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Overview of economic challenges that CA firms are facing in India

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This article has been written by Apeksha Choubey pursuing Diploma in International Contract Negotiation, Drafting and Enforcement, and has been edited by Oishika Banerji (Team Lawsikho). 

It has been published by Rachit Garg.

Introduction

Chartered Accountancy is one of the most renowned professions all over the world. In the present competitive world, Chartered Accountant (CA) firms are playing a vital role in the economic growth of India. These firms are providing valuable financial services to various clients, including business, individuals and government. Nowadays, their services are not limited to only audit and accounting but these consist of advisory, tax planning, capital planning, preparation and maintenance of books of accounts, management & consultancy, business laws formation etc. These firms are involved in every phase of business right from setting-up, managing, controlling, compliance, merger and dissolution etc. Further, these firms assumed additional responsibilities and accountability due to enhanced compliance requirements in rules and regulations imposed by government for big corporate and other sectors to safeguard the rights and interests of the stakeholders, investors, employees, creditors, banks, financial institutions and society at large. However, with growing competition and complexities in the economic environment, these CA firms are facing many challenges and hindering their growth and development presently in India.  In this article, we will discuss these economic challenges in detail thereby trying to understand its impact and think of corrective measures required to remove bottlenecks from their growth pathway.

COVID-19 impact on CA firms in India

The pandemic resulted in a nationwide lockdown which stopped up all the economic activities of every person, family and sectors. This affected CA firms as they were unable to provide their services to their clients and on the other hand clients also could not pay their fees on time due to shutting down and slow growth of their business. There are many other factors also which impacted their work such as new work from home culture, adapting to new technologies to perform remote field work in place of face to face discussion, availability of work force during pandemic considering family condition of employee, supply of new computer hardware devices to all employees whenever required and lack of funds to avail new hardware devices and technologies.

With indication of recession in early 2023 and impact of world economic events including collapse of two major American banks – Silicon valley banks and Silvergate crypto bank and global crisis of Credit Suisse bank making situation more worse. Governments and major financial authorities are making serious efforts all over the world to control this crisis and it is clear that it will take time to reform and build ourselves capable of overcoming this situation.

Increased competition among CA firms

Increased competition is the most significant challenge in the industry in today’s world with the drastic improvement in digital technology which resulted in setting up a firm and providing online services from anywhere in the world became easy and speedy. Digital age provided every one with global access to reach worldwide clients within a few seconds of click. Due to all these factors, competition becomes much more intense which makes it quite difficult for small and new firms to survive in the market for the long term. It is very essential for them to keep themselves updated for continuous government norms and information development, explore and learn better services to provide value and expand their services to the global market to serve clients in a better way through improvement in their operational efficiency.

Inadequate infrastructure and technology

Another challenge pertains to inadequate infrastructure and technology base. Many software applications have been launched in the market which shifted the entire work culture to automation from manual tasks which obviously consumes a lot of time and failing to adopt advanced technology poses a risk of losing business. Artificial Intelligence (AI) is also growing in demand from the past few years which is trying to replace human beings in almost every area of work. However, the one-time cost of investment in this software, availing AI and its maintenance are really expensive for these firms. CA firms need to adapt with new digital technology and build necessary infrastructure to fulfil client’s requirements in the fastest and most economical way. They should take technology training to get equipped with proper usage of it and also to reduce external dependencies to avoid extra cost. Various types of financing support are available to avail this opportunity.

Compliance with regulatory compliance

As we all know, chartered accountants and their firms are regulated by Institute of chartered Accountants of India (ICAI) which has ultimate responsibility to control unlawful practices and save the nation from serious frauds and illegal practices. ICAI imposed various laws and regulations on both companies & clients and their CA firms. Therefore, CA firms have dual accountability, firstly to comply with laws and regulations, principles framed for them to act with utmost due diligence and independence while performing their work for clients and secondly to confirm and assure that clients are also making their business as the various rules and regulations made by government and other authorities to safeguard interest of all segments of the nation related directly or indirectly with client business. 

This also acts as a critical challenge for them to perform their duties with utmost care, otherwise failure to comply with these laws and regulations will result in severe penalties and fines. We have seen many recent changes in the Information Technology Act, 2000, the Companies Act 2013, taxation reforms, cyber laws, introduction of GST etc.

It will require highly equipped CA professionals and other staff to comply with these laws and regulations on an on-going basis. Hence, they have to invest in well trained and experienced resources to avoid penalties and fines and for maintaining goodwill of the firm as well in the long term.

Lack of skilled workforce 

This challenge is correlated with one explained above where to comply with laws and regulation of government, directives set by ICAI and laws of other governing applicable institutions such as Tax authorities, they require skilled, experienced and trained professionals. The country has a significant shortage of skilled and qualified chartered accountants. This shortage results in an increase in hiring and retention cost of these professionals as a whole. Further, the cost of hiring unskilled staff proves more disaster in terms of their poor services to clients due to absence of knowledge and skills that require performing work with utmost responsibility and ultimately resulting in loss of clients. Much time and cost is also involved in arranging training for existing staff to make them upgrade in current changing development in laws and regulations and technology.  

This problem can be solved by promoting training and development programs in the firms for personal and professional learning. Human resources ratio should be a mix of both new qualified entrants and experienced staff which will develop a competent and qualified workforce in terms of knowledge and adaptation to new ways and latest technology.  

Conclusion

In conclusion, the economic challenges facing CA firms in India are multifaceted including the impact of COVID-19, increased competition, inadequate infrastructure and technology, regulatory compliance, and the lack of skilled labour. Many of these challenges are inevitable in some or other situations and every business will face these in the given point of time. However, still there are several ways to overcome these challenges with conscious and continuous efforts:

  • To minimise operating cost by promoting virtual working culture among their employees and clients.
  •  Expand services to the global market with help digital marketing and technology.  
  • Develop adequate infrastructure and invest in the latest technology.      
  • On-line low cost training to existing staff to adapt with latest technology updates to achieve efficiency at work.
  • Develop strategies to remain in a competitive market with innovations in their best services and provide value to the clients.
  • Regular upskilling as per expectation of client’s requirement.
  • To keep themselves updated with frequent changes in laws and regulation in their expertise area of services.
  • Fuller utilisation of conferences and on-line sessions conducted by ICAI to stay updated with amendments in policies and rules.
  • Appointment of new talents and providing opportunities to them to grow and expand which definitely result in social development and knowledge sharing in the firms.
  • Digital networking expansion activity aids in image building and open opportunities at global level.
  • Make optimum use of banks and financial institutions to avail short and long term fund requirements as governments are also promoting small start-ups and mid-size business for their overall upliftment.
  • Constructive use of AI can also produce phenomenal jobs and services at reduced cost.        

With the right approach, these challenges will certainly convert into cost-effective and beneficial opportunities and consequently, it will contribute towards overall economic development and growth of the country. There is also a strong necessity to increase awareness in the country among growing small and mid –sized business firms towards the importance of compliance of direct and indirect tax, audit practices and documentation, Generally Accepted Accounting Principles (GAAP) applicability. Accordingly, avenues will open for these CA firms to serve the numerous clients with valuable services and make a prosperous country by reducing frauds and corruption like tax evasion and cheating people, avoid big scams having major financial and negative branding implications and set back the Indian economy.         

References

1.     2022 Business challenges for Top accounting firms in India – Kanakkupillai

2.     5 Biggest Challenges of Being a CA Professional? – AJ Next

3.     Top 7 Issues Accountants Face – Accounting Seed


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Liability of an agent to third parties under the California Civil Code

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This article has been written by Fatima Kabir, pursuing a Crack California Bar Examination – Test Prep Course from LawSikho and edited by Shashwat Kaushik.

It has been published by Rachit Garg.

Introduction

In the hurly-burly of our everyday lives, it becomes impossible to execute every act and duty by ourselves. It almost becomes indispensable not to employ another extra helping hand. This extra helping hand is the “agent,” and the contract under which he is appointed is called “agency.” The law of agency is based on the legal maxim “qui facit per alium facit per se,” which means “he who does an act through another does it by himself.”

Agent and agency under California Civil Code

Title 9 (sections 2295-2400) of the California Civil Code talks about the agency. Under Chapter 1, Article 1, Section 2295, ‘agent’ is defined as a person who makes a representation on behalf of another; the person on whose behalf he’s making a representation is called the principle, in dealing with third persons. Such an arrangement is called an agency. In this chapter, essential components of an agency are also mentioned, such as the fact that any person having the capacity to contract may be appointed as an agent, and any person having the capacity to enter into a contract can be appointed as an agent. Furthermore, the chapter sheds light on the types of agencies under California Civil Law. According to Section 2298, an agency may be ostensible or actual. Actual agency is defined by Section 2299 as an agency where the agent is employed directly by the principal. Ostensible agency is defined by Section 2300 as an agency where the principal intentionally causes a third party to believe that another is his agent who is not actually his employee or where the principal fails to exercise ordinary care. Ostensible authority has two requirements: the third party must believe the agent has authority, and this belief must be the result of some action or inaction on the part of the person holding the position. In the case of Pacific Ready-Cut Homes, Inc. vs. Seeber (1928), the Court said “all parties to this controversy concede that it is settled law that ostensible agency cannot be created alone by the representations of the purported agent himself but that there must be some act or conduct on the part of the principal by which he either intentionally or by want of ordinary care causes or allows a third person to believe that the agent possesses the authority to bind him as principal.

Authority of agent under California Civil Code

Article 2 of Chapter 1 (sections 2304-2326)  prescribes the authority of the agent. Section 2304 states that an agent may be authorised to do any act that his principal might do, except those that require the personal attention of the principal himself. In other words, a principal cannot assign a non-delegable duty to the agent and shall not employ the agent to do an act that the principal personally cannot do. For example, a principal cannot hire or employ an agent to commit murder or arson. Furthermore, every act that, according to the California Civil Code, may be done by or to the agent of such a person for that purpose, unless a contrary intention clearly appears. In order to establish an agency, consideration is not an essential element as per the California Civil Code. An agency can be created, and authority can be conferred, by prior authorization or subsequent ratification. An oral authorization by the principal to the agent is sufficient for any purpose, except where an authorization to enter into a contract is needed in writing as per the requirements of any law that is in force. A ratification is not valid unless, at the time of ratifying the act, the principal has the power to confer authority for such an act. A ratification of a part of an indivisible transaction is a ratification of the whole transaction.

Agent’s authority as enumerated under Section 2319

The authorities of an agent as enumerated under Section 2319 are: 

  • To take all necessary actions in the regular course of business for achieving the goals of the agency; and
  • To represent any matter of fact, excluding the terms of his authority,

In Madden vs. Kaiser Foundation Hospitals (1976), the Supreme Court of California explained that the Board of Administration of the State Employees Retirement System was authorised to negotiate health plans on behalf of state employees. In that capacity, a health plan was negotiated that contained an arbitration clause. In light of the aforementioned provisions of Civil Code Section 2319, the Supreme Court identified the issue of the enforceability of the arbitration clause and the authority of an agent as follows. “This preliminary doctrinal recitation sets the stage for the principal issue of this appeal whether the board, as agent of the employees, had implied authority to agree to a contract that provides for arbitration of all disputes, including malpractice claims, arising under that contract. That issue turns on the application of Civil Code Section 2319, which authorises a general agent “To do everything necessary or proper and usual … for effecting the purpose of his agency.” For the reasons explained below, the court concluded that arbitration is a ‘proper and usual’ means of resolving malpractice disputes, and thus that an agent empowered to negotiate a group medical contract has the implied authority to agree to the inclusion of an arbitration provision.”

Obligations of agents to third parties

The obligations of agents to third parties are mentioned under Chapter 1, Article 4 (sections 2342-2345). The first obligation of an agent to a third party is that one who steps into the shoes of an agent thereby warrants to all who deal with him in that capacity that he has the authority which he assumes (Section 2342). Here we can see that the principle of estoppel is also at work. In the case of Borton vs. Barnes (1920), the secretary was held liable as a principal in a real estate broker’s action to recover the reasonable value of services rendered under a written contract because he induced the broker to enter into the contract when he knew he lacked authority to execute it.

The second duty of the agent to the third party is covered by Section 2343. One who purports to act as an agent is liable to third parties as a principal for his acts in the course of his agency in any of the following circumstances and in none of the others:

  • When the credit is given to him personally with his consent 
  • Without good faith and authority, he enters into a written contract in the principal’s name.
  • When he commits some wrongful acts.

