In this blog post, Nabarun Roy, Superintendent of Central Excise and Customs, Export Refund Section, Central Excise, Kolkata – I Commissionerate, Kolkata under the Dept. of Revenue, Ministry of Finance, Government of India, who is currently pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses about the security for cost that is incurred while conducting an arbitral proceeding. 

In this blog post, Aditi Sampat, Advocate at Nabco Enterprises Pvt Ltd and a student of the Diploma in Entrepreneurship Administration and Business Laws by NUJS, discusses the stages wherein court intervention is possible during the process of arbitration. 

In this blog post, Kaushik Neogi,  a student pursuing his LL.B (4th year) from Delhi Metropolitan Education, affiliated to Guru Gobind Singh Indraprastha University and a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, writes about the companies that should essentially have articles of association.

Introduction, importance & contents of article of association[1]

For a new company where the founders of that company have selected the desired and most suitable business model, the first major step they take is the incorporation of the company with the Registrar of Companies. For this, Form INC-2 in the case of a one-person company and Form INC-7 for companies other than a one-person company shall be filed.[2][3]

The two most essential documents required in this step are –

• Memorandum of Association
  This is a public document containing the objective and purpose of the company and details about its office and the subscribers to the company.
• Articles of Association
  This is a document which contains provisions relating to the internal management of the company and is not a public document.

The articles are framed with the object of carrying out the aims and objects as set out in the Memorandum of Association. The articles should be carefully drafted at the time of incorporation of a company safeguarding the interest of its founders, members, and shareholders if the company has share capital to prevent future complications.

According to Section 2(5) of the Companies Act, 2013 ‘articles’ means the articles of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or of this Act (Corresponds to Section 2(2) of the 1956 Act).

The articles have much value attached to them as they regulate the management within the company including the rights and powers of the members.
“The registration of articles of association also establishes a contract between the company and the members and between the members inter-se. This contract governs the ordinary rights and obligations incidental to membership in the company”[4] which is provided under Section 10 of the Companies Act, 2013 as the ‘effect of memorandum and articles,’ (Corresponds to Section 36 of the 1956 Act).

Certain contents of articles-

Now as we have a brief introduction about the Articles of Association of Companies and its importance, we now take a look at the Companies which should essentially have Articles of Association.

According to Section 3(1) of the Companies Act, there can be three types of companies:
1. seven or more persons, where the company to be formed is to be a public company;

2. two or more persons, where the company to be formed is to be a private company; or
3. one person, where the company to be formed is to be One Person Company, that is to say, a private company. &According to Section 3(2) companies formed under 3(1) may be-
   1. a company limited by shares; or

   2. a company limited by guarantee; or

   3. an unlimited company

The following companies must have their articles[5]

1. Unlimited companies
2. Companies limited by guarantee
3. Private companies limited by shares

Unlimited Company

An unlimited company is defined under Section 2(92) as a company not having any limit on the liability of its members.
Unlimited companies are not found in India instead; their space is occupied by:

• The earlier used proprietary kind of businesses; and;
• The newly implemented provision of One Person Company.

Company Limited by Guarantee

A company limited by guarantee is defined under Section 2(21) as a company having the liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up.

Company Limited by Shares

This kind of company is defined under Section 2(22) as a company having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them.

Private Company

A private company is defined under Section 2(68) of the Companies Act, 2013 as a company which has a minimum paid-up share capital of Rs. 100000 or such higher capital as prescribed by the Companies Act.

Prescribed essential format and contents of the articles

Section 5 of the Companies Act, 2013 provides the ‘articles’ (Corresponds to Section 26, 27, 28 and 29 of the 1956 Act).

Format

As per Section 5(2), the articles of a company shall be in the format prescribed which is mentioned under Section 5(6) as per which the articles of a company shall be in the respective form specified in Table F, G, H, I and J gave in Schedule I to the Act as may apply to such company

Contents

Also Section 5(8) provides that any company, which is registered after the commencement of the Companies Act, 2013 in so far as the registered articles of such company do not exclude or modify the regulations contained in the model articles applicable to such company, those regulations shall apply by default to the articles of the company.

Note* the Proviso to Section 5(2) states that a company may add other matters to its articles which may be considered necessary for its management along with the specified matters in Schedule 1.

For a better understanding of the specific contents of articles which companies should have as per Section 5(2) and Rule 11 of the Companies (Incorporation) Rules, 2014 (Division Two) the tables below provide a brief of the tables given in Schedule 1 of the Companies Act, 2013[6].

For private company having a share capital, the articles shall specifically contain provisions-

• Restricting the right to transfer shares
• Limiting the number of its members to 50 (excluding employee-members), and
• Prohibiting any invitation to the public to subscribe for any shares in, or debentures of, the company.
• Restricting deposits from persons other than its members, directors, and relatives.

For companies limited by guarantee, the articles shall specifically state the number of members with which the company is to be registered and the amount of guarantee each member is bound by. Also if, the company limited by guarantee is having a share capital. Provisions related to the same shall be complied with & carefully drafted, to be included in the articles of association.

For unlimited companies, the articles shall state the number of members with which the company is to be registered and if the company has a share capital, the amount of share capital with which the company is to be registered.

Note: The Articles shall be signed by each subscriber of the memorandum of association who shall add his address, description and occupation, if any, in the presence of at least one witness who shall attest the signature and shall likewise add his address, description and occupation, if any, and such signatures as per the given format.

Conclusion

The articles play a very crucial role in the management of a company after incorporation. Thus, much care and consideration need to be put in while drafting them also for the three types of company which should essentially have articles, the format and clauses mentioned in Schedule 1 should have to be complied with utmost care.

If you want to learn more about COMPANIES ACT, 2013 you can take up this course that is created by iPleaders in association with National University of Juridical Sciences (NUJS), Kolkata which is regularly ranked as one of India’s top three law schools.

