India through banking channels or crediting it to an account denominated in foreign currency or to an account in Indian currency maintained with an authorised dealer from which it can be converted in foreign currency.

Regulation 2.4: ‘Transfer’ includes sale, purchase, mortgage, exchange, pledge, gift, loan or any other form of transfer of right, title, possession or lien.

Acquisition of Immovable Property by NRI and PIO

As per the Master Direction, a person resident outside India who is a citizen of India, NRI or PIO can acquire by way of purchase, any immovable property in India other than agricultural land, plantation property, and farm house.

He can also transfer any immovable property other than agricultural or plantation property or farm house to a person resident outside India but only to a person who is a citizen of India or to a person of Indian origin resident outside India or to a person resident in India. Agricultural land, plantation property, farm house acquired by way of inheritance shall be transferred only to Indian citizens permanently residing in India. Transfer by way of gift of residential or commercial property in India, to a person resident in India or to an NRI or to a PIO resident outside India is permitted under the Regulation. Thus, the general permission, covers only purchase of residential and commercial property and not for purchase of agricultural land/plantation property/farm house in India.

Payment for Acquisition

The payment for acquisition of property can be made out of funds received in India through normal banking channels by way of inward remittance from any place outsider India or Funds held in any non-resident account in India like the Non Resident Rupee (NRE) / Non Resident Ordinary Rupee (NRO) / Foreign Currency Non-Repatriable (FCNR -B) maintained in accordance with the provisions of the Foreign Exchange Management Act, 1999 and the regulations made by Reserve Bank of India from time to time. No payments can be made either by traveller’s cheque or by foreign currency notes or any other mode except those specifically through the afore mentioned accounts.

Acquisition of Immovable Property by person resident outside India for carrying on a permitted activity

The Master Direction provides that, person resident outside India who carry out permitted business activity in India may establish an office or branch office, other than a liaison office in India. This office may be established by acquisition of immovable property in India and such an office shall be incidental to the activities carried on in India. As per Regulation, the person setting up such an office shall file with the Reserve Bank a declaration in FORM IPI, within 90 days from the date of the acquisition. The immovable property can be mortgaged to an Authorised Dealer as a security for any borrowing. Acquisition of immovable property in India for a branch or other place of business by entities with its origin/nationality or ownership of countries like Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Hong Kong, Macau, Nepal, Bhutan shall require prior approval of the Reserve Bank of India.

Acquisition of Immovable Property by a foreign national resident in India

A foreign national resident in India does not require approval from Reserve Bank but approvals if any required in terms of regulations prescribed by other authorities such as the concerned State Government etc. must be obtained by him/her. However, a foreign national resident in India who is a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, and Bhutan requires specific prior approval of Reserve Bank. A foreign national who is residing in India for more than 182 days during the  preceding financial year for taking up employment or carrying on business/vocation or for any other purpose indicating his intention to stay for an uncertain period can acquire immovable property in India as he would he falls under the definition of a ‘person resident in India’ as per FEMA. To be treated as a person resident in India under FEMA, a person has not only to satisfy the condition of the period of stay but also his purpose of stay as well as the type of Indian visa granted to him shall clearly indicate the intention to stay in India for an uncertain period. In this regard, to be eligible, the intention to stay has to be unambiguously established with supporting documentation including visa.

Acquisition of Immovable Property by Foreign Embassies, Diplomats, Consulate Generals

Foreign Embassies, Diplomats, Consulate Generals may purchase immovable property (other than agricultural land/ plantation property/ farm house) in India as per the provision of Regulation 5 of the Master Direction, with the Clearance from the Government of India, Ministry of External Affairs shall be obtained for such purchase, and the consideration for acquisition of immovable property in India shall be paid out of funds remitted from abroad through the normal banking channels. The property so acquired shall be mortgaged with an authorised dealer as a security for any borrowing.

Transfer of Immovable Property

Transfer or sale of immovable property by a PIO, which are permissible as per the Regulations are categorised under the following heads:

1. Transfer of immovable property other than agricultural land, farm house or plantation property to a person resident in India.
2.   Gift or sell agricultural land, farm house, plantation property to a person resident in India who is a citizen of India.
3.  Gift residential or commercial property to a person resident in India or to an NRI or to a PIO resident outside India or to an NRI or to a PIO resident outside India.

Transfer or sale of immovable property by an NRI shall be made as follows

1. Transfer of immovable property to a person resident in India
2. Transfer of immovable property other than agricultural land, plantation property or farm house to an NRI or a PIO resident outside India.

An NRI or a PIO and a foreign national of Indian origin can inherit and hold immovable property in India from a person who was resident in India. However, a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, and Bhutan should seek specific approval of Reserve Bank. The immovable property can be inherited from a person resident in India or a person resident outside India. However, the person from whom the property is inherited should have acquired the same in accordance with the foreign exchange regulations applicable at that point of time.

Repatriation of sale proceeds of immovable property

The proceeds of the sale of immovable property made by an NRI or a PIO shall be repatriated in compliance with the provisions of the Regulations and the amount to be repatriated shall not exceed the amount paid at the time of the acquisition received by way of normal banking channels or out of funds held in the FCNR(B) or NRE Account. In case of sale of residential property, the repatriation of sale proceeds is restricted to not more than two such properties. In case an immovable property in India has been purchased by an NRI/ PIO out of housing loans availed in terms of Foreign Exchange Management (Borrowing and lending in rupees) Regulations, 2000, as amended from time to time, and the repayments for such loans are made out of remittances received from abroad through banking channels or by debit to the NRE/ FCNR(B) account of the NRI, such repayments may be treated as equivalent to foreign exchange received.