In the case of Ruiz vs. Herman Weissker, Inc. (2005), the California Court of Appeal held that under the peculiar risk doctrine, the trial court properly granted summary judgment for the hirer’s agent in an action brought by the estate of an independent contractor’s employee who was electrocuted on the job site. The agent’s failure to exercise control in the face of unsafe work practices by the independent contractor’s crew was not actionable.

Section 2344 mentions the third responsibility an agent has to a third party. According to the Section, if an agent receives something for the benefit of his principal that another person is entitled to possess, he is responsible if, after receiving notice from the owner, he delivers it to his principal. He must also surrender whatever portion of the item is under his control at the time of demand, as well as any advance he may have made to his principal in good faith on account of the item. In the case of Tribeca Companies, LLC vs. First American Title Insurance Co. (2015), it was held that an investment company failed to prove the essential element of cause in fact under Civ. Code, §§ 1709, 3300, and 3333, as to its claims of breach of contract, breach of fiduciary duty, negligence, fraud, and negligent misrepresentation arising from an escrow agent’s release of an investor’s deposit because the investor never lost title to the deposit.

Conclusion

Thus, to draw curtains, agency depends on the true nature of a relationship. In legal phraseology, every person who acts for another cannot be deemed an agent. A domestic servant renders his master a personal service; a labourer may till a landlord’s field; but these relations will create agency for a simple reason because they are not representing their masters in front of a third person. Only when a person represents another person to a third person does the relationship of principal and agent arise.

Similarly, when the agent starts representing the principal to a third- party, that is when his liability arises, whether in a contract or a warranty of authority.  

References


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Custody cases for divorced parents : a legal analysis

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Child custody in India

This article has been written by Shriya Bhasin, pursuing Diploma in Legal English Communication – oratory, writing, listening and accuracy, and has been edited by Oishika Banerji (Team Lawsikho).  

This article has been published by Sneha Mahawar.​​ 

Introduction 

The most sensitive and traumatising issue that arises upon divorce or judicial separation of spouses is the custody of the children. The custody of the children has to be carefully dawned upon by the courts in order to promote the maximum welfare of the child. The child has already been enduring agony and adversity due to separation of his/her parents and therefore, the entrustment of the child is to be done along such lines as resulting in a downturn in despair of the child.  The word “custody” has not been defined in any of the Indian statutes, but it generally means entrustment of a child’s care, control and maintenance to either of the parents upon judicial separation or divorce. Child custody specifically relates to the determination of the child’s physical and legal control and care to either of the parents, relative or a guardian. This article discusses the custody cases for divorced parents through the lenses of legal analysis. 

Types of divorces 

Divorce by mutual consent

This divorce relates to the divorce obtained with the mutual consent and agreement of both the spouses who have agreed upon that they can no longer continue to live and cohabit together and are willing to get separated and repudiate their marriage. There are different laws governing divorce by mutual consent under various religions, which are as follows :

Note: Under Hindu, Christian and Parsi law, a petition for divorce by mutual consent cannot be filed unless both husband and wife have been living separately for a period of one year or more.

Contested divorce

Contested divorce, as its name suggests, denotes when one party vehemently opposes the other. In this type of divorce, one party is desirable and willing to repudiate the marriage while the other party is not. There is no mutual agreement between the parties to put an end to marriage. It is a One Sided Divorce where one party has grounds for separation which are challenged and resisted upon by the opposite party. The various provisions under different personal laws dealing with contested divorces are as follows :

  • Hindu Law: Section 13 of Hindu Marriage Act, 1955 deals with One Sided Divorce.
  • Muslim Law: Along with Talaq, Ila and Zihar (Constructive Divorces) are modes of Contested Divorces for Muslims
  • Christian Law: Section 10 of the Divorce Act, 1869 deals with Contested Divorce.
  • Parsi Law: Section 32  of the Parsi Marriage and Divorce Act, 1936 provides for One Sided Divorce.

Provisions of child custody under different types of divorces

Provision of child custody in cases where divorce has been obtained by mutual consent 

Since, the divorce is obtained by mutual agreement between the parties, the parties (husband and wife) also incorporate the provision of the custody of their child in the mutual agreement. As such, both the parents can either mutually concede to joint custody or absolute custody to either of the parents, with or without permitting meeting and visitation rights to the other parent. All the terms and conditions relating to the legal and physical custody of the child has to be mutually consented to by both the parties.

Provision of child custody in cases of one sided divorces 

Since, the divorce is not mutually agreed upon between the spouses, the issue relating to child custody cannot also be agreed upon mutually. There are various secular and personal laws governing entrustment of the custody of the child upon judicial separation or divorce by the courts. These are provided hereunder. 

Hindu Law

Hindu Marriage Act, 1955

Section 26 of the Hindu Marriage Act, 1955 deals with the custody of the children, both of whose parents are Hindus. This section empowers the court to pass interim orders and make provisions as and when they feel the need to do so in regards to the custody of the child, keeping in mind the welfare and maintenance of the child to be of paramount consideration. The court is empowered to take such a decision in consonance with the wishes of the child.

Hindu Minority and Guardianship Act, 1956

Before the passing of this Act, Father was considered as the natural guardian of the minor child whereas, the mother was given a secondary role. Thus, the authority of the father as a guardian cannot be challenged. However, Section 13 of this Act states that the welfare of the child is of paramount consideration and has to be given due importance before granting custody of a child. This Act also entrusts the custody of a minor child below the age of 5 years to the mother.

Muslim law

Under the Islamic law, the first and foremost right of custody lies with the mother and she cannot be deprived of this right in any case except if she is disqualified or is found guilty of misconduct. This right is known as the right of “Hizanat” and it can be enforced against the father or any other person. Like the Hindu Law, this right of Hizanat was recognized on the sole principle of welfare of the child and is thus, not absolute.

Christian law

There is no specific statute under the Christian Law that deals separately with the custody of the minor child. However, the issue of custody under this law is resolved by the Indian Divorce Act, which is secular and is thus applicable to all the religions. Section 41 of the Indian Divorce Act, 1869 empowers the courts to grant interim orders for the education, maintenance and custody of minor children in cases of judicial separation. The court may also direct proceedings to be initiated to place such children under the protection of the court. The orders passed under this section are temporary orders and thus, can be modified and varied as per the changing circumstances and conditions keeping in mind the welfare of the child to be of Paramount consideration. The same was held in Rosy Jacob v. Jacob A. Chakramakkal (1973).

Parsi law

The issue of custody among the Parsis is dealt with by Guardians and Wards Act, 1890. This Act emphasises on the importance of welfare of the child. The custody of the child can only be decided keeping in mind the welfare of the minor. Also, Section 49 of the Parsi Marriage and Divorce Act, 1936 empowers the court to pass such interim orders from time to time governing the custody, maintenance and education of the minor child.

Secular Laws

The Guardians And Wards Act, 1980

Section 25 of the Act states that the welfare of the child is of Paramount consideration while deciding the entrustment of custody to the parent. Thus, this provision overruled the biasedness of the court to grant custody to the father, being the natural guardian and instead, bending the grant of custody towards the mother for the welfare of the child. The same was held in Balvinder Kumar Bishnoi vs Aasmaan & Ors (2017).

Special Marriage Act, 1954

Section 38 of the Act validates the right of custody of minor children whose parethe belong to different religions and have solemnised their marriage under the Special Marriage Act, 1954. The court is empowered to pass orders and judgements regarding the custody and maintenance of the minor, as it may deem fit from time to time for the support of the child and dispose of the concerned application within 60 days of service.

Types of custody

Joint custody

Under joint custody, both the parents get custody of the minor child. This does not mean that both the parents have to live together but the minor children will get to spend equal time with both the parents. This also does not mean that the child will be transferred from one house to another on a regular basis but will have only one home to which he will be habituated, thus granting regular visitation rights to the non-custodial parent.

Split custody

It refers to the arrangement in which one of the parents has the sole custody of one or more minor children whereas the other parent has the sole custody of the remaining children. This type of custody is granted in rare situations so as not to deprive the minor children of sibling love, mutual comfort and attention.

Legal custody

This kind of custody does not necessarily imply the parents having the child or vice-versa. It suggests that the parents are having the legal custody which is granted to them by the courts, which is usually entrusted to both the parents, except in cases where the divorce is chaotic and there is no mutual agreement between the parents. The parents can make decisions regarding education, lifestyle, medical treatments, etc. regarding the child.

Physical custody

When a parent is entrusted with physical custody of a minor, it suggests that the child will be under the guardianship of that parent with regular meeting and visitation rights being granted to the other parent. The main objective of this kind of custody is that the child is not deprived of the love and affection of both the parents and receives proper attention and care of both.

Factors determining the grant of custody

Wishes of parents

After the divorce, the court primarily asks which of the parents desire to have the custody of the child. In case of conflict between the parties, it is upon the court to grant custody to either parent, keeping in view the welfare of the child to be of the topmost priority. In case of mutual agreement between the parents, it becomes easy for the courts to grant mutual custody to the parent who desires to have the custody.

Inclination of children

The court also asks for the desires of their child and considers the child’s preference and inclination to a certain extent while deciding the custody of the child. The court determines that with which parent, the comfort of the child will be more. 

Relationship between child and each parent

The court determines the strength of the relationship between the child and each parent. If the court notices that the child is more comfortable with one parent and their relationship is more feasible, it will grant custody to that parent with visitation rights to the other parent.

Mental and physical health condition of child and each parent

The mental and physical disability of the parents is of paramount consideration while deciding custody. In case of mental disability of either of the parents, the sole custody of the minor will be granted to the other parent. However, in case of physical disability, the physical custody will be granted to the other parent with visitation rights being granted to the parent with physical disability.

Allegations or neglect

If the court finds any of the allegations levelled against any of the parents to be true, it can deny custody to that parent on the ground of being unfit for the welfare of the child. Also, if the minor child is neglected by the parent to whom the custody is entrusted, it can revoke the custody and grant it to the other parent.

Age of the child

The age of the child is of paramount consideration while awarding custody. The courts are usually inclined to grant the custody of the minor children under the age of 5 years, to the mother.

Custody of kid for each parent

After divorce, both the parents have an equal right over the custody of the minor child. In absence of any mutual agreement, the court can grant custody to any parent keeping in view the factors mentioned above and make that parent solely responsible for the life decisions of the minor child.

However, the most important consideration while deciding the custody of the child is the welfare of the child. The Supreme Court of India and the high courts have held in a plethora of judgments that “welfare of the child” is of paramount consideration while deciding cases for custody. The Supreme Court held in Gaurav Nagpal vs Sumedha Nagpal (2008) that the moral and ethical welfare of the child must also be given due consideration along with physical well being.

It was held in Tejaswini Gaud vs Shekhar Jagdish Prasad Tewari (2019) that the welfare of the child inculcates a number of nuances like ethical upbringing, economic status, child’s comfort, contentment, inclination of the child , health, education, etc.

Conclusion

The custody of the minor child in India is dealt with various personal laws along with Guardians and Wards Act, 1890. The paramount consideration of the courts while deciding the custody is the welfare of the minor child. In case of absence of mutual agreement between the parties, the courts can grant custody to any of the parents keeping in consideration the desires and the well being of the child.


Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:

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All about standard form contracts

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This article has been written by Mormik Ghosh, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution at LawSikho and edited by Shashwat Kaushik. This article explains what standard form contracts are.

It has been published by Rachit Garg.

Introduction

The world we live in today is always changing. Rapid change has made our lives a constant journey of learning and adapting to necessities. The digitalisation of today’s economy has shown us great effects, which are highly attributed to the fast growth of this country. Therefore, the governments are in a race to modernise and digitalise possibly every sector of the country to boost the economy further, which is bringing about a very rapid change in our lives. However, such rapid changes are proving to be a challenge for the lawmakers of this country to prepare legal systems in order to have the digital revolution in a way that does no harm to the public. One of the massively used systems of law in this evolution by various companies in this technological age on a daily basis has been the standard form of contract. It has brought serious challenges to the functioning of such legal systems and whether they are being used to exploit the weaker section by the big technological firms, as these legal provisions and systems were created before the beginning of the age of the internet.

What is standard form contracting

At the time of signing a contract between two parties, if only one party sets the terms and the other does not have the power to alter the terms, such contracts are called standard form contracts.

Standard form contracts are legal agreements that bind the user to do or abstain from doing something in which only one party has all the bargaining strength and therefore is taken to provide benefit mainly to a single party. These types of agreements thus deprive us of our fundamental right to bargain.