Footnotes:

[1] TAXMANN’S Companies Act, 2013 With Rules & Forms

[2]http://www.mca.gov.in/MCA21/dca/downloadeforms/eformTemplates/NCA/Form_INC-2_help.zip

[3]http://www.mca.gov.in/MCA21/dca/downloadeforms/eformTemplates/NCA/Form_INC-7_help.zip

[4] Naresh Chandra Sanyal vs. Calcutta Stock Exchange Association Ltd (AIR 1971 SC 422)

[5]http://www.gktoday.in/blog/types-of-companies-in-india/#Unlimited_Company

[6]http://www.mca.gov.in/SearchableActs/Schedule1.htm

In this blog post, Sakshi Samtani, a student of K.C. Law College, Mumbai, who is currently pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, gives an empirical analysis of Conciliation Committee bargains.

The Council and the European Parliament in the EU have an established bicameral process that comes under the procedure of co-deciding.

It is agreed amongst all the political scholars that under the procedure of co-decision, the European Parliament has garnered power. However, there is uncertainty in understanding what the outcome of the conciliation process is. Various scholars have suggested that despite analysis stating that the Commission has no significant role, various other factors come into play, such as their closeness to the status quo, the patience and the distribution of specific preference of both institutions that matter.

Therefore, a study has been conducted, and this study seeks to closely scrutinize the distribution of power between both the institutions and the variables that put them in reaching a distance of success, and the role of the Commission during the years 1999 till 2002. The results depict the European Parliament being the winner of most conflicts/disputes, but that the Council has more success in disputes that are multi-dimensional in nature.

There are strong views that conciliation committees are smaller in size and that makes it easy to have a streamlined cooperative process to bargain and trade votes.  Though the process of decision making is co-operative, it is how the committee has been composed, the rules of decision-making and the bicameral restrictions that are of critical importance to the end results of bicameral bargaining.

The EU conciliation committee consists of the bicameral institutions which are the Council and the European Parliament. Both the parties have equal sized delegations, and both have to accept the final joint outcome. This outcome is the final joint text which is under a closed rule. This gives the conciliation committee power to set the agenda because neither of the two institutions can make changes or try to renegotiate the final joint text.

The Council and the European Parliament only have the power to either accept or decline the proposal of the conciliation committee which strives to solve any bicameral conflict between the two parties.

It has been found that of the two parties, the European Parliament is the one that wins on most conflicts, while the Council sees more wins in disputes that are of multi-dimensional nature. The Council is defeated by the European Parliament if the former is further from the position of status quo. This is calculated via the ordered probit model. The cohesive nature of preferences is of importance to the European Parliament and Council. However, the only ones who can profit from the lack of parliamentary cohesiveness are the member states.

On the contrary, evidence has been provided by researchers, on the impact and its significance that the Commission has on the outcome of the conciliation and its bargaining success. Despite the Council receiving even a little support from the Commission, the European Parliament stands to win. But, the probability of the Council ever winning is always doubled up with increasing support from the Commission.

On the 1^st of November 1993, the Maastricht Treaty came into effect. And with its arrival, came the introduction of the EU conciliation process and the committee. Then a newer version was brought into place on the 1^st of May 1999 – the intent behind this was the speed up the process of decision-making under Article 251which prescribed the co-decision procedure. When you look closely at the two treaties, one can see the differences between the two in three areas that are important. In the Amsterdam version, if the Council comes into agreement with the amendments made by the Parliament, it can adopt the act that is being proposed in the first reading. And if the European Parliament does not want to make any changes the common view, then it can at the second round of reading adopt the legislative act in question.  None of these were permitted under the Maastricht Treaty. Failure to come up with joint text by the conciliation committee under Maastricht,  the Council could just reassert the previous position it held in the third round of reading, potentially including some of the changes or amendments that were proposed by the European Parliament. Now this is no longer possible in the Treaty of Amsterdam.

With the Treaty of Amsterdam coming into force, the last stage of legislating was at the conciliation committee where both the parties come to take a final vote on the joint text. By striking out the third reading where the Council goes back to its previous position, it can be shown that conciliation committee has the power to impose conditions on the agenda being set if there is still disagreement on the conclusion of the first reading.

Due to the increase in the scope of the co-decision process which has been permitted by the Amsterdam Treaty, the number of cases has seen a meteoric rise. Currently, the co-decision process applies to over thirty-eight policy related areas, giving a reason for the Council and the European Parliament to be co-legislative partners.

Before accepting members, ten of them from both Eastern as well as Southern Europe, on the 1^st of May 2004, the composition of the conciliation committee was fifteen members from the Council (each member from a different country) and the same amount of members in the European Parliament out of which three are elected permanently for a period of one year. On completion of the parliamentary stage, the Council is given three months to give approval on all the amendments made by the European Parliament through qualified majority – and if the Commission disagrees with them, they have to change their views, and if they agree with EP, then a conciliation committee can be arranged. This marks the start of the conciliation process where over a period of six to eight weeks the conciliation may give approval to a joint text which must finally get approval by both the European Parliament and the Council under a closed rule.

A well-known example of an EU conciliation process which is happening currently is the Ozone Directive. This was brought in by the Commission in July 1999. Using the guidelines of World Health Organization as a basis, it was proposed by the Commission to introduce a recognized standard by the EU as highest ozone value permitted to regulate and bring down the negative and harmful effects on the health of humans as well as the environment. The Commission proposed the introduction of an EU standard for a maximum ozone value (120 g/m3 ) to reduce harmful ozone effects on human health and the environment.

In this blog post, Rajan S, a Contract Engineer with Amec Foster Wheeler Group, who is currently pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, writes about he conciliation proceedings under the Industrial Disputes Act.

Conciliation means a process whereby parties by mutual consent appoint conciliator or conciliation officers to assist them in their attempt to reach an amicable settlement of their industrial dispute arising out of a contractual relationship.

Section 4 of Industrial Disputes Act, 1947 authorizes the appropriate government to engage such number of persons as may be deemed necessary by notification in the Official Gazette as conciliation officers, for discharging the responsibility of mediating in and promoting the settlement of industrial disputes.

Section 12 of Industrial Disputes Act, 1947 provides duties of conciliation officers.

The conciliation officers do not have the authority to impose upon the parties a solution of or to dispute.