Residential and Commercial Property

An NRI or PIO can acquire a residential or commercial property in India in compliance with the provisions of the RBI regulations. Such a property can be sold by them to a person resident in India or an NRI or PIO. Such a property can also be mortgaged with an authorised dealer or housing financial institutions without the approval of the RBI. In the case of a mortgage with a foreign national of non-Indian origin, the prior approval of the RBI shall be obtained.

Refund of advance made for booking of a residential or commercial property

The refund of advance made by the builder or seller due to non-allotment of the property shall be credited to NRE account.

Loan for acquisition of residential property

NRI or PIO can avail loan from an authorised dealer for acquiring residential property for his own use against the security of funds held in the NRE Fixed Deposit account / FCNR (B) account. Such loans can be repaid by way of inward remittance through normal banking channel or by debit to his NRE / FCNR (B) / NRO account or out of rental income from such property or by the borrower’s close relatives, through their account in India by crediting the borrower’s loan account.

Prohibition on acquisition or transfer of immovable property

Prohibition on acquisition or transfer of immovable property in India by citizens of certain countries Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau or Hong Kong cannot, without prior permission of the Reserve Bank, acquire or transfer immovable property in India, other than on lease, not exceeding five years.

Foreign nationals of non Indian origin resident outside India are not permitted to acquire any immovable property in India unless such property is acquired by way of inheritance from a person who was resident in India. Foreign Nationals of non Indian origin who have acquired immovable property in India by way of inheritance with the specific approval of RBI can not transfer such property without prior permission of RBI. But, he/she may take residential accommodation on lease provided the period of lease does not exceed five years. In such cases, there is no requirement of taking any permission of or reporting to Reserve Bank. A foreign national of non-Indian origin resident outside India cannot acquire any immovable property in India through gift.

TAX Payment

Transaction involving acquisition of immovable property under the RBI regulations shall be subject to applicable tax laws in India.

The Government of India by way of press release dated February 01, 2009 has advised State Governments to be extra vigilant in matters of acquisition and transfer of immovable property in India by a person resident outside India and satisfy themselves about the eligibility under FEMA before registering a sale or purchase of immovable property in India. The State Government can enquire both the buyers and sellers. The relevant travel documents and the nature of visa may also be verified before registering such sale/purchase. Government has further advised all including concerned authorities in the State Governments that wherever appropriate, the authorities may consider reviewing registration of sale/purchase already made to determine their compliance with legal requirements. The requirements of the respective State laws shall be complied with by the persons acquiring immovable property.

In this article, Kshitij Asthana pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses whether accountancy firms can indulge in litigious or non-litigious practices or not.

INTRODUCTION

Can an accountant also assist his client in legal drafting, court hearings, joint venture agreements and tax compliances? Are they infringing any statute while advising or appearing before the court? Is it legally valid to have a captive law firm in an accountancy firm? These are some of the questions which are highly debated in India. In this article the researcher would explain the concept of Multidisciplinary Practices (also referred to as MDP in the article), take of different countries (especially USA) on MDP, its legality in India which essentially shall answer whether these practices of the big accountancy firms violate Section 28 of the Advocates Act, 1961 and some recommendations on whether this way of business of the huge revenue earning accounting firms a way forward or is it just an illegal act in guise of opening up of the economy.

In the United States of America, a firm in 1999 allegedly experienced a humongous growth in its tax practice and hired almost 300 law school fresh pass outs and experienced tax lawyers.[2] The US based firm with more than 650 working professionals with law degree was quoted saying that

“We believe [that we present] law school graduates with unparalleled opportunities for growth in a practice that offers many high-end specialty services and breakthrough strategies for leading clients world-wide.”

The firm which is mentioned above is shockingly not a law firm but one of the greatest accounting firm KPMG or one of the Big Five[3] (now Big four). The Big Five accounting firms in the year 1999, employed almost 5500 non-tax lawyers worldwide.[4] This increased number of lawyers in these accounting firms is not just through mergers and acquisitions but also through recruitments of new graduates from the law schools.

Emerging as competitors of law firms,[5] these accounting firms are expanding their influence in transactional matters as well. Most of the law commentators argue that this unregulated activity in multidisciplinary practices (MDPs) undermines the integrity of professional services[6] as it affects not only the Attorneys but also the clients and those non-attorneys who are engaged in any occupation/business which can be considered practice of law.[7]

CURRENT SCENARIO

Most of the companies and individuals nowadays consider a one-stop-shopping model to reduce the cost that generally is levied upon them through the dual-management structures. By elimination of this dual management structure, the Multidisciplinary practices have been touted as allowing one-stop shopping, better service (because of the broader expertise of the service providers and closer cooperation of an interdisciplinary team), and cost-effectiveness;[8] however, current ethics guidelines present many barriers to multidisciplinary practice.[9]

In the year 2015, the Society of Indian Law Firm filed a complaint in Bar Council of Delhi against the four audit firms namely PwC, EY, Deloitte and KPMG for engaging in law practice in India violating section 29 of the Advocates Act, 1961. The SIFL alleged that these firms were engaging in litigious and non-litigious practice which is clear violation of section 29 of the said act. The complaints cite AK Balaji V Union of India[10] in which the Madras high court issued writ against more than 30 foreign law firms stating

“The oversight of the Bar Council on non-litigation activities of such Law Firms was virtually nil till now, and exploiting this loop hole, many accountancy and management firms are employing law graduates, who are rendering legal services, which is contrary to the Advocates Act”.