The standard form contracts are standardised contracts that include highly extensive ranges of phrases and situations that have been beautifully crafted in order to exclude the legal responsibility underneath such complicated writings. The standard form of contract also provides the implementing party with a huge and unique opportunity to make massive gains by exploiting the individual weaknesses of common citizens who do not have such knowledge of the law. Such contracts can even exempt all legal responsibilities of the party beneath such clauses, and therefore the battle against abuse of this type of contract falls upon the judges.

Legality of standard form contracting in India

The standard form of contract in India is governed by the rules of the Indian Contract Act of 1872. There is no differentiation in India between a general contract and a standard form contract. Due to the massive industrialisation, modernisation and digitalisation of the country, standard form contracts have been used on a very large scale in the Indian economy. However, due to the absence of proper and specified laws relating to them, these types of contracts have not been adequately able to protect the rights of the weaker sections.

Role of courts in standard form contracts

The courts, to a great extent, help to provide remedies to the weaker parties relating to the performance of the contract. However, the courts can also levy unjust clauses or phrases levied upon the signatory of the contracts, which would definitely be unfair as standard form contracts may allow the vendor to avoid all legal responsibility, unilaterally alter the clauses of the contract, or even terminate the settlement depending upon the terms of the contract.

The terms of these types of contracts generally come with a mandatory arbitration clause, which would definitely limit or foreclose a party’s entry into court. Even sometimes there are liquidated damages clauses, which therefore also put restrictions on the amount that could have been recovered or require a party to pay a particular quantity.

Why people accept standard form of contracts

The very first reason for a person’s acceptance of standard form contracts is because of their own negligence in reading between the contract clauses thoroughly. Even if they read the contract clauses thoroughly, they often deemed all of those clauses not worthy of investing so much time in order to understand the real meaning of the clauses.

Certain contracts are also created in such a way that the full terms and conditions of the contract are framed in such a way that they are only visible if the user accepts the primary terms and conditions.

Also, standard forms of contracts are generally those kinds of contacts where the client, the user  or the concerned party mainly focuses on the price aspect as mentioned in the contract rather than giving the entire contract the same amount of detail.

The parties discuss the terms and conditions of the contract orally at the beginning, and therefore the service provider or the party who formulates the standard form contract forces  the other party to sign the contract in a hurry without giving him enough time to go through the formulated contract and check whether the terms and conditions are the same as those discussed orally earlier. This generally happens when the signatory is compelled or pressured to sign the contract in a time bound manner.

Last but not least, most of these contracts are basically on a take or leave basis, as there are no grounds for negotiating such contracts, and therefore people are forced to accept them in order to gain services. Examples include contracts with service oriented giants such as Facebook, Instagram and many more.

Ways to limit the exploitation of standard form contracts

 The most common way a party can be saved from the exploitation of a standard form contract would be by giving reasonable notice by the party who is giving this document, and therefore adequate information shall be provided about the terms and conditions that have been mentioned in the contract. A very famous case was Henderson vs. Stevenson (1873), where it was stated that a person  was buying a ship ticket. That ticket had only  the details of the boarding place and the arrival place written on it. However, the ticket had certain terms and conditions written on the back of it that the party could not or did not see, and nothing was mentioned whether the party should check the back end of the ticket for reading and agreeing to the terms and conditions associated with it. Therefore, the Scottish Court of Session awarded the judgment in favour of the plaintiff, as the simple reason that was stated for the judgment was that a person can never agree to the terms and conditions that he has neither heard nor seen in his entire life. The notice of all such terms and conditions should always be produced before or at the time of the initiation of the contract. It was therefore clearly stated by the judge that a party who would benefit from such terms and conditions should always clarify those before the other party.

The second point would be that the standard form document must be contractual in nature and not a receipt. If it is not of a contractual nature, then it shall not be considered a contract and therefore would not be enforceable. The main difference between a contractual document and a receipt is that a contractual document  would always express and specify the terms and conditions mentioned in the documents. If terms and conditions are not expressed and implicated, then it shall be considered a receipt.

The third point would definitely be pointing out the unreasonable terms mentioned in the contract, which would not protect or safeguard the interests of the weaker party. An unreasonable clause or term can be defined as one that contradicts the very purpose of the contract or is against public policy in general. The case of Seven Day Adventists vs. M.A. Uneerikutty and Anr. was a financial case in which it was mentioned that if any consideration of the several clauses that had been highlighted in the contract was found to be unlawful, then the contract itself would be unlawful, and the agreement would therefore be considered void. The Court, in its judgement, clearly stated that these types of cases are against public policy.

The theory of fundamental breach also provides some sort of protection to the weaker party, as according  to it, there would always be some fundamental clauses that would always be binding on both parties, and therefore if the stronger party does not  follow them, then the weaker party, according to the law, is also not liable to honor such a contract.

Conclusion

Therefore, we can understand that there are a lot of loopholes in the standard form of contract. The Indian contract act does not have  any specific act to deal with such kinds of contracts, and therefore the weaker can be easily exploited as there are no specific grounds on which it can be prevented.

Since these kinds of contracts are made and entered into in large numbers on a daily basis, the legal system in India needs to adopt fast and make a separate law regulating such contracts, or else weaker parties will continue to be exploited. However, the law should be designed in such a way that it should not complicate the working of these contracts, as they are mass distributed contracts and therefore cannot be lengthy and overly complex. The provisions should only provide a certain ground for protection for the weaker consumer without disrupting the economic angle that these quick contracts bring.

References

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:https://t.me/lawyerscommunityFollow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

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All you need to know about e-contracts

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This article has been written by Arya B S pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution at LawSikho and has been edited by Shashwat Kaushik. This article is an analysis of the accommodation of e-contracts in law.

It has been published by Rachit Garg.

Introduction

We live in an era of technology, where we carry out almost all of our day-to-day activities with the help of gadgets and devices. It is almost impossible to imagine a life without technology now, as it has made our lives easier. It is pertinent to note that, unknowingly, we depend a lot on technology to make our lives simpler; right from carrying out simple tasks like purchasing groceries to doing major tasks like filing your tax returns or purchasing shares of a company, all these can be done in just one click. That’s the importance of technology in terms of how it makes our lives effortless and hassle-free at every step. Technology has also helped the whole world connect. Through various electronic means and applications available world-wide, individuals have the ability to see, talk and connect with each other in the comfort of their own space without having to meet in-person. Another important change that technology brought to us was the shift from paper-based records to electronic records. Documents, records, agreements, etc. could be copied, modified, searched and carried without the fear of them getting misplaced or misfiled and without the use of paper, thus taking a step towards protecting the environment.

As the use of technology and the internet has advanced, there is a need for adapting laws relating to them, as misuse of transactions done with the help of technology and the internet can take place. Therefore, in order to prevent such a situation from occurring and to authenticate and grant legal recognition to the use of electronic documents, laws have been made and implemented around the world. There are different areas of law where provisions related to technology and e-formats of various objects are mentioned. In this article, we will deal with how contractual law has adapted to electronic contracts, commonly known as e-contracts. 

What are e-contracts

A contract is a legally enforceable agreement, as defined under Section 2(h) of The Indian Contract Act, 1872 (herein referred to as “ICA, 1872”). In simple words, it is an agreement that gives rise to a legal obligation to perform an act as promised by the promisor (the person who makes a promise) in return for consideration provided to him by the promisee (the person to whom the promise is made). An electronic contract, commonly referred to as an e-contract, is a legally enforceable agreement formed through electronic means. It is drafted, negotiated and executed digitally, and hence it is completely digital in nature. The term “e-contract” or “electronic contract” has not been defined under The Indian Contract Act, 1872 or The Information Technology Act, 2000 (herein referred to as the “IT Act, 2000”), but the IT Act, 2000, talks about the validity of contracts formed through electronic means. It is mentioned under Section 10A of the IT Act, 2000, that if communication, acceptance or revocation of proposals is expressed in electronic form or by means of any electronic record, then such a contract is deemed to be enforceable. 

The main advantage of e-contracts is that they are not paper-based and parties to the e-contract can enter into it even if the promisor and the promisee happen to be in different places, i.e., an in-person meeting is not required for signing the contract. Instead, the parties can enter into the contract by means of a digital signature. A digital signature is a valid digital replacement or alternative to a hand-written signature. It is defined under Section 2(1)(p) of the IT Act, 2000.  Section 3 of the IT Act, 2000, provides for the authentication of electronic records by affixing the digital signature of a person. 

Essentials of e-contracts

The essentials of a valid e-contract are the same as those of a valid traditional contract. The essentials of a contract are given under Section 10 of the ICA, 1872. These include:

  • Offer,
  • acceptance,
  • presence of a lawful object,
  • presence of a lawful consideration,
  • parties to the contract must be competent, and
  • parties must have entered into the contract by free consent.

An electronic contract formed without any of the above-mentioned essentials shall be deemed void.

Types of e-contracts

There are three main types of electronic contracts. They are:

  • Shrink-wrap contracts;
  • Click-wrap contracts; and
  • Browse-wrap contracts.

Shrink-wrap contracts

In this type of contract, a person is said to have agreed to the terms and conditions of the agreement once he/she makes a purchase of a certain product or software. These agreements are based on the simple idea that once a certain product that was packed or wrapped is opened, acceptance of the terms and conditions of that product is marked. A key factor to note is that there is no power of negotiation in shrink-wrap contracts.  An instance where such type of an agreements are seen is when a purchase of mobile phone or any of the software devices is made by a customer. An example of a shrink wrap agreement is an End User License Agreement, commonly known as an EULA. 

Click-wrap contracts

Here, a person is deemed to have given acceptance or approval if he/she is said to have clicked on the “I Accept” or “Click to Accept” option in the terms and conditions of the web interface. The user here has to read and go through the points mentioned in the terms and conditions or the privacy policies before giving acceptance for use of the website or interface. Just as in the case of shrink-wrap contracts, the power of negotiation is not available in click-wrap contracts as well. Click-wrap contracts can be seen on almost all the websites that we use. A few of these websites include LinkedIn, Facebook, Urbanic, Urban Clap, etc.

Browse-wrap contracts

These are licensed contracts provided on a website or web interface wherein a “Hyperlink”, when double-clicked, takes the user to a webpage containing the terms and conditions for using that particular application. Downloading such an application or using the website itself means that the user has accepted the terms and conditions of the contract. In browse-wrap contracts, too, there is no power of negotiation. Examples include hyperlinks that show Terms and Condition before downloading mobile applications like Netflix, Amazon, etc.

An analysis of accommodation of e-contracts in law

Electronic contracts are much in use in the present day, and they play a major role in trade and business. The main reasons for this are that they are easily accessible, environment-friendly, faster and easier to work on, with the chances of errors being minimal when compared with paper-contracts. Provisions relating to e-contracts have also been accommodated in different areas of the law, as discussed above.

The validity and enforceability of e-contracts were discussed in detail in the case of Tamil Nadu Organics Private Limited vs. State Bank of India (2019). The Madras High Court in this case held that e-contracts are enforceable under law and contractual obligations shall arise from the same.

In Trimex International FZE Ltd. Dubai vs. Vedanta Aluminium Ltd. (2010), the Supreme Court held that since the offer and acceptance were communicated by the parties through the exchange of e-mails, the e-mails would constitute a contract in themselves. The Supreme Court of India observed that if a contract is concluded, a formal contract prepared and initialed by the parties would not affect the implementation of such a contract.

In the case of Rudder vs. Microsoft Corporation (1999), the plaintiff initiated a class action suit against MSN (a web portal provided by Microsoft), who happened to be a subscriber to the same, for misappropriation, breach of contract and breach of fiduciary duty. Microsoft contended that there existed a clause in the click-wrap contract between the subscribers and the company providing for exclusive jurisdiction to the State of Washington for dispute resolution and hence pleaded for dismissal of the class action suit. Rudder, the plaintiff argued that such a clause wouldn’t be applicable since it was not brought to the attention of the users. Justice Warren Winkler held the decision in favour of Microsoft, stating that the subscribers to the portal were supposed to click on an “I Agree” option twice to accept the terms and conditions of the web portal. The plaintiff had clicked on this option, thereby making him legally obligated to follow the clauses as mentioned in the terms and conditions of the contract, irrespective of whether he read the contract or not. The Court held that the contract would be enforceable, stating that scrolling through several pages of a webpage or web portal was similar to having to turn through several pages of a paper-based contract.

In the case of Bhagwandas Goverdhandhas Kedia vs. Girdhari Lal Parshottamdas & Co. and Anr. (1965), the Supreme Court held that the place for enforcement of a contract formed through electronic means would be the place where acceptance of the offer was received.