The contract shall clearly draft by setting out the conciliation process not limited to as below:

• Scope and applicability
• Panel of Conciliators
• Appointment and Number of Conciliators
• Commencement of Conciliation proceedings
• Procedure to be followed by the Conciliation officers
• Role of the Conciliation officers
• Venue for Conciliation Proceedings
• Time Frame
• Remuneration & Cost
• Settlement Agreement
• Termination of Conciliation proceedings

The Conciliation proceedings are concluded in the following manner:

• Where conciliation ended in settlement – the date on which settlement is signed by the parties to the disputes or
• Where conciliation ended in failure, the date on which the appropriate Govt receives the failure report of a conciliation officer. or
• When a reference is made to a Labour Court/Industrial Tribunal during the pendency of conciliation proceedings.

In the case of non settlement or failure of conciliation, copies of failure report under Section 12 (A) of Industrial Disputes Act 1947 are required to be sent to the parties to the dispute.

If the party raising the dispute fails to turn-up without reasonable cause, the case may be closed under intimation to it. If the opposite party fails to turn-up, in spite of having been given reasonable no. of opportunities, an adverse inference may be drawn, and the case is proceeded with on ex-parte basis

In this blog post, Mansi Arora, who is a law graduate and is currently engaged in her family business, discusses the importance of impartiality and independence of arbitrators.

Alternative Dispute Resolution being a cost-effective and time-saving remedy for resolution of commercial disputes between private parties is gaining sufficient ground these days.  One such Alternate Dispute Resolution (ADR) remedy is that of Arbitration which refers to the settlement of disputes between Parties bound by a contract by a neutral third party without consulting the court. Arbitration is conducted under an agreement or an arbitration clause mentioned in the agreement, and the decision or the Arbitral award is legally enforceable and binding on the parties.

Arbitration being one of the most common ADR technique has not only provided a time-saving remedy for solving commercial disputes instead of the cumbersome process of litigation but has also generated opportunities for people engaged in the legal profession. Many lawyers have started taking up roles of arbitrators, mediators, and conciliators in both institutions (for, e.g., International Chamber of Commerce) and ad-hoc practice. However directly proportional to increasing opportunities is the increasing complexities of evaluation of the adjudication system. In this article, we shall dwell upon the issue of impartiality and independence of Arbitrators in the context of India.

In India, arbitrations are governed by the Arbitration and Conciliation Act, 1996 which consists of two parts. Where Part I covering all arbitration conducted in India, provides for non-intervention of courts, composition, and jurisdiction of the arbitrarily tribunal, conduct of proceedings, enforcement of awards, etc.; Part II containing provisions of modern law covers provisions for enforcement of foreign awards.

Appointment of arbitrators

Section 11 of the Arbitration Act, 1996, provides for appointment of arbitrators. Broadly, as per the Section, the parties to an arbitration agreement are free to agree on the procedure for appointing of arbitrators. However, it is in situations of absence of agreement or nonfollowing of agreed procedure, that the chief justice may intervene to appoint an arbitrator.

The Hon’ble Supreme Court examined the power of Chief Justice to appoint an arbitrator in a catena of cases like Konkan Railway Corporation Ltd & Ors v. Mehul Construction Co. and S.B.P. & Co v. Patel Engineering & Anr., it was held that the power exercised by the Chief Justice or his designate under S. 11 of the Act is a judicial power and not an administrative power.

In Anil Kumar v. B.S. Neelkanta AIR 2010, it was observed that ‘Chief Justice or his designate has to decide the issues if raised, regarding: (i) territorial jurisdiction; (ii) the existence of Arbitration Agreement; (iii) Arbitral Dispute.

Therefore where Parties are free to decide or include a clause for the appointment of an arbitrator in their agreement, the power of Chief Justice to appoint an arbitrator is limited to specific situations and mostly arises in cases of institutionalized arbitrations.

Impartiality and independence

Independence and impartiality of arbitrators is a significant part of an adjudicatory process. While the former rules out any interest of arbitrator in the dispute, the latter allows equal opportunity for both parties to present their case. For instance in  Reliance Industries Ltd. & Ors. v. Union of India (2014), it was observed that considerations of nationality were not mandatory while making a decision on the appointment of the third arbitrator if the two nominated arbitrators failed to reach a consensus.

UNCITRAL Model Law on International Commercial Arbitration, 1985 which forms part and parcel of Part I of the 1996 Act provides for the grounds on which an arbitrator can be challenged under Article 12 of the Act.

Grounds for challenge under Section 12 of Arbitration Act 1996 are as follows—

“(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality.

(2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him.

(3) An arbitrator may be challenged only if—

(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or

(b) he does not possess the qualifications agreed to by the parties.

(4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.”

There exists an apprehension and assumption of apparent bias in Government contracts as in arbitration agreements Government nominated persons are majorly given the role to adjudicate as arbitrators. The Apex court deviating from its earlier view in cases like Union of India v. M.P. Gupta and Ace Pipeline Contract v. Bharat Petroleum that the practice of incorporating a named arbitrator who is an employee of the corporation, is not ipso facto a ground to raise a presumption of bias, or partiality, or lack of independence on his part; rightly addressed this issue in the cases Denel Proprietary Ltd. v. Bharat Electronics Ltd. and Anr;  Indian Oil Corpn. Ltd. v. Raja Transport (P) Ltd and, Bipromasz Bipron Trading Sa v. Bharat Electronics Ltd. In these cases it was held that ignoring the named arbitrator/arbitral tribunal and nominating an independent arbitrator shall be the exception to the rule, to have resorted for valid reasons.

In the existence of such apparent bias, the Chief Justice is vested with the discretion of to appoint an arbitrator in institutionalized arbitration tribunals so that the integrity of the arbitration is upheld and the possibility of bias is reduced to the minimum.

Conclusion

Though there exists many lacunae regarding stipulation and interpretation of the Act, the shortcomings in the field of arbitration are being validly addressed and shall through the way of amendments and precedents be effectively resolved. Therefore the independence and impartiality of arbitrators are important loci to be thoroughly considered to ensure the efficient and proper functioning of the arbitration proceedings and successful resolution of commercial disputes.