The complaints also cited the Lawyers Collective case and the Supreme Court case (Ex-Captain Harish Uppal case) to reason that the Advocates Act 1961 applies to both litigious and non-litigious matters.

SILF further noted in its complaint stated that it was essentially unfair for accounting firms to encroach on law firms’ specialized domain of work because

“Advocates cannot engage in multi-disciplinary practices and are not engaged in practice of auditing and accounting. […] Advocates cannot engage in any other business or trade or profession as the profession requires complete devotion by an advocate to the profession.”

This argument though on the face of it intends to debar all the people who non-litigiously advice or give legal aid to those who need it and hence can lead to their aid becoming illegal. The fact that a person employed in a chartered accountancy firm also goes to tribunals and pleads in the court is illegal ab initio but an accountancy firm employing law graduates and law practitioners cannot be considered illegal or unauthorized practice as in the fast growing economy the concept of multi-disciplinary practices has shaped up and it is really consumer/client beneficial.

CONCLUSION AND RECOMMENDATION

The present system in India does not bar the above mentioned captive law firms under big accountancy firm. Professor Wu suggests that there are alternatives outside the MDP form that would avoid its negative consequences.[11] One such solution suggests that law firms organize themselves in “client teams” to meet the more diversified needs of particular clients. Under this approach, law firms would build a “strategic client team” around an individual client.[12]  The team formed early in the provision of services to the client, would contain speciality lawyers (who are trained in financial matters, such as accounting) key to the client’s needs.[13]

This would result in improved client service through the coordination of expertise and a more satisfying environment for lawyers with additional training to practice.[14] This would be a change from the traditional organization of a firm around practice groups.[15] While this approach may serve the end of providing high-quality service to clients, Wu does not offer solutions on how fee sharing and non-lawyer partners, the most contentious aspects of the MDP debate, would be addressed. Arguably, these client teams would face many of the same hurdles as MDPs without providing any discernible advantages. The ABA Model Rules of Professional Responsibility apply uniformly to all types of practising lawyers, both litigators and transactional attorneys.

The researcher, however, argues that the Supreme Court’s characterization of the different roles played by lawyers and accountants is incorrect, or at least that the roles are different today than at the time of the Supreme Court’s decision. Professor Kostant observes that “[i]n practice, corporate lawyers perform transactional work, not litigation.[16]

Today, argues Kostant, “[t]he distinction between a lawyer’s duties to the corporate ‘client’ on one hand and an accountant’s duties to ‘creditors, shareholders.., and the investing public’ . . . is in fact much less clear.[17]One solution to this fundamental change in the role of transactional attorneys is to develop a different set of ethical guidelines to reflect the evolution of the transactional lawyer’s role in corporate India.[18]

References

[1] Work of Kshitij Asthana, Student NUJS DABL December Batch, 3^rd Year Student

[2] Cliff Collins, The ABCs of MDP: How Multidisciplinary Practice Could Reshape the Practice of Law, OR. ST. B. BULL., Dec. 1999, at 17, 17.

[3] Since the writing of this article, Arthur Anderson is arguably no longer one of the “Big Five” and the “Big Five” are more accurately described as the “Big Four.” However, at the time when this article was written, available data and commentary analyzed the MDP debate and lawyers’ interactions with the “Big Five.” Therefore, for the sake of continuity with the source material, the term “Big Five” will be used throughout this piece.

[4] See Collins, Supra 2.

[5] See Bernhard Grossfeld, Lawyers and Accountants: A Semiotic Competition, 36 WAKE FOREST L. REv. 167, 170 (2001).

[6] See, e.g., Aubrey Meachum Connatser, Comment, Multidisciplinary Partnerships in the United States and the United Kingdom and Their Effect on International Business Litigation, 36 TEX. INT’L L.J. 365, 374, 376 (2001).

[7] See id

[8] See Laurel S. Terry, A Primer on MDPs: Should the “No” Rule Become a New Rule? 72 TEMP. L. REv. 869, 880 n.45 (1999) (discussing the departure of six partners to Big Five firms and lawyers leaving firms for the attraction of international practices);

[9] For a succinct definition of multidisciplinary practice, see William G. Paul, Remarks of the Outgoing President of the American Bar Association, 31 N.M. L. REv. 55, 61 (2001) (defining multidisciplinary practice as “the practice of law through an entity that includes non-lawyer professionals as well as lawyers

[10] Writ Petition No. 5614 of 2010, decided on 21.02.2012

[11] See Edieth Y. Wu, Why Say No to Multidisciplinary Practice, 32 LoY. U. CHI. L.J. 545, 552 (2001).

[12] Id. 11

[13] Id

[14] Id

[15] Id.

[16] See Peter C. Kostant, Paradigm Regained: How Competition from Accounting Firms May Help Corporate Attorneys to Recapture the Ethical High Ground, 20 PACE L. REv. 43, 66 (2000).

[17] See Peter C. Kostant, Paradigm Regained: How Competition from Accounting Firms May Help Corporate Attorneys to Recapture the Ethical High Ground, 20 PACE L. REv. 43, 66 (2000).

[18] See, e.g., Carrie Menkel-Meadow, The Lawyer as Problem Solver and Third-Party Neutral: Creativity and Non-Partisanship in Lawyering, 72 TEMP. L. REv. 785, 808 (1999) (arguing that current rules of legal ethics do not recognize the role of the “lawyer as mediator, arbitrator. Consensus building facilitator, neutral evaluator, and dispute systems designer.”).

In this article, Sachin Vats of RGNUL discusses ways of promoting institutional arbitration in India.