Conclusion

To conclude, the use of e-contracts has been rapidly growing since the past decade and has been an advantage to many people around the world. It is important to understand and use these contracts wisely. The usage of e-contracts is sure to increase in the future, especially since digitalization is being promoted by the government, and hence an all-inclusive legislation for enforcement of e-contracts and its related matters is needed to be developed.

References


Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:

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Communication and revocation of offer and acceptance

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This article has been written by Ashmeet Kaur Arora pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution at LawSikho, and has been edited by Shashwat Kaushik. This article gives you an insight into communication and the revocation of offer and acceptance.

It has been published by Rachit Garg.

Introduction

An agreement that is legally enforceable is referred to as a contract according to Section 2(h) of the Indian Contract Act, 1872. It can either be a written or oral agreement/ contract. For a contract to be enforceable by law, there should be a legal object that legally binds the parties to the contract. A lease deed, an employment agreement, a loan agreement, a sale deed, an insurance policy, etc. are some types of valid contracts.

Further, a contract is considered valid when it fulfils the three most important elements, namely, offer, acceptance, and consideration.

What is an offer

An offer is described in Section 2(a) of the Indian Contract Act, 1872. A proposal is said to be made  when a person indicates to another his willingness to act or refrain from acting to gain the other person’s consent to act or refrain.

The person who is offering the proposal/promise for the contract is called the offeror/promisor, and the person to whom the proposal/promise is made or the person who accepts the same is called the offeree/promisee.

Thus, in layman’s terms, an offer is a proposal made by the offeror/promisor to the offeree/promisee to perform its obligation in order to initiate a valid contract between the parties. For example, if X offers Y to sell his car for Rs. 5,00,000/-, such a proposal is called an offer.

Types of offers

An offer can be of four types:

Expressed offer 

When an offer made in written form has been expressed orally, then such an offer is an expressed offer.

Implied offer

When an offer is neither given in written nor oral form, but the conduct of the offeror/promisor depicts that he is willing to perform the obligation, then such an offer is called an implied offer.

Specific offer

An offer made to a specific person or to a specific public at large is called a specific offer.

General offer

An offer is referred to as a general offer when it is made to the general public. A general offer is made to the public, but only the person/party who accepts the offer forms a contract, not the whole public.

What is meant by acceptance

The definition of acceptance is given under Section 2(b) of the Indian Contract Act, 1872. The proposal is considered accepted when the person to whom it is made expresses his consent to it. Once a proposal is accepted, it turns into a promise.

In layman’s terms, when the offeree/promisee gives his consent to accept the offer/proposal made by the offeror/promisor. For example, if Y accepts the offer of X to purchase the car for Rs. 5,00,000/-, then such consent is termed acceptance. Thus, by accepting X’s proposal, both X and Y are executing a valid contract.

Acceptance can either be given by expressing the same in written form or orally; in such a case, it would be called expressed acceptance, or if the conduct of the offeree depicts that he is willing to accept the offer, such acceptance is called implied acceptance. For example, X has offered to sell his book to Y for Rs. 200. Y may accept the same offer by giving his acceptance in writing through a letter or orally by stating that he is interested in purchasing the book. If Y would not have given his expressed acceptance but his actions would have indicated that he is interested in buying the book, then such acceptance would have been implied acceptance. 

Elements of a valid acceptance

The following are the most important elements where an acceptance made by the offeree/promisee is deemed to be valid:

  • The proposal must be unconditionally accepted in order for it to be turned into a promise, according to Section 7(1) of the Indian Contract Act.
  • The acceptance shall not be taken under any coercion, undue influence, or threat. It should be given with the free consent of the offeree/promisee.
  • The offeree/promisee must reflect his intention to enter into a contract.
  • The acceptance must be communicated in a proper manner to the offeror/promisor. Acceptance can be either implied or expressed.
  • If any specific time period is mentioned in accepting the offer, the offeree/promisee should be accepted within that specified time period.
  • The offer should be accepted without making any modifications or prescribing any conditions. It must be accepted unconditionally.
  • If the offeree/promisee remains silent after receiving the offer, then in that case, it does not imply that the offer has been accepted by the offeree/promisee. There should be proper communication about the same.

Communication of offer and acceptance

For every contract to be valid, an offer and acceptance have to be communicated. Unless an offer is communicated, it cannot be accepted. And thus, in the same way, an acceptance that has not been communicated does not bind any legal relations between the parties.

Communication of offer

Section 4 of the Indian Contract Act says that the communication of an offer is complete when it comes to the knowledge of the person to whom it is made and when the letter containing the offer is received and acknowledged by the offeree. 

For example, X of Agra has sent his offer via letter by post to Y of Lucknow, offering to sell his property for Rs. 10 lakhs. The letter is posted on March 5, and this letter reaches Y on March 7. Thus, it can be said that the communication of the offer made by the offeror/promisor was completed on March 7. And if, by any chance, the letter containing the offer never reaches Y, but Y comes to know about the proposal from some of the other sources and thereafter sends his acceptance to X, it will not amount to any proper communication of the offer, and thus there will be no valid contract.

Communication of acceptance

The rules for communication of acceptance are different for the person who makes it and the one who gets it because the communication of acceptance is completed at different times for both parties, i.e., the offeror and the offeree.

The completion of communication of acceptance is described under Section 4 of the Indian Contract Act and it is complete when:

  • In opposition to the proposer, when it is transmitted to him, so as to be beyond the acceptor’s control, and 
  • When it comes to the proposer’s knowledge, as opposed to the acceptor’s.  

Thus, the offeror becomes bound by the acceptance when the acceptor has given his acceptance and sent the letter of acceptance to the proposer, but the acceptor is bound by his acceptance only when the letter of acceptance reaches the offeror. Further, the offeror shall be bound by the acceptance only at the time when the letter of acceptance sent by the Acceptor was correctly addressed, properly stamped, and actually posted. Hence, in case of failure to do so, the acceptance shall not be deemed to be binding upon the offeror.

Revocation of offer and acceptance

The word ‘revocation’ simply means ‘taking back’ or ‘withdrawing’. Both the offer and acceptance can be revoked or withdrawn. But it is possible only up to a certain stage.

Revocation of offer

A proposal may be withdrawn at any time prior to the complete communication of its acceptance as against the proposer, but not after, according to Section 5 of the Indian Contract Act. In layman’s terms, the communication of acceptance can be said to be completed as against the offeror when it is put in a course of transmission so as to be out of his power. Hence, an offer can be revoked easily before the offeree/promisee post’s his letter of acceptance. 

For example, A offers to sell his car to B by mail. A may revoke his offer before B posts his letter of acceptance, but not afterwards. The offer cannot be revoked after the posting of the letter of acceptance. So, if the offeror wants to revoke his offer, the revocation notice must reach the offeree before he receives the letter of offer.

The cancellation must be expressed and not merely implied. The offeror must send the revocation notice directly or through an authorised person. A “general offer” must be revoked in the same manner that it was originally made, according to the law.

Revocation of acceptance

As per Section 5 of the ICA, acceptance can be revoked before the letter of acceptance has been communicated and not afterwards. In layman’s terms, it is possible to say that the communication of acceptance is finished as opposed to the acceptor when it comes to the knowledge of the offeror. Therefore, the acceptor has the right to revoke his acceptance anytime before the offeror receives his acceptance letter. Once the letter of acceptance is received by the offeror, the acceptance cannot be revoked.   

Communication of revocation

The communication of the revocation is different for both parties for the party making it and the party receiving it. As per Section 4 of the Indian Contract Act, the communication of revocation is said to be completed when:

  • As against the person who makes it, when it is put into a course of transmission to the person to whom it is made, it is out of the power of the person who makes it.
  • Against the person to whom it’s made, after coming to his knowledge

Conclusion

Therefore, an offer or acceptance can be revoked before the formation of a contract. A proposal can be revoked before its acceptance, and acceptance can be revoked before its communication is complete. But in light of recent developments like e-contracts or smart contracts, the provisions of the ICA must be amended to create modern modes of communication. 

References


Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:

https://t.me/lawyerscommunity

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Article 12 of the Indian Constitution 

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This article is written by Diganth Raj Sehgal, a Student, School of Law, Christ University, Bangalore; and Gautam Badlani, a student at Chanakya National Law University, Patna. The author of this article has discussed the scope and extent of Article 12 of the Constitution of India and its importance.

It has been published by Rachit Garg.

Introduction

Fundamental rights are a group of rights which are guaranteed to all the citizens of the nation by the Constitution of India under Part III. These rights apply universally to all citizens residing in the nation, irrespective of their race, place of birth, religion, caste or gender. They are recognized by law as rights requiring a high degree of protection from the government and they cannot be violated by the Government. Fundamental rights cannot be enforceable against individuals and private entities.  The obligation of protecting these rights lies on the government or the state or its authorities.

Most of the Fundamental rights provided to the citizens are claimed against the State and its instrumentalities and not against the private bodies. Article 12 gives an extended significance to the term ‘state’. It is very important to determine what bodies fall under the definition of a state so as to determine on whom the responsibility has to be placed.

The framers of the Constitution used the words ‘the State’ in a wider sense than what is understood in the ordinary or narrower sense. It does not merely mean the states in the Union. The word ‘includes’ in the article shows that the definition is not exhaustive and through judicial interpretations, the court has widened the scope of the Article way beyond what even the framers of Article 12 may have had in mind during the framing of the constitution.

Purpose and need to define state

Under the Constitution of India, the purpose of the state is to establish a welfare society. The framers of the Constitution were inspired by the idea of a welfare state. The concept of welfare state was developed in Germany and it envisages the creation of a state which ensures the basic economic security to all its citizens. The Constitution imposes a negative duty on the state in the form of fundamental rights and a positive duty on the state in the form of directive principles of state policy. The fundamental rights are contained in Part III of the Constitution and the directive principles are enumerated in Part IV of the Constitution. 

Most of the Constitutions around the world guarantee fundamental rights only against the state, that is, the citizens can approach the courts if their rights are infringed by the state but they may not be able to seek remedy in court if their fundamental rights are violated by private individuals. This holds true even where the Constitution does not expressly state that the fundamental rights would be enforceable against the State. VN Shukla, in his book Constitution of India stated that even though under the Constitution of the United States, it is not expressly stated that the fundamental rights are guaranteed only against the state, yet the judiciary has interpreted it to mean that the fundamental rights can be enforced only against the state and not private individuals. 

Similar is the case with the Indian Constitution. Thus, it becomes important and necessary to precisely and concisely define the meaning of the term ‘state’. Under the Indian Constitution, the State has been defined under Article 12, which is the opening Article of Part III of the Constitution of India which enumerates the fundamental rights. 

In P.D. Shamdasani v. Central Bank of India (1951), some shares of the petitioner were sold by the Central Bank of India to recover the debt owed by the petitioner. This was challenged on the ground of being violative of Articles 19 and 31 (now omitted). The Supreme Court of India, while dismissing the petition, observed that since the rights of the petitioner were violated by a private bank, remedy cannot be sought under Article 32. Resort to Article 32 can be taken only in cases where the state infringes the right. Remedies against private parties are available under the ordinary law. 

Recently, in Kaushal Kishore v. State of U.P. (2023), the Supreme Court held that fundamental rights guaranteed under Articles 19 and 21 respectively can be enforced against the state as well as non-state actors. 

While defining the term ‘state’, it is necessary to note that fundamental rights can be violated by the state directly as well as indirectly. In direct infringement, the government infringes fundamental rights through its legislative or other powers. In indirect infringement, the rights of the citizens are infringed upon through the agencies and officials acting on behalf of the state. Thus, it is necessary to interpret the state in an inclusive manner to protect the rights of the citizens from being infringed by any arbitrary action of the state. 

The Indian Constitution also enumerates certain fundamental duties which the citizens owe to the state. The 42nd Amendment of 1976 incorporated the fundamental duties to the Indian Constitution. These duties are enumerated under Article 51A of the Indian Constitution. Some of the fundamental duties are respecting the National Flag, protecting the sovereignty and integrity of India and preserving the cultural heritage.

Meaning of State under Article 12

Article 12 of the Indian Constitution states that,

“Definition in this part, unless the context otherwise requires, the State includes the Government and Parliament of India and the Government and the Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India.”

In other words, for the purposes of Part III of the constitution, the state comprises of the following:

  1. Government and Parliament of India i.e the Executive and Legislature of the Union
  2. Government and Legislature of each State i.e the Executive and Legislature of the various States of India
  3. All local or other authorities within the territory of India
  4. All local and other authorities who are under the control of the Government of India

Key terms discussed under the article

  1. Government (Union and state)
  2. Parliament and state legislature
  3. Local authorities
  4. Other authorities
  5. Territory of India
  6. Control of the government of India

The above-mentioned terms are better explained in the following section along with relevant cases.