In this blog post, Rashi Chandoke, an Associate with ANA Law Group, Mumbai, and a student, pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, writes about tax deductibility of expense on gifts to clients on birthdays and festive occasions.

Introduction

The Gift Tax Act, 1958, for the first time, defined the term “Gift.” Under this Act, any gift received from a non-blood relative, in the form of cash, cheque or draft worth more than Rs. 25,000 was subjected to tax deductibility. This Act was repealed by the Finance Act, 1998. On its repeal, all kinds of gifts of any amount became tax-free. This became a way of money laundering. To prevent such practice, the gift tax was brought under the head “Income from Other Source” under the Finance Act, 2004. Thus, any gift received above the prescribed threshold limit is subjected to tax deductibility.[1]

Relatives can give some gifts out of love and affection, and some gifts can be used as a marketing tool for business organizations. The latter is known as Corporate Gifts. Business organizations give corporate gifts to its clients, associates, employees, etc. to maintain long term relationship. These gifts are usually given on occasions such as Diwali or New Year or Christmas or even on birthdays.

Tax treatment of gifts received by Individuals/Customer or HUF (Hindu Undivided Family)

Where the gift is received by an individual or an HUF, in the form of cash, without consideration, less than Rs. 50,000, then such amount is not taxable. If the cash given as gift exceeds the threshold limit of Rs.50,000, then such amount would be taxable under Income Tax Act, 1961.[2]

If an immovable property (land, building or both) is gifted for a consideration lower than stamp duty value of the immovable property by an amount exceeding Rs. 50,000, then the difference between stamp duty value and the consideration or purchase price would be taxable in the hands of the buyer. Such amount of consideration has to be paid by any mode other than cash on or before the date of the agreement for the transfer of such immovable property. If an immovable property is gifted, without consideration and stamp duty value exceeds Rs. 50,000, then the stamp duty value of such property would be taxable. In the case where the date of an agreement fixing the amount of consideration for the transfer of the immovable property and the date of registration are not the same, then the stamp duty value on the date of agreement may be taken for the abovementioned purpose.[3]

In case a movable property (such as shares and securities; jewelry; archaeological collections; drawings; paintings; sculptures; any work of art; or bullion) is gifted, without consideration and its aggregate fair market value exceeds Rs. 50,000, then the whole aggregate fair market value would be taxable. In case a movable property is gifted for a consideration less than the aggregate fair market value by more than Rs. 50,000, then the difference between the aggregate fair market value and the consideration would be taxable.[4]

Dealer/Business Associate as Corporate Gift recipient

When business organizations provide with corporate gifts such as cash gifts or vacation trips etc., for achieving specified targets or under other promotional schemes to their dealers or associates, then such incentive may be taxable in the hands of such dealers/business associates as business income.[5]

Employee as recipient of Corporate Gifts

Employees are mostly given corporate gifts on occasions like Diwali, New Years, Christmas, etc., in the form of vouchers, tokens, etc. Such gifts worth up to Rs. 5,000 in a financial year would not be taxable in the hands of the employees. But, if such gifts are worth above Rs. 5,000, then such excess value would be taxable in the hands of the employees.[6]

Shares issued as a gift received by a firm or closely related company

In case, any person gifts any property as shares of a company, not being a company in which public are substantially interested, to any firm or any other similar company not in which public are substantially interested and if such property is gifted:

• Without consideration and if the aggregate fair market value of the property exceed Rs. 50,000, then the whole aggregate fair market value would be taxable.
• With a consideration less than the aggregate fair market value of the property by an amount exceeding Rs. 50,000, then the difference between the aggregate fair market value and the consideration would be taxable.[7]

Shares issued at premium as gift received by a firm or closely held company

In case, any resident person gifts a firm or any company, not in which public are substantially interested, any consideration for issue of shares, which exceeds the face value of such shares, the difference between the aggregate considerations received for such shares and the fair market value would be taxable.[8]

Gifts constituting Foreign Exchange

The Indian tax authorities may subject the recipient regarding the gifts, sent by the NRIs (Non-Resident of India) or PIO (Person from Indian Origin), to provide evidence for identity and financial capacity of the donor and genuineness of the gift. According to the Foreign Exchange Management Act (FEMA), 1999, there is a need for Reserve Bank of India (RBI) approval for the resident donee for holding immovable property outside India gifted by an NRI/PIO. RBI permission is also required for holding foreign movable properties such as shares, securities, etc., gifted by an NRI/PIO.[9]

When an NRI or PIO sends gifts to his/her spouse, minor children or son’s wife, then it will involve clubbing of income and wealth in the hands of the NRI/PIO. Such clubbing would apply only to the first stage of income from the original gift, whereas, the second stage of income arising from investment of the income from the original gift is not clubbed, instead, would become a separate wealth/income of the done. The clubbing of income on gifts to minor children would cease upon the children attaining 18 years of age. The income received by minor children, from any source (including income from gifts from parents) is clubbed with the income of that parent whose total chargeable income is greater.[10]

Exemptions of Gift Tax

The gift tax is exempted if any sum of money or any property is received:

• From any relative; or
• On the occasion of the marriage of the individual; or
• Under a will or by way of inheritance; or
• In contemplation of death of the payer/donor; or
• From any local authority; or
• From any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution; or
• From any trust or institution; or
• By way of the transaction not regarded as a transfer undersection 47 of Income Tax Act, 1961.[11]

Case Study

DCIT vs. KDA Enterprises Pvt. Ltd. [ITA No. 2662/M/2013]