How to Promote Institutional Arbitration

Disputes can be settled outside the courtroom through neutral evaluation, negotiation, conciliation, mediation and arbitration. All these methods of resolving disputes without litigation are known as Alternate Dispute Resolution. Arbitration has become a preferred destination for resolving commercial disputes related to international commercial transactions, mergers and acquisitions deals in the corporate sector. There are actually two kinds of arbitration mechanism options available, namely,

• Ad-hoc Arbitration
• Institutional Arbitration

Arbitration is considered to be a convenient, cost-effective and progressive mode of dispute resolution which provides some concrete and binding result to the parties. But, due to lack of the proper infrastructure parties do not get the decisions on time which further increases the complexities.

The Government of India is eagerly trying to promote arbitration in India since the inception of the Arbitration and Conciliation Act, 1996. Ad hoc Arbitration is the normal practice significantly done in India but the business communities at international level want to resolve the disputes with pre-established rules and procedures. The Chief Justice of India stated that the International Centre for Alternate Dispute Resolution (ICADR) situated in Delhi has had only 20 cases since its establishment 20 years ago. The statistics also shows that out of 291 cases of arbitration administered by the Singapore International Arbitration Centre, 91 cases were associated with the Indian parties. The cases of Indians at SIAC are double with respect to the Chinese. The legal framework coupled with geographical advantage makes London and Singapore most preferred destination for the Arbitration by the international community.

The panacea to the drowning future of the Arbitration is the promotion of the Institutional Arbitration in India. All the processes are administered by the arbitral institutions according the arbitral agreement. The leading arbitration institutions of the world are International Chamber of Commerce (IIC), London Court International Arbitration (LCIA), American Arbitration Association (AAA), International Centre of Settlement of Investment Disputes (ICSID), China International Economic and Trade Arbitration Commission (CIETAC), World Intellectual Property Organization (WIPO). These institutions provide concrete legal framework for the arbitration.

Making India a Hub of International Arbitration

The Department of Legal Affairs, Ministry of Law and Justice constituted a ten member high level committee on 13th January, 2017 being headed by the hon’ble Justice B.N. Srikrishna who is a retired judge of the Supreme Court of India. The committee consists of other members as,

• Justice R.V. Raveendran, retired Judge, Supreme Court of India.
• Justice S. Ravindra Bhat, Judge of the Delhi High Court.
• Shri K.K. Venugopal, Senior Advocate and Attorney General of India.
• Shri P.S. Narsimha, Additional Solicitor General of India.
• Ms. Indu Malhotra, Senior Advocate, Supreme Court of India.
• Shri Arghya Sen Gupta, Research Director, Vidhi Centre for Legal Policy.
• Shri Arun Chawla, Deputy Secretary General, FICCI.
• Shri Vikkas Mohan, Senior Director, CII.
• Shri Suresh Chandra, Secretary General of this High Level Committee.

The High Level Committee reviewed the institutionalization of arbitration mechanism and suggested changes accordingly. The committee held 7 meetings and submitted its report to Shri Ravi Shankar Prasad, Hon’ble Minister of Law and Justice. The Government is dedicated to speed up dispute resolution and make India a hub for international and domestic arbitration according to International standards.

Challenges to the Institutional Arbitration in India

The situation of the Institutional Arbitration is very critical in India even after the reluctant efforts being made by the Government to attract the international parties. The challenges that are faced by the institutions in are mentioned here.

Misconceptions Regarding Institutional Arbitration

• The parties think that the cost involved in the institutional arbitration is very high but the scenario is quite different. The Ad hoc Arbitrations incur more cost due to additional procedural hearings but all these are done under one time administrative fee of the arbitration institution.
• Parties also think that the institutional arbitration is very inflexible due to prescribed rules that take away exclusive autonomy of the parties over arbitration proceedings but actually it provides a concrete framework for the parties without any discrepancy.
• The misconceptions are mainly due to lack of awareness among the business entities regarding institutional arbitration. People wrongly understand that these are affordable and available only to the big business house and high value disputes.

Government Support for Institutional Arbitration  

The institutional framework is very weak in India. The Government itself provides arbitration clauses in conditions of contract in the Public Sector Undertakings but these clauses do not provide institution for it. Several recommendations have been made by the Justice Srikrishna Committee recently in its report to promote institutional arbitration. The Institution must also be backed by the statutory bodies which will enhance its credibility.

Measures to Improve the Quality and Performance of Arbitral Institutions

The High Level Committee in its report submitted different measures to promote India as the most preferred Seat of Arbitration. The overall quality and the performance will subsequently increase with the adoption of the undermentioned suggestions,

• The establishment of an autonomous body as the Arbitration Promotion Council of India (APCI) which will consist of representatives from the stakeholders to grade arbitral institutions in India.
• Recognition of professional institutes by the Arbitration Promotion Council of India to provide accreditations of arbitrators.
• The advocates having interest in arbitrations may be trained through training workshops. The interaction with law firms and law schools may be done in order to create a special arbitration bar comprising of advocates dedicated to this field.
• The Special Benches may be created in order to handle the commercial disputes, in the domain of the Courts. There have been several changes being incorporated under the Arbitration and Conciliation Amendment Act, 2015 in order to make the judicial system more friendly with the arbitration. The amendments may support speedier arbitration and attract international practice of arbitration in India.
• An opinion for incorporating arbitration in the National Litigation Policy and promote arbitration in the governmental contracts.

ICADR as an Institution of National Importance

The working of the International Centre for Alternate Dispute Resolution based in Delhi was reviewed by the committee. The ICADR works under the Department of Legal Affairs, Ministry of Law and Justice to provide requisite facilities and improve the Alternate Dispute Resolutions methods.