Government (Union and state), Parliament and State Legislature

  • Parliament: The parliament comprises of the President of India, the lower house of the parliament that is the Lok Sabha as well as the upper house of the Parliament, that is the Rajya Sabha.
  • Executive: It is that organ which implements the laws passed by the legislature and the policies of the government. The rise of the welfare state has tremendously increased the functions of the state, and in reality, of the executive. In common usage, people tend to identify the executive with the government. In contemporary times, there has taken place

A big increase in the power and role of the executive in every state. The executive includes the President, Governor, Cabinet Ministers, Police, bureaucrats, etc.

  • Legislature: The legislature is that organ of the government which enacts the laws of the government. It is the agency which has the responsibility to formulate the will of the state and vest it with legal authority and force. In simple words, the legislature is that organ of the government which formulates laws. Legislature enjoys a very special and important in every democratic state. It is the assembly of the elected representatives of the people and represents national public opinion and power of the people.
  • Government: The law-making or legislative branch and administrative or executive branch and law enforcement or judicial branch and organizations of society. Lok Sabha (the lower house) and Rajya Sabha (the upper house) form the legislative branch. Indian President is the head of the state and exercises his or her power directly or through officers subordinate to him. The Supreme Court, High Courts, and many civil, criminal and family courts at the district level form the Judiciary.
  • State Legislature: The legislative body at the state level is the State Legislature. It comprises of the state legislative assembly and the state legislative council.

Local Authorities

Before understanding what a local authority is, it is important to define Authorities. According to Webster’s Dictionary; “Authority” means a person or body exercising power to command. When read under Article 12, the word authority means the power to make laws (or orders, regulations, bye-laws, notification etc.) which have the force of law. It also includes the power to enforce those laws

Local Authority: As per Section 3(31) of the General Clauses Act, 1897,

Local Authority shall mean a municipal committee, district board, body of commissioner or other authority legally entitled to or entrusted by the Government within the control or management of a municipal or local fund.”

The term Local authority includes the following:

  1. Local government: According to Entry 5 of the List II of VII Schedule ‘local government’ includes a municipal corporation, improvement trust, district boards, mining settlement authorities and other local authorities for the purpose of local self-government or village administration.
  2. Village Panchayat: In the case of Ajit Singh v. State of Punjab, it was held that within the meaning of the term local authority, village panchayat is also included.

Test to determine Local Authorities

In Mohammad Yasin v. Town Area Committee, the Supreme Court held that to be characterized as a ‘local authority’ the authority concerned must;

  1. Have a separate legal existence as a corporate body
  2. Not be a mere government agency but must be legally an independent entity
  3. Function in a defined area
  4. Be wholly or partly, directly or indirectly, elected by the inhabitants of the area
  5. Enjoy a certain degree of autonomy (complete or partial)
  6. Be entrusted by statute with such governmental functions and duties as are usually entrusted to locally (like health, education, water, town planning, markets, transportation, etc.)
  7. Have the power to raise funds for the furtherance of its activities and fulfilment of its objectives by levying taxes, rates, charges or fees

Other Authorities

The term ‘other authorities’ in Article 12 has nowhere been defined. Neither in the Constitution nor in the general clauses Act, 1897 nor in any other statute of India. Therefore, its interpretation has caused a good deal of difficulty, and judicial opinion has undergone changes over time.

The functions of a government can be performed either the governmental departments and officials or through autonomous bodies which exist outside the departmental structure. Such autonomous bodies may include companies, corporations etc.

So, for the purpose of determining what ‘other authorities’ fall under the scope of State, the judiciary has given several judgements as per the facts and circumstances of different cases.

In the University of Madras v. Shanta Bai, the Madras High Court evolved the principle of ‘ejusdem generis’ i.e. of the like nature. It means that only those authorities are covered under the expression ‘other authorities’ which perform governmental or sovereign functions. Further, it cannot include persons, natural or juristic, for example, Unaided universities.

In the case of Ujjammabai v. the State of U.P., the court rejected the above restrictive scope and held that the ‘ejusdem generis’ rule could not be resorted to the in interpreting ‘other authorities’. The bodies named under Article 12 have no common genus running through them and they cannot be placed in one single category on any rational basis.

Lastly, in Rajasthan Electricity Board v. Mohan Lal, the Supreme Court held that ‘other authorities’ would include all authorities created by the constitution or statute on whom powers are conferred by law. Such statutory authority need not be engaged in performing government or sovereign functions. The court emphasized that it is immaterial that the power conferred on the body is of a commercial nature or not.

Doctrine of instrumentality of state

In the modern world, the state has a lot of functions to perform. In order to discharge its functions and duties, the state operates through certain instrumentalities. The instrumentalities also fall within the scope of the expression ‘state’ as used in Article 12. 

Instrumentalities are the means through which the state discharges its functions and the doctrine of instrumentality provides that the agencies through which it discharges its functions are also to be considered embodiments of the state. For example, Article 298 of the Indian Constitution empowers the central as well as state governments to carry on trade and business. The government carries on trade through certain corporations and these corporations are called the instrumentalities of the state. 

In Ramana Dayaram Shetty v. International Airport Authority of India and Ors. (1979), the Supreme Court held that corporations acting as agents or instrumentalities of the government would fall within the meaning of the expression ‘other authorities’ under Article 12. 

However, it is often difficult to determine whether an entity is an instrumentality of the government or not. 

Test to determine instrumentality 

To determine whether an entity is an agency or instrumentality, the following factors are to be taken into consideration:

  • Share capital and financial assistance: If the whole of the share capital of the corporation is owned by the central or any of the state governments, then it will show that the corporation is an instrumentality of the state. The state may also provide financial assistance to the corporation. 

In Sukhdev Singh v. Bhagatram (1975), the Court observed that it is not necessary for the state to provide direct financial aid to the corporation. The state may provide tax exemptions or other forms of indirect financial assistance to the corporation. Indirect financial aid will also be a relevant factor while determining whether a corporation is an instrumentality of the State or not. 

  • State control: If the central or any of the state governments exercises pervasive control over the entity, then it can be concluded that the corporation is an agency of the state. 
  • Monopoly: Certain corporations enjoy monopolies in their respective markets because the state prevents other corporations from operating in the same market. Thus, if an entity enjoys monopoly status due to the restrictions imposed by law enacted by the state, then such entity is likely to be considered an agency or instrumentality of the state. 
  • Functions: The nature of the functions performed by the corporation is another relevant factor. If the corporation performs or discharges functions which are largely of a public nature, then such a corporation will be considered as an instrumentality.

Territory of India

Article 1(3) of the Constitution of India states that;

“The territory of India shall comprise- (a) the territories of the States;(b) the Union territories specified in the First Schedule; and (c) such other territories as may be acquired.”

In the case of Masthan Sahib v. Chief Commissioner, the court held that the territory of India for the purposes of Article 12  means the territory of India as defined in Article 1(3).

Control of the government of India

Under Article 12, the control of the Government does not necessarily mean that the body must be under the absolute direction of the government. It merely means that the government must have some form of control over the functioning of the body. Just because a body is a statutory body, does not mean that it is ‘State’. Both statutory, as well as non-statutory bodies, can be considered as a ‘State’ if they get financial resources from the government and the government exercises a  deep pervasive control over it.

For example- State includes Delhi Transport Corporation, ONGC and Electricity Boards, but does not include NCERT as neither is it substantially financed by the government nor is the government’s control pervasive.

The test laid down in the case of Ajay Hasia is not rigid and therefore if a body falls within them, then it must be considered to be a State within the meaning of Article 12. It was discussed in the case that– “whether in the light of the cumulative facts as established, the body is financially, functionally and administratively dominated by or under the control of Government. Such control must be particular to the body in question and must be pervasive.

Whether the state include the judiciary?

Article 12 of the Constitution does not specifically define ‘judiciary’. This gives the judicial authorities the power to pronounce decisions which may be contravening to the Fundamental Rights of an individual. If it was taken into the head of ‘State’, then as per the article, it would be  by the obligation that the fundamental rights of the citizens should not be violated. Accordingly, the judgements pronounced by the courts cannot be challenged on the ground that they violate fundamental rights of a person. On the other hand, it has been observed that orders passed by the courts in their administrative capacity (including by the Supreme Court) have regularly been challenged as being violative of fundamental rights.

The answer to this question lies in the distinction between the judicial and non-judicial functions of the courts. When the courts perform their non-judicial functions, they fall within the definition of the ‘State’. When the courts perform their judicial functions, they would not fall within the scope of the ‘State’.

So, it can be noted that the judicial decision of a court cannot be challenged as being violative of fundamental rights. But, an administrative decision or a rule made by the judiciary can be challenged as being violative of fundamental rights, if that be supported by facts. This is because of the distinction between the judicial and non-judicial functions of the courts.

In the case of Naresh Shridhar Mirajkar v. State of Maharashtra, AIR 1967 SC 1, a 9-judge bench of the Supreme Court held that a judicial decision pronounced by a judge of competent jurisdiction in or in relation to a matter brought before him for adjudication cannot affect the fundamental rights of the citizens since what the judicial decision purports to do is to decide the controversy between the parties brought before the court and nothing more. Therefore, such a judicial decision cannot be challenged under Article 13.

Under the Constitution, the judiciary has the power to determine the scope of the fundamental rights guaranteed to citizens. In exercising this power, the Courts might make some errors. However, the errors made by the courts in interpreting the fundamental rights would not amount to infringement of the fundamental rights itself. The writ jurisdiction cannot be invoked against the decision of the courts. The appropriate remedy against judicial decisions is review or appeal before the appellate court. In case the decision is made by the Supreme Court, the aggrieved party can file a review petition or a curative petition.  

In Khoday Distilleries Limited v. Registrar General, Supreme Court of India (1995), the Supreme Court held that once the final decision of the Court under Article 136 has been pronounced and the same has been upheld in the review petition, the writ jurisdiction of the Court under Article 32 cannot be invoked to challenge the validity of the order. 

It is pertinent to note that only the decisions of the courts cannot be challenged on the ground of violation of fundamental rights. However, if a quasi-judicial authority or administrative authority such as a tribunal exceeds its jurisdiction or fails to exercise its jurisdiction, then the decision of the tribunal can be challenged on the ground of being violative of the fundamental rights of the aggrieved party. Thus, writ jurisdiction can be invoked to challenge the decisions of the tribunals and administrative authorities. 

The position of not including judiciary within the meaning of the expression ‘state’ is justified in view of the fact that India has a single integrated judicial system. The decisions of one court can be challenged before the appellate court and the aggrieved party is not remediless against the decisions of the courts. 

Landmark judgements 

Rajasthan Electricity Board v. Mohan Lal and Ors (1967)

Facts

In the case of Rajasthan Electricity Board v. Mohan Lal and Ors. (1967), 14 permanent employees of the State Government were deputed to the Electricity Board. 11 employees of the Board were promoted as assistant engineers but the first respondent was not promoted. He challenged the decision of the Electricity Board of not promoting him and pleaded that the decision violated his fundamental right under Article 14 of the Constitution. He had approached the High Court under Articles 226 and 227 of the Constitution and the High Court found the petition to be maintainable. 

Issue

The issue was whether an Electricity Board constituted under the Electricity Supply Act, 1948 could be considered an ‘other authority’ under Article 12. 

Contentions

The appellants had contended that the Board cannot be considered to be a state. Article 12 should be interpreted ejusdem generis and since the Board was a separate legal person in law which was established for the purpose of carrying on certain commercial activities, it could not be considered as a state. The Board was not covered under the authorities enumerated under Article 12, that is, the Board was neither a part of the Union or State Government, nor was it a part of the Union or State Legislature. The appellants also placed reliance on the Shantha Bai case. 

The appellants further stated that only those bodies which perform government functions are covered by Article 12. However, the Board performed commercial activities which cannot be considered government or public functions. 

Judgement

The Supreme Court had held the Electricity Board to be an ‘other authority’ falling within the ambit of Article 12. It was stated that since the Electricity Board acts as an instrumentality of the government and therefore falls within the meaning of the term ‘state’. It was immaterial that the Board carried on some activities which were commercial in nature.