• The KDA Enterprises Pvt. Ltd. (“Taxpayer”) had a business of investment. There were four companies (“Donors”) which were the shareholders of The Reliance Industries Ltd. (RIL). The donors gave instructions to RIL to pay the dividend to the taxpayer. The taxpayer received the dividend from RIL as the gift from the donors. Such amount was transferred to the capital reserve account of the taxpayer’s books of accounts.
• The taxpayers and the donors had passed respective board resolutions for such gift transactions, and such transaction was also allowed by the MoA (Memorandum of Association) and AoA (Article of Association) of both the taxpayers and the donors. The gift so received was considered as non-taxable by the taxpayer as it was in the nature of capital receipt.
• The Tax Authority contested this by stating that the entire scheme was a way to evade taxes and included the amount of gift in the Taxpayer’s total income and taxed the same as “income from other sources.” Aggrieved by this, the taxpayer filed an appeal before the First Appellate Authority, which gave the order in favor of the taxpayer. Thereafter, the Tax Authority filed an appeal before the Tribunal.
• The Tribunal gave the following views:
• This transaction of the gift is valid under the Transfer of Property Act, 1882, (TPA) as there is a voluntary transfer of a movable property without consideration. Further, the provisions of the TPA allow a body corporate to transfer any property under a gift.
• The three essentials of a valid gift transaction, i.e., the delivery of the gift, the intent of the Donors to gift and the acceptance by the donee were duly satisfied in this case.
• A body corporate is competent to make and receive gifts, wherein, natural love and affection are not necessary requirements. The only requirement for a company to make gifts is to have the requisite authorization in the MoA and AoA, which was satisfied in this case. The provisions of the Income Tax Act, the TPA, and the repealed Gift Tax Act, do recognize the possibility of the gift transaction between corporate entities.
• A receipt would be taxable under the Income Tax Act, only if it is like “income” or otherwise provided in the Act. Any other receipt that is not like income is not taxable under the Income Tax Act.
• A gift transaction is not like salary or income. The Taxpayer is also not engaged in the business of receiving gifts from corporate bodies, to consider such gift transaction as income from the business. The gift has no relation to a capital asset for considering it to be a capital gain for the Taxpayer.
• Though, there is a provision for taxing gifts received by a body corporate; the provision is restricted to receipt of shares of an unlisted company without or with inadequate consideration. It does not cover the capital receipt nature.
• The provisions of the Income Tax Act for taxing unexplained cash credits are applicable only where a taxpayer either provides with no explanation or its explanation is unsatisfactory as to the identity, capacity of the donors and the genuineness of the transaction. In this case, there was no doubt on the identity, capacity of the Donors or the source of dividends. The gift transaction, in this case, was backed by the board resolutions of the taxpayer and the donors, affidavits for making/receipt of gifts and authorization by the respective MoA and AoA of the parties to the transaction.
• There was no common shareholding between the taxpayer and the donors, and therefore, provisions to tax the receipt as deemed dividend cannot be invoked.
• While considering the provisions of Minimum Alternate Tax (MAT), the Tribunal cited a Supreme Court decision that the Tax Authority has to accept the authenticity of the books of account of a company, prepared as per the provisions of the Companies Act, scrutinized and certified by the statutory auditors, approved by the shareholders and filed with the Registrar of Companies. The Tax Authority has limited power to make adjustments to the book profit so computed.[12]
• In this case, the gift received, was not credited to the Profit & Loss account and therefore, no adjustment was required while determining book profits for the purpose of MAT computation. The books of account of the taxpayer were inconsistent with the provisions of the Companies Act; the amount received as gifts cannot be added to the book profits computed for the purpose of MAT.

Footnotes:

[1] Jitendra P.S. Solanki, “Gift Tax – Who Pays and Who is Exempted?”, 25^th April 2014; available at: http://www.yourpocketmoney.com/2014/04/gifts-tax-pay-exempted.html

[2] Section 56 (2) (vii) (a) of the Income Tax Act, 1961

[3] Section 56(2) (vii) (b) of the Income Tax Act, 1961

[4] Section 56(2)(vii)(c) of the Income Tax Act, 1961

[5] Mr. K.H. Vishwanathan, “Corporate Gifts – Beware of Tax Implications,” 20^th November 2012; available at: http://taxguru.in/income-tax/corporate-gifts-beware-tax-implications.html

[6] Supra note 5

[7] Section 56(2)(viia) of the Income Tax Act, 1961

[8] Section 56(2)(viib) of the Income Tax Act, 1961

[9] Infra note 11

[10] Public Private Partnership of Ministry of Overseas Indian Affairs and Confederation of Indian Industry, “Guide Book for Overseas Indians on Taxation and Other Important Matters,” pg. 20; available at: https://www.mea.gov.in/images/pdf/OIFCPublication2009GuidebookonTaxationforOI.pdf

[11] Proviso to Section 56(2) (vii) of the Income Tax Act, 1961

[12] Apollo Tyres Ltd v. CIT [2002] 255 ITR 273 (SC)

In this blog post, Pritishree Dash, a student, pursuing her fourth year LLB at National University of Advanced Legal Studies, Kochi and a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses the proceedings of a Shareholder Meeting. 

Shareholder Meetings

A company is an entity distinct from its members. The members of a company are the persons who constitute the company as a corporate entity. A company cannot act on its own as it is an artificial person. Hence, it expresses its will or makes decisions through resolutions passed at meetings through its members. The primary purpose of a meeting is to ensure that a company gives a reasonable and fair opportunity to those entitled to participate in the Meeting to take decisions with regards to the management of the affairs of the company as per the prescribed procedures.

Shareholder meetings are popularly known as general meetings. A company conducts meetings of its members for approval of certain business items such as appointments, vote on various matters, hearing reports and presenting questions before the board as prescribed in the Act. There are various kinds of shareholder meetings. The meetings to be held for seeking approval to ordinary business and special business are called an annual general meeting and extraordinary general meeting respectively. Any meeting other than the annual general meeting is known as an extraordinary general meeting. In certain cases, a company may have to hold a meeting of the members of a particular class of members which is known as class meetings. Although mostly matters are decided by a process of ‘show of hands,’ taking polls is another method based on the number of shares a person holds (This happens on the demand of a minimum of 10% shareholders).

Annual General Meetings

Section 96 provides that every company, other than a one person company is required to hold an annual general meeting every year. They are meant for both private and public companies. A one person company needn’t hold annual general meeting.

Frequency: The annual general meeting should be held once every year. First annual general meeting of the company should be held within nine months from the closing of the first financial year. Hence, it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation. Subsequent annual general meetings of the company should be held within six months from the closing of the financial year.