The High Level Committee has recommended that the ICADR should be given the status of the Institution of National Importance. The Institution should also be taken under by the Government under a Statute. The Committee believes that the revamping of the ICADR can make it an institute of international repute and significance as it has great potential in the field of arbitration.

International Law Adviser (ILA)

The creation of the post of International Law Adviser to advise the Government in the affairs related with arbitration and formulation of the dispute resolution strategy. The disputes arising out of the international law obligations especially with the Bilateral Investment Treaties (BITs) can be resolved by the International Law Adviser. The Committee clearly stated that the ILA can take the advice of the Department of Corporate Affairs during negotiations and signing of the Bilateral Investment Treaties.

Advantages of Institutional Arbitration

Reputation

The prestige and reputation of the arbitral institutions is helpful in terms of enforcement of arbitral awards. The parties will have faith in the institution due to the reputation it holds and leads to more administered and supervised arbitration.

Arbitration Rules

The prescribed rules of the arbitral institutions help in the smooth regulation and conduction of the proceedings and there is no chance of impartiality towards any party. The parties after submitting their dispute with the institution follows as per the given norms in accordance with the rules which they automatically incorporate into their arbitration agreement. The parties effectively follow the book of rules of the institution which does not arise any discrepancy.

Administration

One of the important advantages of the Institution is that the administration provides trained staffs to administer the arbitration. All the advance payments are made and time strictly followed by the institution in all the proceedings of the arbitration.

Supervision

The Indian Institutions of Arbitration like ICADR should learn from the institutions like International Chamber of Commerce (ICC) and the International Court of Commerce in Paris to supervise effectively over the whole proceedings. There should be no controversy left with the parties and all the scrutinies should be dealt properly before publishing the award to the parties. It involves checking of all the rules followed properly and increases the quality of the arbitration which is not available in Ad hoc arbitration.

Quality of Arbitral Panel

The vast databases of arbitrators with the institution help to provide appropriate arbitrators for the resolution of their respective disputes. The Institution confirms the efficiency of the arbitrators with due care to avoid any discrepancy.

Remuneration of the Arbitral Tribunal

The institution avoids any type of discomfort to the parties and provides a full fledged mechanism to determine the scale of remuneration being published to the parties. The institution collects the remuneration from the party and pays it without directly involving the two parties. The Arbitral Tribunal focusses on the facts and circumstances of the case without depending on the individual parties.

Conclusion     

The Government has opened the gates for the foreign participation in legal services. The Madras High Court in A.K. Balaji vs. Govt. of India has allowed the entry of the foreign lawyers in India. All the reforms suggested by the committee will make a paradigm shift to project India as investor friendly destination. These reforms will absolutely reduce the excessive burden from the judiciary. The financial strength and development of the country will get a boost and the goal of the serving for the welfare of citizen will fulfilled.

References

• scconline.com/post/2017/08/05/justice-b-n-srikrishna-committee-report.
• www.indianbarassociation.org/what-india-needs-to-do-to-make-institutional-arbitration-success-in-india
• thewire.in/77002/international-arbitration-india
• www.lexisnexis.com/…/arbitration/…/Institutional…arbitration
• www.icaindia.co.in/HLC-Working-Paper-on-Institutional-Arbitration-Reforms

In this article, Kirti Raj Das pursuing M.A, in Business Law from NUJS, Kolkata discusses regulations related to black money in India.

There is no clear cut definition of black money. Even under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, black money has not defined it. Black money is the money that is unaccounted for, wherein taxes have not been paid on that money. If a person earns income, that is not illegal. But if it is not included in his tax returns, then it becomes black money. Black money also includes money earned through illegal means i.e., prohibited activities in the eyes of law.

Black money is a menace to the society. The three main sources of black money are crime, corruption and business. The criminal component of black money normally includes proceeds from a range of activities including racketeering, trafficking in counterfeit and contraband goods, forgery, securities fraud, embezzlement, sexual exploitation and prostitution, drug money, bank frauds and illegal trade in arms. The corrupt component of such money stems from bribery and theft by those holding public office – such as by grant of business, bribes to alter land use or to regularize unauthorized construction, leakages from government social spending programmes, speed money to circumvent or fast-track procedures, black marketing of price controlled services, etc.

Indian legislations for prevention of black money

Before the advent of Prevention of money laundering act, 2002 (PMLA), the statutes that were framed to address the problem of money laundering are :

• The Income Tax Act, 1961
• Black Money and Imposition of Tax Act, 2015 (Undisclosed Foreign Income and Assets or the UFIA)
• Foreign Exchange Management Act
• Prevention of Money Laundering Act

For income tax purposes, all such income which has been concealed and on which tax has been evaded, irrespective of the source of such income or the motive for earning such income, acquires the character of black money. Thus, all income which is not reported to the tax authorities becomes black income even though there may have been no illegality involved in earning such income.

Several governments in the past have been introducing ‘amnesty schemes’ over the last few years that aims to give a chance for black income holders to come clean by paying a penalty. The measure is a preparatory one as the world is now moving an ‘Automatic Exchange of Information’ era where governments can automatically avail information about domestic resident’s income and assets stored in foreign countries. Once such information is with the government, it should come out with penal measures and prosecution against black income holders. So to give a chance to residents to reveal their income and assets abroad, the Government of India introduced an Act that gives a one-time opportunity to reveal income and assets in other countries.

The Act is known as the ‘Black Money and Imposition of Tax Act, 2015 (Undisclosed Foreign Income and Assets or the UFIA)’ became effective from July 1, 2015 with the starting of the one-time compliance window (initially it was prescribed to be effective from April 1, 2016).