The Board is a sovereign body which is entrusted with the task of generating and distributing power to the public. It was also empowered to initiate certain schemes and carry out hydraulic surveys for the purpose of fulfilling its functions. The Board could also make rules and regulations to exercise control over the electricity undertakings and thus it was held to be an ‘other authority’ under Article 12. 

With respect to the application of the principle of ejusdem generis, the Court held that this principle cannot be applied while interpreting Article 12. For the application of this principle, there must be a ‘distinct genus’ or some commonality between the bodies enumerated in Article 12. Since the bodies mentioned in Article 12 have no genus, the principle of ejusdem generis could not be applied while interpreting Article 12. 

Sukhdev Singh v. Bhagatram (1975)

Facts

In this case, the petitioner, who was an employee of a statutory corporation, was dismissed from service. He approached the Supreme Court pleading that the removal was violative of Article 14 of the Constitution. 

Issue

The Court had to determine statutory corporations such as the Life Insurance Corporation, Oil and Natural Gas Corporation and Industrial Finance Corporation could be considered as ‘state’. 

Judgment

The Supreme Court, by a 4:1 majority, held the three statutory corporations to be state within Article 12. The Court held that three corporations are the agencies and instrumentalities of the state. They have the power to make binding rules and assist the state in discharging its functions. The government also exercises pervasive control over these corporations. 

Dissent

In his dissent, Justice Alagiriswami noted that there was no difference between the rules framed by the statutory corporations and rules made by ordinary corporations. Since the corporations do not exercise sovereign functions, they cannot be considered as a state under Article 12. 

Ajay Hasia v. Khalid Mujib (1980)

Facts 

In this case, an Engineering College was managed by a society which was registered under the Jammu and Kashmir Registration of Societies Act, 1898. One of the candidates who applied for admission to the college was called for an interview. In the interview, he was asked questions about his parents and residence. These questions had no relation with the subject for which the interview was being conducted. Subsequently, the candidate challenged the interview process for being arbitrary and violative of Article 14 of the Constitution. 

Issue

The Court had to determine whether the society registered under the Act qualified to be a state within the meaning of Article 12. 

Judgment 

The 5-judge bench of the Supreme Court unanimously held that the society which administered the college was state within Article 12 and held that society was an instrumentality of the state. It was immaterial as to how the juristic person was brought into existence. The factor which was relevant was the purpose for which the college was constituted. 

The society which administered the college was registered under a statute. The government exercised control over the functioning of the society. Thus, the society was an agency of the government. 

Zee Telefilms v. Union of India and Ors. (2005)

Facts

In this case, the issue was whether the Board of Control for Cricket in India (BCCI), a society registered under the Tamil Nadu Societies Registration Act, 1975 is a state or not. 

Contentions 

The petitioner had pleaded that BCCI should be considered a state. The BCCI enjoys monopoly control over cricket, which is a prominent sport in India. The team selected by BCCI is termed as Indian team which wears the Indian national flag and is considered to be the representative of the nation in international tournaments. The BCCI can also debar cricketers from playing in the exercise of its disciplinary powers. The petitioner contended that since BCCI can affect the fundamental rights of the players, who are considered to be the nation’s representatives, it should be deemed to be a State within Article 12.

Judgement

The Supreme Court observed that the government neither owns a substantial part of BCCI nor does it exercise any deep or pervasive control over its management and affairs. BCCI was not established by any statute and it does not function as an agency of the government. 

The Court held that the BCCI cannot be considered as a state under Article 12. Thus, if BCCI infringes the fundamental rights of any person, then a writ petition under Article 32 will not be maintainable as Article 32 can be invoked only if the state infringes the fundamental rights of any person. An action against the BCCI for the infringement of the fundamental rights would lie under Article 226 of the Constitution. 

Jitarani Udgata v. Union of India (2021)

Facts and issue 

In this case, the petitioner was an employee of the Gems and Jewellery Export Promotion Council (GJEPC) and her service was terminated by the Council. The petitioner challenged the termination notice on the ground of being violative of fundamental rights. 

The issue before the Delhi High Court was whether GJEPC could be considered a State under Article 12.

Judgment 

The Court observed that in modern times, the concept of welfare state has evolved to such an extent that almost every corporation and institution is subjected to the control of the state. Thus, while determining whether an institution or corporation can be considered as an instrumentality of the State, it is necessary to analyse whether the state exercises pervasive control over the corporation. Financial aid alone cannot be conclusive evidence of state control. In order to be considered as an agency of the state, the corporation must receive substantial financial aid and should be subjected to unusual state control. 

If the government provides such substantial financial aid to the institution that is sufficient to meet almost all of the institution’s expenditure, then it can be concluded that the institution is a State under Article 12.

The Court observed that GJEPC is merely an association of the exporters of gems and jewellery. It only places the collective problems of the exporters before the government. Thus, the Council does not play any role in the policy decisions of the government. 

Lastly, the Court observed that even though the government provides certain financial assistance to the Council, the aid is only granted for certain specific purposes. The government is responsible to monitor that the funds are only utilised for the purposes for which they are granted. Merely because the government has the power to inspect the financial books of the Council, it cannot be concluded that the government exercises pervasive control over the functioning of the Council. 

Thus, the Court held that GJEPC is not a State within the purview of Article 12 and dismissed the petition. 

Shiny George Ambat v. Union of India (2023)

Facts 

In this case, the petitioner was the Chief Finance Officer of the Indian Institute of Management (IIM), Kozhikode. He was dismissed from service because the institution administration found his performance to be unsatisfactory. Subsequently, the petitioner invoked the jurisdiction of the Kerala High Court under Article 226 and challenged the decision of IIM Kozhikode. 

Issue

The issue before the Kerala High Court was whether IIM Kozhikode could be considered as an instrumentality of the State. The Court had to determine whether the writ petition under Article 226 was maintainable. 

Judgment 

The Court observed that IIM Kozhikode is an autonomous body which is established under the Indian Institutes of Management Act, 2007. The institution neither enjoyed monopoly status nor was it the creation of any statute. The institution was earlier registered as a society and the 2007 Act merely brought the functioning of society under the scope of the Act. 

The Central Government exercises no effective control over the internal management of the institute. Even though the institute receives some financial aid from the Government, it cannot be termed substantial financial assistance, and the majority of the expenses of the institution are met by its own revenues. 

Lastly, the Court observed that there were no statutory rules prescribed by the government to regulate the conduct of the employees of the institution. The services of the employees were not regulated by the State. Even though the institution is required to present its accounts to the Auditor and Controller General of India and to obtain the Government’s prior approval before alienating any immovable property, the same could be regarded as a deep control by the state. 

The High Court thus concluded that IIM Kozhikode is not an instrumentality of the state and this does not fall within the purview of Article 12. The writ petition was dismissed by the Court.

What is ejusdem generis

Ejusdem generis is a constitutional law principle which implies ‘of the same kind’. It means that when general words are followed by specific words, the general words should be interpreted to include only such items and things as are enumerated by the specific words. However, if the court finds that the legislator intended to give a wider meaning to the statute, then it may give a broader interpretation to the general words. 

Ejusdem generis is a principle of interpretation which is recognized in many jurisdictions. Article 12 of the Indian Constitution has also been interpreted in light of this principle.

In the English case of Knott v. Blackburn (1944), the  Vagrancy Act, 1824 provided that if a person is found, for any unlawful purpose, in any ‘dwelling house, warehouse, coach-house, stable or outhouse or in any enclosed yard, garden or area, then such a person would be deemed to be a rogue under the law. The issue came before the King’s Bench whether railway siding would fall under the provisions of the Act. The Court applied the principle of ejusdem generis and held that the provision would only apply to places which were similar to a garden or a yard. 

The issue of applicability of the ejusdem generis principle to Article 12 came before the judiciary in the case of Ujjam Bai v. State of U.P. (1961). The petitioners stated that the expression ‘other authorities’ is an ordinary expression which succeeds specific words such as the central and state legislatures and the union and state executive. Thus, the expression ‘other authorities’ should be interpreted in light of the principle of ejusdem generis. However, Justice Ayyangar noted that there was no commonality between the authorities referred to under Article 12. 

Thus, the principle of ejusdem generis could not be applied to Article 12. The expression ‘other authority’ was interpreted in a wide sense and the Supreme Court held that it was a residuary expression which would include all the instrumentalities established by the State for the purpose of discharging its functions and implementing the laws enacted by it. 

What is ejusdem generis

Ejusdem generis is a constitutional law principle which implies ‘of the same kind’. It means that when general words are followed by specific words, the general words should be interpreted to include only such items and things as are enumerated by the specific words. However, if the court finds that the legislator intended to give a wider meaning to the statute, then it may give a broader interpretation to the general words. 

Ejusdem generis is a principle of interpretation which is recognized in many jurisdictions. Article 12 of the Indian Constitution has also been interpreted in light of this principle.

In the English case of Knott v. Blackburn (1944), the  Vagrancy Act, 1824 provided that if a person is found, for any unlawful purpose, in any ‘dwelling house, warehouse, coach-house, stable or outhouse or in any enclosed yard, garden or area, then such a person would be deemed to be a rogue under the law. The issue came before the King’s Bench whether railway siding would fall under the provisions of the Act. The Court applied the principle of ejusdem generis and held that the provision would only apply to places which were similar to a garden or a yard. 

The issue of applicability of the ejusdem generis principle to Article 12 came before the judiciary in the case of Ujjam Bai v. State of U.P. (1961). The petitioners stated that the expression ‘other authorities’ is an ordinary expression which succeeds specific words such as the central and state legislatures and the union and state executive. Thus, the expression ‘other authorities’ should be interpreted in light of the principle of ejusdem generis. However, Justice Ayyangar noted that there was no commonality between the authorities referred to under Article 12. 

Thus, the principle of ejusdem generis could not be applied to Article 12. The expression ‘other authority’ was interpreted in a wide sense and the Supreme Court held that it was a residuary expression which would include all the instrumentalities established by the State for the purpose of discharging its functions and implementing the laws enacted by it. 

Conclusion

The Constitution of India not only gives fundamental right to the citizens but also imposes the duty on the state to ensure that the fundamental rights are protected. The court through its interpretations has widened the scope of the term State to include a variety of statutory and non-statutory bodies under its umbrella.

The need to determine what falls within the meaning of state is, to assign the party on whom the duty to implement such right is placed upon. Not only that, the definition of state under Article 12 has several words which may not have definite meanings, words such as local authorities, control of government, other authorities, etc. and as seen in the above sections, the courts have, through the course of their judgements,  described the extent of the article by laying down a test and discussing the meaning of the terms.

Frequently Asked Questions (FAQs)

Does the definition of state under Article 12 apply to other Articles of the Constitution as well?

It is pertinent to note that Article 12 defines the state for the purpose of the enforcement of fundamental rights. Thus, it is necessary to interpret the expression liberally to ensure maximum protection for fundamental rights. However, the same liberal interpretation of the state could not be extended to other Articles of the Constitution. Thus, the expression ‘state’ used outside Article 12 may not be interpreted as liberally and inclusively as in the case of Article 12.

References 


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The Industrial Employment (Standing Orders) Act, 1946

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This article is written by Monesh Mehndiratta, of Graphic Era Hill University, Dehradun. This article is an overview of the Act and explains the provisions contained therein. It gives the features of the Act, its background, and the necessity of standing orders, and further provides the important case laws.  

It has been published by Rachit Garg.

Introduction

Have you ever met a worker employed in an industry where he has been paid low wages for long working hours with no time to rest?

It’s a shocking but bitter truth. These were the conditions of workers employed in the industry during the 18th century. Nobody can imagine the harsh conditions in which they had to work. The employer hired them on his terms and conditions and terminated them at any time without giving any reasons. Huge deductions were made from their low wages for small and petty mistakes, which left them with no money at all, as a result of which their conditions worsened and they lived a harsh and pathetic life. 

This grabbed the attention of the government, and so discussions and conferences were held on the issue of better working conditions for labourers and workers. This led to the enactment of a number of pieces of legislation in this regard that regulated the freedom of employers and provided better working conditions for  employees. One such piece of legislation is the Industrial Employment (Standing Orders) Act, 1946. The present article gives an overview of the Act and the provisions contained therein. It explains the objective and features of the Act and mentions the requirement of submitting and certifying the standing orders. 

Background of the Act

Earlier, the working conditions and conditions of employment were governed by the contracts between employer and employee. The terms and conditions were not specified in detail, which led to confusion and chaos. It often led to friction between them in an industry. In the 18th century, with the advent of trade unions and workers’ unions in the country, the problems of workers and their pathetic conditions were taken into consideration. The focus of the government was shifted to industrial peace and better working conditions for the employees. The settlement of labour problems became a major concern for the state. This is because it affected the productivity of industries and their role in the economy of the nation. 