The gap between two annual general meetings should not exceed 15 months. In case, there is a difficulty for a company to hold an annual general meeting within the prescribed time, the Registrar may, for any special reason, extend the time for an annual general meeting. Such extension can be for a period not exceeding three months. The application for the annual general meeting must be made before its due date. No such extension of time can be granted by the Registrar for the holding of the first annual general meeting. Delay in completion of audits is not a special reason for the extension.

Time and place for holding an annual general meeting: An annual general meeting should be held on any day that is not a National Holiday during business hours between 9 a.m. and six p.m. AGM can be conducted on public holidays except national holidays in case it has already been notified. It should be held either at the registered office of the company or at some other place within the city, town or village in which the registered office of the company is situated. The Central Government is empowered to exempt any company from these provisions, subject to such conditions as it may impose.

Business to be transacted at an AGM: Sub-section (2) of Section 102 provides that the following businesses transacted at an Annual General Meeting are ordinary business:

• The consideration of financial statements and the reports of the Board of Directors and auditors;
• The declaration of any dividend;
• The appointment of directors in place of those retiring;
• The appointment of and the fixing of the remuneration of, the auditors.

Any other transactions amount to a special business. According to Section 129(2), at every AGM board of directors of the company shall lay before the meeting financial statement for the financial year. Moreover, Section 129(3) says, where the company has one or more subsidiaries, they have to prepare in addition to the statement under section 129(2) a consolidated financial statement and of all subsidiaries in the same format and also present before the AGM of the Company with the prescribed statement under section 129(2).

Default in holding an AGM: Section 99 provides that if any default is made in complying or holding a meeting of the company, the company and every officer of the company who is in default shall be punishable with fine which may extend to 1 lakh and if the default continued, with a further fine which may extend to Rs. 5,000/- for each day during which such default continues.

If any default is made in holding the annual general meeting of a company, any member of the company may make an application to the Tribunal to call or direct the calling of an annual general meeting of the company and give such ancillary or consequential directions as the Tribunal thinks necessary. Such directions may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting.

Report on AGM: According to Section 121, every listed company has to prepare in the prescribed manner a report on each AGM including confirmation to the effect that the meeting was convened, held and conducted as per the provisions of the Act.

A copy of the same should be filed with the Registrar within 30 days of the AGM, failure which can lead to a fine within 1 lakh to 5 lakhs.

In this blog post, Janaki Shinkre, a practicing Company Secretary, who is currently pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, writes about novation of contract of apprentices.

Introduction

A contract is a voluntary, deliberate, written or spoken agreement, especially one concerning employment, sales, or tenancy that is intended to be enforceable by law.[2]Cambridge Dictionary describes “Apprentice” as someone who has agreed to work for a skilled person for a particular period and often for low payment, to learn that person’s skills. Apprenticeship is that phase of life where one is working at the end of the hierarchy in an organization, with little or no pay and has very little knowledge and experience or skill, and is described by many as a very difficult phase as one is balancing work and studies and managing with very little resources!

Apprenticeships can be found in almost every career sector, right from the middle ages to this date. It is observed that institution alone is not enough for the acquisition of skills but needs to be supplemented by training in the actual world of work. In India ‘The National Apprenticeship Scheme’ was launched in 1959. For facilitating training and enhancing the employability of job seekers in private/corporate sectors, and to regulate the training of apprentices in the industry, The Apprentices Act, 1961 was enacted by the Parliament during 1961 and was implemented with effect from 1.1.1963.[1] The Apprentices (Amendment) Bill, 2014 was passed in Lok Sabha on August 7, 2014.

Novation is a term derived from civil law and it means this – that there being a contract in existence some new contract is substituted for it either between the same parties or between different parties, the consideration being the discharge of the old contract.[3]  Discharge means termination of the old contract, whereby the rights and liabilities of the parties to the contract come to an end.  It is a method of transfer.  The essence of the novation of a contract lies not in the dissimilarity of the terms of the old contract and the new but in the intention of the parties to supersede the old by the new.[4] Novation of a contract implies a fresh contract, directly or by implication, in place of the original contract. [5]

The concept of Novation in Contract Law

Section 62 in The Indian Contract Act, 1872 speaks of “Effect of novation, rescission, and alteration of the contract.”— If the parties to a contract agree to substitute a new contract for it or to rescind or alter it, the original contract need not be performed. This section is a legislative expression  of the common law of England: ” It is competent to the parties to a contract at any time before the breach of it by a new contract to add to, subtract from, or vary the terms of it or altogether to waive and rescind it.”[6]

A novation is a new contractual relation. It is based upon a new contract by all the parties interested. ^[7] The legal maxim that ‘novatio non praesumitur’ enunciates whether a novation needs to be in writing. The maxim means that “a novation is not presumed.” ^[8] In Appukuta Panicker v. Anantha Chettiar ^[9],  the Kerala High Court held that it is essential for the principle of novation to apply that there must be mutual consent of all parties concerned. In T.M. & Co. v. H.I. Trust,^[10] the High Court of Calcutta observed that the liability could be transferred only by a tripartite agreement which will amount to novation. Any agreement between three parties is a tripartite agreement.  A novation agreement is an ‘instrument’ under the Indian Stamp Act, 1899 chargeable to stamp duty.

Concept of Novation in the Apprentices Act

To be engaged as an apprentice under the Act and to be able to undergo training, one needs to enter into a contract of apprenticeship with the employer. Most state and union territories governments have exempted these contracts from the payment of stamp duty.

Section 5 of The Apprentices Act, 1961 talks of “Novation of the contract of apprenticeship.” In simple terms[11] it says, “where the employer fails to fulfill his contractual obligation, an agreement can be entered with the apprentice and another employer to engage for the unexpired training period. The first contract gets terminated from the date of registration of the second contract and not enforceable by either party.”[12]

What are the reasons for which the employer is unable to fulfill his obligations under the contract?