Black money in the form of undisclosed foreign income and assets comes under the purview of this law. The UFIA Act gives an opportunity to the black income holders to reveal black money and pay a tax within a compliance window time. After this time, black income holders will come under severe penal and prosecution measures prescribed under the law.

Undisclosed foreign income and asset’ is defined as the total amount of undisclosed income of an assessee from a source located outside India and the value of an undisclosed asset located outside India.

Features of the Act

1. The Act will be applicable to a person: (i) who is a tax resident of India as per the tests of the Income Tax Act, 1961 (ITA); (ii) who is not a person who is a ‘resident but not ordinarily resident’; and (iii) by whom tax is payable under the UFIA Bill on undisclosed foreign income and assets or any other sum of money. The term ‘person’ is not defined in the UFIA Bill so its definition under the ITA must be adopted. As regards individuals, the ITA has a day-count test of physical stay in India. For companies, the test is whether the company is incorporated in India or Place of Effective Management (POEM) is in India.
2. One – time compliance window: A one-time compliance opportunity to persons who discloses their foreign income and assets will be provided. This compliance period was available from July 1 to September 30. Persons who use this compliance window will be permitted to file a declaration before a tax authority, and pay a tax rate of 30% and a penalty at the rate of 100% (of the tax); implying a total tax of 60%. No exemption, deduction or set off of any carried forward losses (as provided under the IT Act) would apply.
3. Income and assets that qualify the disclosure: The total undisclosed foreign income and asset of an individual would include: (i) income, from a source located outside India, which has not been disclosed in the tax returns filed; (ii) income, from a source outside India, for which no tax returns have been filed; and (iii) value of an undisclosed asset, located outside India.
4. Non-disclosure, penalties, prosecution and the criminal procedures:  Not furnishing income tax returns for foreign income and assets or providing misleading information for such foreign income and assets attracts a penalty of Rs 10 lakh under the new legislation. Criminal punishment for such tax evasion practices could attract rigorous imprisonment from three to 10 years and a discretionary fine. However, it is important to note that the Foreign Assets Act provides that persons who have foreign accounts with minor balances, which may not have been reported out of oversight or ignorance, are protected from penalty and prosecution. Different types of penalties and punishment are envisaged under the law depending on the seriousness of the offence.
5. Administering authority: The Central Board of Direct Taxes and the existing hierarchy of tax authorities under the provisions of the Income Tax Act, including the appeals machinery prescribed thereunder, have been tasked with implementation of the new legislation.

Money laundering definition

In simple terms, money laundering is the process where proceeds of the crime in converted into legal money or asset in order to obscure its origin. In other words, it can be defined as an act of making money that come from one source to appear as if it comes from another source.

INTERPOL’s defines money laundering as “ any act or attempted act to conceal or disguise the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources.”

Money laundering is usually done with the intention to conceal money or other assets from state’s ire so as to prevent loss through its taxation, confiscation and legal proceedings. The criminal herein tries to disguise the origin of money obtained through illegal means to appear like it was obtained through legal means so that they use the money which otherwise would connect their activities to criminal proceedings and the law enforcement agencies would seize it.

The most common type of criminals who launder money is drug traffickers, embezzler, corrupt politicians, mobster, terrorist and con artists.These criminal organisations generated huge profits through their activities. Therefore, they route money earned through illegal means to various safe havens to disguise their origin.

Process of money laundering

Money laundering is a single process. However, its cycle can be categorised into three distinct stages namely placement stage, layering stage and integration stage :

Placement stage

At this stage the funds obtained through criminal activities are introduced into the financial system. The launderer inserts the illegal money into a legitimate financial institution in the form of cash deposits. This is a very risky stage huge amounts of money are very conspicuous. And banks are under obligation to report high value transactions. To minimise the risk, the huge amounts of money is broken into less conspicuous smaller sums that are then deposited into bank account by purchasing monetary instruments such as cheques, money orders, etc that are the collected and deposited into bank accounts of another location.

Layering stage

It is the most complex stage as series of financial transactions are carried out in order to camouflage the illegal source. The launderer engages in a series of conversions and movements of money in order to make it almost untraceable. The illegal money is sent through various financial transactions as to change its form and make it difficult to follow. Layering usually involves several transfer being made from one bank to another, wire transfers between different accounts with different names in different countries, making continuous deposits and withdrawal to vary the amount of money in the bank accounts, converting the illegal money into other countries currencies and purchasing high value items such as houses, cars , diamonds , yachts, etc. There are instances also where the launderer disguises the transfers as payment towards purchase of goods and services, giving them a legitimate look.

Integration stage

At this stage the money laundered is reintroduced into the legitimate economy. The launderer at this stage decides to put the funds into real estate, luxury assets or ventures with out the fear of getting caught. It’s very difficult to catch a laundered during the stage in the absence of any documentary evidence from the previous stages.

Some of the most utilised money laundering techniques used through out the world at the above mentioned three stages are as follows :

Structuring deposits – It is also known as smurfing. It is used at placement stage whereby is broken into deposits of small sums to defeat the suspicion of money laundering and to avoid anti- money laundering repouring requirements.

Shell companies – These are fake companies created that exists only for the purpose of money laundering. They simply create the companies in order to avoid tax, invoicing the transfers made as payments for goods and services thus giving them a legitimate appearance in the balance sheets.

Third part cheques – Counter cheques or banker’s drafts drawn on different institutions are utilized and cleared via various third-party accounts. Third party cheques and traveller’s cheques are often purchased using proceeds of crime. Since these are negotiable in many countries, the nexus with the source money is difficult to establish.