This need to precisely define employment conditions became a burning topic of discussion in the Tripartite Labour Conferences, as a result of which the Industrial Employment (Standing Orders) Act, 1946, was enacted. The Act makes it compulsory for the industries governed by it to define the working conditions of employees, that they must be known to them, and that they must give consent to all the conditions. The aim is to regulate the conditions of employment, the appointment of employees, their discharge, disciplinary actions to be taken against them, if any, holidays, etc. It helped in creating uniformity in the conditions and a better working environment for the employees belonging to the same category of employment. 

Objectives of the Act

The following are the objectives of the Act:

  • One of the most important objectives of the Act is to provide provisions for standing orders setting out rules and regulations of the working conditions in the factories and industries covered under the Act. 
  • To make it compulsory for the employers to abide by the terms and conditions to provide better working conditions for the employees and their welfare. 
  • To promote harmonious relationship between employer-employee.
  • The Act also aims at promoting peace and harmony in an industry.  

Industries to which the Act does not apply

The Act aims at making it mandatory for employers to mention their working conditions to employees, deduce them in writing, and get the consent of the employees in order to prevent and reduce industrial disputes and chaos. It is applicable to all the industries established in India except the State of Jammu and Kashmir and having 100 or more employees in any month of the preceding twelve months. However, there are certain exceptions, i.e., industries to which the Act does not apply. These are:

  • Industries covered under the Bombay Industrial Relations Act, 1946
  • Industries covered under the M.P. Industrial Employment Standing Orders Act, 1946
  • According to Section 13B of the Act, certain industries that are regulated by the following rules and regulations are not covered under the Act:
    • The fundamental and supplementary rules,
    • The Civil Service (Classification, Control, and Appeal) Rules,
    • The Civil Services (Temporary Service) Rules,
    • The Revised Leave Rules,
    • The Civil Service Regulations,
    • The Civilians in Defence Service (Classification, Control and Appeal) Rules,
    • The Indian Railway Establishment Code,
    • Any other rules and regulations notified in the Official Gazette by the appropriate government. 

Features of the Act

The Act provides: 

  • Every employer whose industry is covered under the Act is required to make Standing Orders and submit them to the certifying authority. 
  • The certifying authority is generally the labour commissioner. 
  • The certifying officer is given the power to modify or add contents to the Standing Orders in order to certify it. 
  • Any group of employers in the same category of industries is allowed to submit a joint standing order. 
  • In order to make it easy for the employers, the government can set out a model standing order with which all the standing orders prepared by the employers must comply. 
  • The Act applies to industries with 100 or more employees. 
  • The certifying officers and authority have all the powers of a civil court for matters under the Act. 
  • An employer can be held liable for not submitting the standing order or contravening its provisions when finalised. Moreover, he can be penalised for the same. 
  • The appropriate government has the power to exempt any industry from the ambit of the Act by notification in the official gazette. 
  • The following are the certificate officers under the Act:
    • Labour Commissioner
    • Regional Labour Commissioner
    • Any other person appointed by the appropriate government to carry out the functions of a certificate officer under the Act. 

Meaning of standing orders

Standing orders set out rules and regulations for employees and working conditions in any employment relationship. For example, many online streaming platforms require their customers to subscribe and pay annual fees. This is a kind of standard order that sets out conditions for customers to enjoy online streaming. 

In the case of Saroj Kumar Ghosh v. Chairman, Orissa State (1969), it was observed that ‘termination of employment’ and superannuation cannot be equated. The former is a positive act by which one of the parties can end the employment of the other, while the latter is an automatic process. It was further observed that fixing the age for retirement, because of which the employment of a person may cease, does not violate the Act. 

If the standing order provides for a notice to be served on the employee to give him an opportunity to present his side and reasons against the dismissal order, it must be obeyed and treated as a condition precedent in order to make the dismissal order valid. This was held in the case of Lakshmiratan Cotton Mills v. Workmen (1975). In the case of Associated Cement Companies Ltd. v. T.C. Srivastava (1984), it was held that a second opportunity to appear and give reasons to the employee is not necessary, neither under ordinary land law nor under industrial law. It can be given only if it is mentioned in the standing order. But if no such opportunity is given, it does not vitiate any inquiry that is otherwise valid.

The issue in Freewheels India Ltd. v. State of Haryana (1984) pertains to the standing order, which provides that if an employee was absent for 8 consecutive days, he would be automatically terminated. An employee produced a medical certificate and requested to rejoin his duty after being on leave for eight consecutive days. The Punjab-Haryana High Court held that according to the standing order, his employment is terminated, but he has the option of converting his period of absence into leave without pay by giving an explanation for his absence. No such explanation was given by him, and the Court observed that a medical or fitness certificate cannot be considered an explanation in this regard. 

Reasonableness of standing order

According to Section 3 of the Act, the certifying officer or appellate authority is empowered to inquire into the impracticality, if any, while Section 4 gives them the power to adjudicate and decide the issue of fairness and reasonableness of the drafted standing order. 

In the case of Jeewanlal Ltd. v. Workmen (1972), the Supreme Court held that the present day tendency to fix the age of superannuation is usually 60 years unless and until the tribunal feels that the work is hazardous or needs hard work and the workmen might lose efficiency. Further, in the case of Associated Cement Co. Ltd. v. PD Vyas (1960), the Supreme Court modified the standing order related to misconduct due to strikes and their incitement in order to include illegal strikes within its ambit. This was considered reasonable and fair. 

Matters not covered by the schedule

In the case of Rohtak and Hisar District  v. State of Uttar Pradesh and others (1965), the Supreme Court held that the employer cannot be compelled to add a condition related to matters not included in the schedule in the standing order. However, provisions related to the rights and liabilities of employers and employees can be added, along with their enforcement.

In another case, Binoy Kumar Chatterjee v. M/S Jugantar Ltd. and Others (1983), the Supreme Court rejected the contention that since there was no sanction regarding the age of superannuation in the Schedule, the employee could be allowed to continue his service and employment. It was held that the retirement age, i.e., 60 years according to the standing order, is within the power of the employer and so the subsequent service that arose because of a fresh contract cannot be considered the continuation of the original employment.  

Certification process

The aim and objective of drafting a standing order and its certification are to regulate the terms and conditions of employment. The process provides that, after certification, the order will be binding on the employees in that employment. The Supreme Court in the case of Barauni Refinery Pragatisheel v. Indian Oil Corporation Ltd. (1990) held that no modification can be made to the standing orders when a settlement related to them is pending or in operation.

In another case, Hyderabad Allwyn Ltd. v. Add. Ind. Tribunal, Labour Court, Hyderabad (1990), employer had the discretion under the certified standing order to retire a workman at the age of 58 years or at the completion of 35 years of full service. This was held binding on all workers working in that employment, whether prior to the standing order or after its certification. In Uptron India Ltd. v. Shammi Bhan (1998), the Court held that any provision in the standing order related to automatic termination of employment without direct relation to production in an industry, is bad if no opportunity to be heard is given to the employee. 

Appeals

In the case of B.H.E.L. Employees’ Association v. Chief Labour Commissioner (1986), it was held that the petitioner cannot be made liable for any delay in transit when he used sufficient means and care while sending the required documents to the appellate authority, and so the appeal was directed to be decided on merits. Further, in the case of Badar Pur Power Engineers Association v. Deputy. Chief Labour Commissioner (1992), the Delhi High Court held that according to Section 6 of the Industrial Employment (Standing Orders) Act, 1946, the time period to file an appeal is within 30 days from the date on which copies of certified standing orders are sent to the employer. 

Operation of standing orders

According to Section 7 of the Act, if no appeal is made, the certified standing order can be implemented on the expiry of 30 days from the date on which copies were sent. However, if the appeal is made, then the standing order will come into operation within seven days from the day on which copies of the judgement of the appellate authority were sent. After coming into operation, the standing order is considered binding on the employer and employees. This was held in the case of Agra Electricity Supply Co. Ltd. v. Alladin (1970).

Section 8 further provides that a copy of a certified standing order must be filed in a register maintained for this purpose. It can also be accessed by any person upon request and submission of the prescribed fee. Section 9 gives directions for the employer to stick or paste the certified standing order on a board where the majority of employees can access it, along with all the departments where they are working. 

Modification of standing order

In Management Shahdara (Delhi) v. S.S. Railway Workers’ Union (1968), the standing order related to the termination of service of a permanent employee was modified. After the modification, the employer was required to give reasons for termination and communicate the same to the employee with a month’s notice in advance. This case provided the conditions for the modification of standing orders. An application for modification can be made:

  • Where there has been any change in the circumstances.
  • Where the last certified standing order resulted in inconvenience, hardship, etc.
  • Where a fact was not considered during the time of the certification process.
  • Where the applicant feels the need for modification and that it will be beneficial. 

Further, in the case of Indian Oil Corporation Ltd. v. Joint Chief Labour Commissioner (1989), the model standing order mentioned the age of retirement as 58 years, but the workmen demanded to modify it to 60 years. It was held that the authority has jurisdiction to modify such a standing order that is in conflict with the model standing order only on the condition that the modification must be fair and reasonable. In the case of Statesman Clerical Staff and Workers Union v. State of West Bengal (2002), a writ petition was filed with the High Court for a dispute related to the application of Standing Orders under Section 10 of the Act. However, it was not maintainable as it was observed that Section 10 itself provides an alternative remedy, and where there is such a remedy, the writ is not maintainable. 

Powers of certifying officer

Section 11 gives the powers of certifying authority under the Act. It provides that such authority will have all the powers of a civil court to:

  • Receive evidence,
  • Administer oath,
  • Enforce attendance of witnesses,
  • Compel discovery and production of documents

Interpretation of standing order

The Labour Court to which the question or dispute is referred will give parties an opportunity to be heard and then decide the issue. The function of such a court is limited to questions related to the application or interpretation of standing orders. It cannot address the issue of violations of rights and obligations under the standing orders. The Supreme Court in the case of Rajasthan State Road Transport Corporation v. Krishna Kant (1995) observed that the standing orders that are certified do not come under delegated or subordinate legislation under the Act. They provide the conditions of employment that are binding on both the employer and the employee. 

In another case, Verma V.K. v. Hindustan Machine Tools Ltd. (1998), it was held that the provision given under the standing order regarding deduction of wages due to absence from duty cannot be said to be a penalty. It was further observed that habitual late attendance amounts to misconduct under the order, and the management can take disciplinary action other than the deduction of wages. 

Important case laws

M/S Lakshmi Precision Screws Ltd. v. Ram Bhagat (2002)

Facts of the case

According to the standing order, if a workman is absent for 10 consecutive days, he will be deemed to have left the job. In this case, a notice was issued by the appellant after a workman was absent for 4 days, asking him to join the work within 48 hours. His representation was rejected, and he was removed from the work. 

Issues involved in the case

Whether the removal of a worker from his employment is valid and justified.

Judgement of the Court 

The Supreme Court held that the appellant acted in an arbitrary manner by issuing the notice to the workman in just 4 days, while the standing order gave the provision of 10 consecutive days of absence. Moreover, he was not given the opportunity to present his case and give reasons for his absence. It was also observed that the principles of natural justice are one of the requirements of standing orders and must be adhered to. The appeal of the appellant was thus dismissed. 

N.D.M.C. v. Mohd. Shamim (2003) 

Facts of the case

In this case, a person was employed as Khalasi in the electricity department of the New Delhi Municipal Committee (N.M.D.C.). There were no standing orders, and so the respondents pleaded that model standing orders were applicable to them. He was relieved from his duties and employment by an order from the petitioner without stating any reasons. As a result, he challenged the order on the ground that it violated the model standing order. 

Issues involved in the case

Whether the order violated the model standing order.

Judgement of the Court

The Industrial Tribunal in this case set aside the order passed by the petitioner, which was challenged in the High Court. It was observed that a permanent employee is one who is employed on a permanent basis and has completed the probationary period according to the model standing order. It was held by the High Court that the respondent does not fall into the category of a permanent employee. Further, it said that the tribunal had no jurisdiction to entertain this application. However, the Court considered that the respondent had died, and so it was held that 50% of the wages that he drew during the pendency of the case would not be recovered from his family and representatives. 