Reasons such as the breakdown of machinery, the closing of the establishment, Act of God and such other reasons that are beyond the control of the employer.[13] Where a trade apprentice is unable to complete the period of apprenticeship training due to strike or lockout or layoff in an establishment where he is undergoing training , and it is likely to continue for a longer period, the employer shall follow the procedure for novation of contract of apprenticeship of a trade apprentice referred to in clause (i) with the other employer as specified in section 5 of the Act. [14]

Essential requisites of a contract of novation[15]

In every novation there are four essential requisites:
(1) A previous valid obligation;
(2) the agreement of all the parties to the new contract;
(3) the extinguishment of old contract; and
(4) the validity of the new one.

Procedure for Novation of contract of Apprentices

Government websites such as ‘mhrdnats.gov.in’ give all the necessary information regarding engagement procedures. All the forms needed to be filled by a candidate can be found on this website including the draft contract of novation.

Conclusion

A novation takes place when all three parties, that is the apprentice, the new employer, and the old employer agree to the substitution of the parties. It is as good as a new contract. Novation contracts are regarded as difficult and time-consuming since the agreement of three parties is required and in a general commercial sense, when an agreement between two parties is broken, it is difficult for one of them to agree to lend the same commercial benefits to a third party. The intent of the legislator to add novation under the Apprentices Act seems to be to keep space for continuity. Whenever an agreement with an employer is at stake, the apprentice is left with very few options to take any stand since he is not an “employee” and therefore has few rights. With novation clause, the Act provides protection for the apprentice and a right to continue his training under a new employer.

Footnotes: 

[1] Apprenticeship Training Manual-Page-01, Chapter-I, 1.1

[2] http://www.businessdictionary.com/definition/contract.html

[3] Scarf v Jardine 7 AC 345 (351)

[4] Baldeo v Sher 74 IC 42; Hukum v Jeth AIR 1944 Sind 205

[5] Anson’s Law of Contract, 27^th Edition.

[6] Manohur v Thakur Das ILR 15 Cal 326

[7] Advanced Law Lexicon, P. Ramanatha Aiyar, 3rd Edition, 2005 at pp. 3253-54

[8] Trayner’s Latin Maxims 4th Edition at p. 403

[9] AIR 1996 Ker 303

[10] AIR 1969 Cal 238

[11]  S.D Puri –Guide on Labour and Human Resources, Management Forms & Precedents, 4^th Edition, 2011

[12] Section 5: Where an employer with whom a contract of apprenticeship has been entered into, is for any reason unable to fulfill his obliga­tions under the contract and with the approval of the Apprenticeship Adviser it is agreed between the employer, the apprentice or his guardian and any other employer that the apprentice shall be engaged as an apprentice under the other employer for the unexpired portion of the period of apprenticeship training, the agreement, on regis­tration with the Apprenticeship Adviser, shall be deemed to be the contract of apprenticeship between the apprentice or his guardian and the other employer, and on and on the date of such registration, the contract of apprenticeship with the first employer shall terminate and no obligation under that contract shall be enforceable at the instance of any party to the contract against the other party thereto.

[13] Apprenticeship Training Manual-Page-09, Chapter-IV, 4.4

[14] Apprenticeship Rules, 1992

[15] http://corporatelawcorpus.blogspot.in/2010/03/novation-of-contract.html

In this blog post, Hari Manasa Mudunuri, a student of  University College Of Law, Osmania University, who is currently pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, writes about the kind of evidence that is required in arbitral proceedings.

Introduction

Arbitration is the procedure, which allows parties to resolve disputes outside the purview of the courts. It’s an Alternative Dispute Resolution mechanism. Such proceedings are usually voluntary and consensual between the parties. Arbitration comes into play only when there is an Arbitration Agreement between the parties or when a clause for arbitration exists in the commercial contract between the parties. The presence of an arbitration clause obliges the parties first to resolve the matter through an arbitration tribunal, constituted in accordance with the agreement, and when such proceeding doesn’t satisfy either party, they can approach the court of law. If a party approaches a court of law about a dispute arising out of a commercial transaction and such a transaction stipulates an arbitration clause, the courts will not entertain such a suit, unless otherwise provided for in the statute.

Arbitration is a better option for parties as it reduces the cost of litigation; it isn’t time-consuming and is an easier alternative. Any commercial matter including an action in tort if it arises out of or relates to a contract can be referred to arbitration and not acts which are considered to be against the public policy like matrimonial claims, criminal proceedings, insolvency, etc. The characters of Arbitration can be classified as:

• It’s consensual
• Parties choose the Arbitrator
• Arbitrator is neutral
• It is a confidential proceeding
• The decision of the Arbitration Tribunal is final and easily enforced
• An ongoing dispute can be referred to Arbitration, and the court proceeding of the said dispute can be halted if both the parties agree in writing.
• The arbitration proceeding commences immediately after the issuance of notice by either party to the dispute.
• It’s not necessary to hold oral hearings
• The arbitration tribunal has the discretionary power in the manner of conducting the proceedings.
• The role of courts is restricted and will be invoked only in accordance with the Act.
• The number of arbitrators is determined by the agreement between the parties and also their mode of election.

The history of arbitration in Indian society can be traced to the Panchayat systems, the British India Legislations.

• The Arbitration Act, 1899
• Section 89 of the Civil Procedure Code,1908
• The Arbitration and Conciliation Act, 1940
• The Arbitration and Conciliation Act, 1996.

The 1996 Act is based on the 1985 UNCITRAL Model Law on International Commercial Arbitration and the UNCITRAL Arbitration Rules 1976. It provides for domestic arbitration; international commercial arbitration; enforcement of foreign award and conciliation. The Act is amended from time to time to meet the changing requirements.

In India, the Arbitrator has the right to choose – if the hearings are needed or if the documented evidence and written statements will suffice. They also decide the manner of producing and handling evidence during the proceedings. The Indian Evidence Act and the CPC,1908 don’t apply to the Arbitration proceedings. However, the general principles of the Evidence will apply, but a party under the Evidence statute cannot challenge the arbitral proceedings. The proceedings are conducted in accordance with the agreement to arbitration between the disputing parties, the applicable provisions of the statute, the discretion of the arbitrators and principles of Natural Justice.