Bulk cash smuggling – This involves smuggling cash into another jurisdiction and depositing it into financial institution, such as offshore bank, with high secrecy or less rigorous money laundering enforcement.

During the first half of the 20^th century, apprehensions were raised regarding the lack of affection laws to deal with escalating transnational criminal activity.India had specific laws to deal with smuggling, narcotics, foreign trade violations, etc. However, one of the laws to deal with foreign exchange known as Foreign Exchange Regulation Act, 1973 (FERA) had draconian provisions.

In 1991 with opening up of the Indian economy, the foreign exchange inflows into the various sectors started rising. Foreign exchange reserves topped the $ 13 billion by February, 1994 buoyed foreign investment in various sectors and foreign companies buying Indian stocks. After such a remarkable feat achieved by the Indian economy, the Reserve Abank of India and the government decided to ease rules to allow Indians to spend money overseas on travel, education and other expenses. During the 1994-95 budget, Finance Minister Manmohan Singh announced that rupee has been made convertible on the current account. As the Indian economy improved and the balance of payment position improved, the central bank and finance minister were prompted to review the Foreign Exchange Regulation Act, 1973 (FERA). Their intention was to replace it with a new law. With the opening up of the Indian economy, the FERA has outlived its utility. This particular law was more suitable during the period where there was shortage of foreign exchange. The objective of the law was to conserve the forex and to ensure that it was only utilised in the interest of the development of the country. Although the RBI had initiated the work on a new potential law. However, the new law was not pursued a while as the PV Narasimha Rao led government went out of office in 1996. But in 1997-98, P Chidambaram decide to go ahead with some of the unfinished goals of liberalisation, include the potential law to replace the FERA. Finally, the decision was taken, and Y V Reddy who had joined RBI after quitting civil service was asked to work on it. The new law was called Foreign Exchange Management Act or FEMA which was more suitable for the changed economic scenario and to boost external trade and payments and promote the development of the foreign exchange market. One of the most remarkable change was the decision to make violations under this law a civil offence rather than criminal offence. Normal transactions in current account such as travelling abroad, tourism, education, etc. were made a right whereas restrictions were put on capital account.

However,  agencies the dealing with violation under the FERA led by the Enforcement Directorate were reluctant to give up the powers and argued that the removal of threat of criminal action would encourage the companies and individuals to take advantage of the loopholes in the law. P Chidambaram did not provide his assent to those objections, and decided to go ahead with the idea of levying monetary penalties or compounding of penalties.

In addition to the drafting of the FEMA, the government also had to think of another law which was intended to equip the state agencies with the powers of criminal action, a law on money laundering.

However, with the fall of the incumbent government in 1998, the new government had to follow up on the start. The new Finance Minister Yashwant Sinha and the RBI had not fully reckoned with the agencies that had administered the law for years. Their main concern was how the many cases of violations of the former law that are yet to be adjudicated would be handled and how things would change once the new law was implemented. Finally, a decision was made to keep a two years sunset clause for cases under FERA. Following this, a flurry of notices was issued just before the deadline which included one against a top Indian hotel chain for its acquisition of a hotel abroad.

When the FM Yashwant Sinha went to the parliament to get the bill passed for the two new laws, FEMA did not face much of the opposition, but with money laundering bill, the government found resistant opposition. After suggestion from parties across political spectrum, the bill was referred to a select committee of parliament. The panel recommended many changes to which Yashwant agreed. Finally, the bill was passed in 2002.

With the new laws coming into the picture, it was FEMA and in certain cases, the Prevention of Money Laundering Act was supposed to come into play.

The Act consists of 10 chapters containing 75 sections and 1 schedule divided into 5 parts.

Chapter I consisted of section 1 and 2 which deals with short title, extent and commencement and definitions. Chapter II consisted of  section 3 and 4 which provide for offences and punishment for money laundering. Chapter III consisted of sections 5-11 which provide for attachment of property, adjudication and confiscation. Chapter IV comprised of sections 12-15 which deals with obligations of banking companies, financial institutions and intermediaries. Chapter V has sections 16-24 which relate to summons, searches, seizures, retention, presumptions, etc. Chapter VI has sections 25-42 which deal with the establishment, composition, qualifications, powers and procedures, etc. of the Appellate Tribunal. Chapter VII has sections 43-47 which deal with Special Courts, and Chapter VIII has sections 48-54 which provide for various authorities under the Act their appointment, powers, jurisdiction, etc. Chapter IX has sections 55-61 which deal with reciprocal arrangement for assistance in certain matters and procedure for attachment and confiscation of property. Chapter X has sections 62-75 which deals miscellaneous provisions including punishments, cognizance of offences, offences by companies, etc.

Features of the Act

1. Offence of money laundering and its punishment

An offence of money laundering is said to be committed the accused deals with the proceeds of the crime. The punishment prescribed for offence of money laundering can range from three to seven years of rigorous imprisonment for an offence of money laundering with fine.

2. Attachment, Adjudication and confiscation

Chapter III of the Act deals with the confiscation of the property under the Act. An order for the attachment of the proceeds of the crime can be given by an official not below the rank of the Deputy Director, after informing the magistrate. Following the order, the deputy director can send report containing material information relating to such attachment to the adjudicating authority. After the receipt of the report, the adjudicating authority should send a show cause notice to the concerned person within 30 days. The authoring after giving opportunity to the concerned person and considering his response and all the related information can give finality to the order of attachment and pass a confiscation order, which will after that be confirmed or rejected by the special court.