Powers of Arbitrator

The arbitrators are subject to the provisions of the Act and the agreement between the parties while deciding arbitration cases apart from this they are free to decide the appropriate manner in which the proceedings need to conduct.

• Section 18 – The Arbitrators are bound to treat the parties equally, and each party will be given equal opportunity to present his case.
• Under Section 19 – The Arbitrator has the power to determine the admissibility, relevance, materiality and significance of evidence
• Subject to the agreement between the parties, the tribunal shall decide whether to hold oral hearings for the presentation of evidence or arguments or whether the proceedings shall be conducted by documents or other material alone.
• The arbitrator will hold an oral hearing if party requests unless there is an agreement between the parties to prevent the same.
• If a party fails to appear for the oral hearing, without reasonable cause or fails to communicate his statement, or produce evidence, the tribunal can decide the case ex- The tribunal will not treat the failure of the respondent as his admission and decide the case based on the evidence before it.
• However, if the Claimant fails to communicate his claim statement, the tribunal has the power to terminate the proceedings.

Evidence Under the Act

• The Indian Oath’s Act, 1969 extends to persons who are authorized by consent of parties to receive evidence.
• Section 8 of the said Act states that every person is giving evidence before any person authorized to administer an oath “shall be bound to state the truth on such subject.” Therefore, the tribunal can duly swear the witnesses are appearing before an arbitral tribunal and upon failure to state the truth under oath, he would have committed an offense punishable under the Indian Penal Code.
• The arbitrators don’t have the power to force unwilling witnesses to appear before the tribunal.
• Section 27, however, empowers the tribunal to apply to the court for assistance in collecting evidence as provided in the Model Law.
• If such a witness fails to attend in accordance with any order of the court or making any other default or refusing to give evidence or guilty of any contempt of the arbitral tribunal, shall be subject to like penalties and punishment as he may incur for like offenses in suits tried before the court.
• The court may either appoint a commissioner for taking evidence or order that the evidence is provided directly to the arbitral tribunal.
• Section 26 provides for appointment of experts by the arbitral tribunal for any specific issue and parties will be required to give the expert any relevant information
• It will be open to a party to require the expert after delivery of his report, to participate in an oral hearing where the parties would have an opportunity to put questions to him.

International Arbitration

Arbitration can be categorized into ad hoc and institutional. Institutional Arbitration includes the London Court of International Arbitration, International Chambers of Commerce, Singapore Arbitration Centre, Indian Council of Arbitration, Indian Institute of Arbitration and Mediation, International Center for ADR.

International Arbitration refers to the procedure when the commercial agreements and contracts are between different country nationals. It becomes difficult for the parties when disputes arise and the place to resolve these disputes. In India if one of the parties to a dispute is a foreign national then the Supreme Court alone can appoint the Arbitrator when such court intervention is required.

1. International Bar Association Rules of Evidence:

• IBA Rules of Evidence are widely followed in international arbitration proceedings. They were adopted by a resolution in 2010 by the International Bar Association.
• The Preamble provides that the parties and the tribunal are free to adopt the IBA rules wholly or partly, they are allowed to vary the rules or simply use them as guidelines to their proceedings.
• The rules are not limited or restrictive; these rules are flexible, and the parties and tribunal are free to adopt them as per the facts of the case.
• The IBA Rules contain 9 articles that deal with various aspects of evidence. They are:
• The Scope of application
• Consultation on Evidence issues
• Documents
• Witnesses of facts
• Party appointed experts
• Tribunal appointed experts
• Inspection
• Evidentiary hearing
• Admissibility and assessment of evidence

2. The UNCITRAL Arbitration Rules

• Article 27(4) provide that once a party offers evidence to prove the facts it relies on, the tribunal is required to “determine the admissibility, relevance, materiality, and weight of the evidence offered.”

3. The American Arbitration Association (AAA) International Arbitration Rules

• Article 20 (6) provide that “[the] tribunal shall determine the admissibility, relevance, materiality and weight of the evidence offered by any party.”

4. London Court of International Arbitration (LCIA) Arbitration Rules

• 22.1 (f) empower the tribunal “to decide whether or not to apply any strict rules of evidence (or any other rules) as to the admissibility, relevance or weight of any material tendered by a party on any matter of fact or expert opinion.”

Kinds of Evidence

1. Extrinsic Evidence is admitted by the arbitral tribunal to determine the issue of an excess of jurisdiction. The court can resolve the ambiguity by admitting the extrinsic evidence.
2. Fresh Evidence is when the three conditions are met-

• It must be shown that the evidence could not have been obtained with reasonable diligence for use at the trial;
• The evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive;
• The evidence must be apparently credible, though it need not be incontrovertible.”

3. A person who is especially skilled and trained in the field for which his advice was sought provides Expert Evidence.

Admissibility of Evidence

1. The arbitrator is not bound by the technical rules of procedure, which the courts have to observe, nor the Evidence Act, Limitation Act, CPC.
2. Unless the parties expressly provide in the agreement, admissibility, relevance, and materiality of evidence are within the exclusive jurisdiction of the Tribunal
3. Where the parties have not agreed to any specific procedure, the arbitral tribunal has to follow the statutory procedure. The arbitral tribunal has to follow the procedure under Sec. 19(4) of the Act
4. An arbitrator must nevertheless observe the fundamental principles of natural justice.
5. An arbitral tribunal is not bound by the technical and strict rules of evidence but, he must not disregard the rules of evidence which are founded on the fundamental principles of natural justice and public policy.
6. A breach of the principles of natural justice would make the award liable to be declared invalid and inoperative

Conclusion

The National Arbitration laws provide for the discretion of arbitrators. The arbitral tribunals have the discretion to admit any relevant evidence and to reject evidence that is irrelevant or repetitious or unsuitable to prove the facts it purports to prove.

In the case of international arbitration, the parties are free to submit any evidence to prove the facts necessary to establish their cases. The rules of evidence in arbitration aren’t restrictive; they allow the parties to choose those rules, which will be convenient and relevant.  This upholds the intention of arbitration, i.e. to reduce the court interface of the parties and have an easier alternative to resolve the disputes.