3. Obligation of banking companies, Financial institutions and intermediaries

The above parties are required to keep a record of allt he material information relating to money laundering and forward the same to the director. Such information has to be preserved for 5 years. The director will supervise the functioning of the reporting entity and has the power to impose penalty, issue warning or order audit of the accounts to be conducted, in case of violations of its obligations. The central government after consulting the Reserve Bank of India is authorised to specify rules relating to managing information by the reporting entity.

4. Summons, searches and seizures, etc.

The adjudicating authority has been conferred with the power to survey and scrutinize records. The authority can ask any of its officials to conduct search, collect all relevant information, place identification marks and thereafter send a report to it. The search of the person can be conducted only after the central government orders for it. The authority authorized in this behalf cannot detain a person beyond 24 hours and must ensure that 2 witnesses are present, prepare a list of seized items signed by the witnesses and forward the same to the Adjudicating Authority. A property confiscated or frozen under this Act can be retained for 180 days. This period can be extended by the Adjudicating Authority based on the merits of the case. The Court or the Adjudicating Authority can subsequently also order the release of such property upon being adjudicated as not guilty. There shall be a presumption of the ownership of property and records recovered from a person’s possession. The burden of proof will be on the accused to prove that he is not guilty of an offence under this Act. The crimes under the Act is a cognizable and non-bailable offence.

Anti Money Laundering standards

RBI issued Master Circular on Know Your Customer (KYC) norms/ Anti-Money Laundering (AML) standards/ Combating of Financing of Terrorism (CFT)/ Obligation of banks under Prevention of Money Laundering Act, 2002 and all the banks were required to follow certain customer identification procedure before opening bank accounts and monitoring transactions which are of suspicious nature for the purpose of reporting it to appropriate authority. These KYC guidelines were revisited following the Recommendations made by the Financial Action Task Force (FATF) on Anti-Money Laundering (AML) standards and on Combating Financing of Terrorism (CFT). Banks have been advised to ensure that a proper policy framework on KYC and AML measures after the approval of the Board was formulated and was put in place.

The Objective of KYC Norms/ AML Measures/ CFT Guidelines is to prevent banks from being used as platform by criminal elements for money laundering or for funding terrorist activities. KYC procedures also enable banks to know and understand their customers and their financial dealings in a better way which in turn help them manage minimise their significance.

Obligation of banks

Banks should ensure that the information collected from the customer for the purpose of opening of account must be kept confidential and details thereof must not be divulged for cross selling or any other similar purposes. Banks should, therefore, ensure that information sought from the customer is relevant to the required context, is not intrusive, and is in conformity with the guidelines issued in this regard. Any other information required from the customer should be sought separately with his/her consent and after opening the account.

Banks should ensure that any remittance of funds by way of demand draft, mail/ telegraphic transfer or any other mode and issue of traveller’s cheques for value of Rupees fifty thousand and above is effected by debit to the customer’s account or against cheques and not against cash payment.

Banks should ensure their adherence to the provisions of Foreign Contribution (Regulation) Act, 1976 as amended from time to time.

Financial Intelligence Unit – India (FIU- IND)

While the Prevention of Money Laundering Act (PMLA) 2002, forms the main framework for Combating money laundering in the country, The Financial Intelligence Unit – India (FIU-IND) is the nodal agency in India for managing the AML ecosystem and has significantly contributed to coordinating and strengthening efforts of national and international intelligence, investigation and enforcement agencies in taking forward the global efforts against money laundering and related crimes. These are specialized government agencies which have been created to act as an interface between financial sector and law enforcement agencies for collecting, analysing and disseminating information, particularly about suspicious financial transactions.

As per PMLA Rules, banks are required to report information relating to cash and suspicious transactions and all transactions involving receipts by non-profit organizations of value more than rupees ten lakh or its equivalent in foreign currency to the Director, FIU-IND in respect of transactions.

It receives prescribed information from various entities in financial sector under the Prevention of Money Laundering Act 2002 (PMLA) and when required in cases disseminates information to relevant intelligence/ law enforcement agencies which include Central Board of Direct Taxes, Central Board of Excise & Customs Enforcement Directorate, Narcotics Control Bureau, Central Bureau of Investigation, Intelligence agencies and regulators of financial sector. FIU-IND does not investigate cases.

Conclusion

As we can see that black money and money laundering involves activities that are international in nature and are also committed at great level, therefore, in order to make a heavy impact it is necessary that all countries should enact stringent  laws so that the money launderers will have no room to target in order to launder their proceeds of crime by taking advantage of the loop holes of jurisdiction. Since the States have no obligation in deciding which offences should be considered as predicate offences to money laundering, there is no consensus into the international harmonizing efforts for anti-money laundering. Thus, there is a need to enlist common predicate offences to solve the problem internationally particularly keeping in mind the trans-national character of the offence of money laundering.

Furthermore, the provision of financial confidentiality in other countries is an issue. The states are unwilling to divulge information which may infringe upon provision of confidentiality. There is a need to draw a line between such financial confidentiality rules and those financial institutions which have become money laundering safe havens.

Apart from that, many people have an opinion that money laundering seems to be a victimless crime. They are unaware of the harmful effects of such a crime. So there is a need to educate such people and create awareness among the masses and therefore instil a sense of watchfulness towards the instances of money laundering. This would also help in effective law enforcement as it would be subject to public examination.

Moreover, to have effective anti-money laundering measures both the Centre and the State has to work together on this common objective. For that the power struggle between the two should be removed. The laws should not only be the responsibility of the Centre but state should also have an equal responsibility. Decentralisation of the law would help it in reaching the public better. Therefore, one has to act regionally, nationally and globally to make the anti money laundering regime achieve its objectives.