Transport Manager v. Vilas Sanu Deokar and Ors. (2003) 

Facts of the case

In this case, the respondents were employed as drivers by the petitioners. Because of some misconduct, they were charged, and an inquiry was conducted against them. During this time, the petitioner did not give them any work, and a ‘no duty order’ was issued against them. As a result, they filed a complaint on the ground that the order issued against them amounted to asuspension from work and that they must be given a subsistence allowance. The industrial court ordered the employer to pay them a subsistence allowance, which was challenged by them. 

Issues involved in the case

Whether the order given by the industrial court is correct or not.

Judgement of the Court

The Court observed that if badli workers are not given work by the employer and a no duty order is issued against them, it does not amount to a suspension from work. The contract of employment in this case comes into force on the day he is given employment, unlike in other cases where the worker has the vested right to secure work from the employer every day. Thus, it was held that if a badli worker is not given work, no question of subsistence allowance arises. 

Vijaya Bank v. Shyamal Kumar Lodh (2010)

Facts of the case

In this case, an employee of Vijaya Bank filed an application before the Labour Court constituted by the state government for the computation of a subsistence allowance.  The appellant, on the other hand, argued that the Labour Court has no jurisdiction as it is not constituted by the appropriate government, which is the Central Government. This objection was overruled by the Labour Court and upheld by the High Court. As a result, an appeal was filed with the Supreme Court. 

Issues involved in the case

Whether the appeal is maintainable and whether the objection raised by the appellant is valid. 

Judgement of the court

The Supreme Court observed that according to Section 10-A(2) of the Industrial Employment (Standing Orders) Act, 1946, a Labour Court has the jurisdiction to try and decide any issue or dispute related to subsistence allowance arising in the establishment situated within its local limits. Further, it was observed that though the employee filed an application with incorrect labels and wrong provisions, this does not affect the jurisdiction of the court. The court still has jurisdiction to try the matter. The appeal was thus dismissed. 

Conclusion

It can be concluded that the Act has been able to prevent and reduce the problems faced by employees and workmen. It regulated the working hours, disciplinary actions, and other conditions of employment. This reduced the freedom of employers to hire workers on any terms and conditions. These conditions were usually harsh, and the workers did not have any option but to accept them in order to earn a living. Due to the doctrine of laissez faire, the government could not intervene in such matters. But with the introduction of the concept of the welfare state, there has been a change in ideology. The aim of the government in this regard now is to secure good working conditions and a decent standard of living with the help of social security measures. 

However, with the enactment of the Act, the situation has changed, and there has been an improvement in the terms and conditions of employment. Workers now enjoy a friendly working environment with regulated wages and time for rest. The contract of employment signed by them contains all the clauses and provisions that provide conditions for their employment. It can be said that the Act is social legislation enacted for the welfare of the working class. With the help of such enactments, the government seeks to protect the interests of employees and undertakes to establish harmonious relations between employer and employee. Because of such ideologies and measures, one who provides work is no longer a master, and one who works is no longer a servant. There is a relationship between employer and employee. 

Frequently asked questions (FAQs)

Which industries does this Act apply to?

The Act applies to all industries where 100 or more workers are, or have been, employed on any day in the preceding 12 months. The ‘appropriate government’ has the power to extend the provisions of the Act to any industry having less than 100 workers. The government shall do so through a notification in The Gazette of India and give a notice at least two months prior to that particular industry. The Act’s provisions do not apply to certain classes of industries in states including Madhya Pradesh, Maharashtra, and Karnataka, as per the laws of the states.

What does the Act say about appealing against standing orders?

Any employer, worker, or trade union aggrieved by a standing order that is also approved by a certifying officer, can appeal to an ‘appellate authority’, regarding the grievance and request to modify the order.

How are standing orders certified under this Act?

In order to certify a standing order under the Act, the following procedure must be followed:

  • Five copies of a draft of standing order must be submitted by the employer to the Certifying Officer within six months from the date the Act becomes applicable on the industry.
  • The draft must contain provisions related to all the matters mentioned in the Schedule. 
  • This must be accompanied by another statement which contains the details of workers employed in that particular industry. 
  • The Act also states that where employers are in a similar industrial establishment they may submit a joint draft of a standing order. 

Is it mandatory for the employer to submit a standing order? 

Yes, the employer under the Act is under an obligation to draft and submit the standing order defining the rules with respect to matters given in the Schedule of the Act. If an employer fails to do so, he will be punished with a fine under the Act. 

Which magistrate can try an offence under Section 13 of the Act?

A Metropolitan Magistrate or a Judicial Magistrate of Second Class is authorised to try any case related to an offence under Section 13 of the Act. 

When can a standing order become valid? 

A standing order becomes valid when it is certified by the certifying authority and comes into operation on the expiration of 30 days from the date on which copies of the certified standing order were sent to the employer. 

What are the penalties for contravening the Act’s provisions?

The provision under Section 13, provides penalties for contravening its provisions. An employer who fails to submit a standing order according to the provisions of the Act would be liable to pay a fine of five thousand rupees, and if the failure continues, he would have to pay two hundred rupees per day. Further, it provides that an employer who fails to abide by the certified standing order would be liable to pay a fine of hundred rupees, and in case he continues to do so, he would have to pay twenty five rupees every day. 

References 


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All about crime and its theories

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This article has been written by Pranjal and edited by Shashwat Kaushik.

It has been published by Rachit Garg.

Introduction

Crime in society shows the failure of the government to maintain law and order but it’s not always the government that breaks the law. Laws are broken by individuals who are not abstract entities of society. The reason for committing a crime can be different for every individual; there can be differences in the sociological, economical, psychological and, to some extent, biological development of a person that become the cause of crime in society. Crime has been part of human civilisation since ancient times. Manu, the composer of Manusmriti, recognises some of the crimes, like assault, theft, robbery, false evidence, slander, criminal breach of trust, cheating, adultery and rape. Since then, the ambit of the word crime has reshaped into its modern form and has become a part of every transaction, whether it be social, economic, financial, domestic or intellectual.

What is a crime

Crime has become a part of human society. Generally, crime can be defined as an act made punishable by law. Legislatures pass several laws to regulate affairs and criminalise certain acts, omissions or commissions. Once such activities are criminalised, all those who indulge in them are said to be criminals. It certainly means that if ‘X’ is the offence that has been made punishable by the State at a certain point in time, then the person who is doing any act of such kind is a criminal. The state has prime responsibility for stating what is right or wrong in the country. What is wrong in one place cannot be illegal in another.

Whereas crime can also be understood as a conflict between individuals and society. Years ago, Aristotle said that “man is a social animal,” but while we move forward and see that every criminal activity is a result of a conflict between the will of the individual and the will of society, there has been a consistent pattern of deviant acts done by men, acts that are against the will of society. These acts proved that man has not yet learned to socialise with each other even at the present modern age, that man is not a social animal but a gregarious one, and that a perfectly social man is still in the making.

A very famous sociologist, Durkheim, suggested that a society without crime is not possible. In his view, the designation of criminality is how society defines it. If all of the members of society decide not to do any act that is considered criminal, the same society will develop new behaviours that are not considered criminal. Crime is a social fact and it contributes to the social dynamics of society. The only difference is that one sees criminality in an individual sense and observes the effect of that criminal activity on society, while the other sees criminality as a policy of public morality, which may or may not have anything to do with the effect on society. 

Although “criminality” and “crime” are both different terms, crime can have different scopes and meanings, but in general, an “offence or a crime is a violation of right, considered in reference to the evil tendency of such violation as regards to the community at large,” while criminality is a state of mind, a temperament, which for the purpose of law can be evidenced by an overt act or provable fact. So far, we have failed to defend our society against crime and our whole focus is now shifting towards defending it against criminals. Thus, there is no definite definition of crime; it is a very complex phenomenon, especially in this modern age, where changes occur across cultures, cultures change over time and behaviours that were not criminalised get criminalised (for example, the ban on alcohol in Bihar).

Theories of crime

As discussed above, crime can be understood as the intentional commission of an act that is deemed to be socially harmful and also prohibited under criminal law. It is also a dynamic concept, and its ambit keeps on changing with the development of new criminal behaviour. There are some criminological theories that are said to be the reasons for crime in society and can be classified into three approaches:

  1. Biological theory
  2. Sociological theory
  3. Psycological theory

Biological theory

In the 19th century, Italian prison psychiatrist Cesare Lombroso drew on the ideas of Charles Darwin and suggested that criminals were atavistic: and the reason for their turning into criminals was the recurrence of traits of their ancestors in subsequent generations. He suggested that their brains were mal-developed or not fully developed. In his review of prisoners, he found that they shared several common physical attributes, such as sloping foreheads and receding chins. In so doing, Lombroso suggested that involvement in crime was a product of biology and biological characteristics.

Lombroso’s work has long since fallen out of favour. However, biological theories have continued to develop. Some modern criminologists do consider genetics and pre-disposition (including testosterone and IQ level) but they look at the interplay between the biological and social conditions of the person rather than focusing on extremely seemingly natural genetic traits. The modern biological theory focuses on bio-social traits rather than Biological Factors.

Sociological theory

The sociological approaches show how external social factors contribute to the occurrence of crime in society. These approaches study the reasons for crime external to individuals, for instance, the society of the person, peer groups, and Family.

  1. Social disorganisation theory: This theory was the result of research conducted by sociologists at the University of Chicago in the 1920s and 1930s. Key proponents of this theory were Clifford R. Shaw and Henry D. McKay. They used spatial mapping and examined the residential locations of juveniles appearing in court and found the rate of delinquency is higher in areas with poor survival conditions, poor health facilities and socio-economic disorder. This led them to suggest that crime was part of neighbourhood dynamics and not due to individual actors.
  2. Labelling theory: “Once a criminal, always a criminal” The labelling theory suggests that applying a label, whether that means officially designating a youth as a “bad kid” or troublemaker” or a mere arrest and incarceration, can have long-term effects on a person. Contemporary research shows how labelling can have a profound impact on people and also on juveniles, which can affect their education and job opportunities and have repercussions that can lead to continued criminal behaviour.
  3. Right realism/rational choice theory: This approach by criminologists sees criminals as rational actors. The theory assumes that it is their logical judgement that results in crime.  Such logical judgement is made after calculating the cost and reward of it. They emphasise punishment as the best means to deter individuals from committing crimes.
  4. Left realism/relative deprivation: Left realism theory developed as a response to the influence of right response theory in government policy. Left realists see society as an unequal capitalistic society but they should not be confused with Marxist theorists. Left realists use the concept of relative deprivation to justify and support their view. They criticise sociologists for not taking crime seriously. John Lea and Jack Young did a victim survey in London with the aim of explaining the street crime committed by young people and found that the working class had a fear of street crime. Relative deprivation is a concept where a person feels deprived in relation to other people, and this condition can only be improved by gradual social change. Lea and Young explain that relative deprivation is not the only cause of crime; the real cause is the lethal combination of Relative deprivation and Individualism.
  5. Anomie theory/strain theory: The concept of Anomie has been given by Durkheim to show the breakage of cultural and social norms and it is often accompanied by various social changes. On the basis of the Anomie theory of Durkheim, a famous American sociologist, Robert K. Merton, suggested in the 1940s that crime is the result of an individual’s inability to achieve culturally valued goals (e.g., Material wealth, good living standard, Status). The reason for this inability can be the deprivation of a particular class of individuals from the mainstream of society, which causes frustration and can often lead to deviant and illegal behaviours. There are some similarities between Left Realism and Strain Theory; both talk about how the deprivation of class of people often becomes a reason for them to commit a crime.
  6. Social control theory: This theory does not talk about the causes of crime but instead focuses on why people obey the law. This theory was propounded by Travis Hirschi (1969), an American sociologist who gave the “social bond theory” and suggested that the likelihood of committing a crime is lower if a person has a strong bond with friends and family. The social bond of the person prevents him from doing delinquent acts. Their behaviour has been controlled by external factors. It is because the socialisation of the person has happened in an excellent way and the person has developed a strong attachment to their loved ones. Social control theory does not support the criminal justice system. It does not favour an increase in the police force or the imposition of hard penal punishment; rather, it emphasises the government’s responsibility to create policies that can develop a bond between individuals and society.

Psychological theory

The psychological theory of crime says that criminal behaviour is a result of individual differences in the thinking processes of human beings. Psychologists study the individual perspective and suggest that differences in thought processes cause differences in actions.  There are many psychological theories, but they all believe that it is the person’s thoughts and feelings that dictate their actions and control their behaviour. As such, problems in thinking can lead to criminal behaviour. There are four basic ideas when it comes to psychological theories of crime. These general assumptions are:

  1. Failure in psychological development: Some people commit crimes because they have not developed or grown like others. They have some sort of underdeveloped conscience.
  2. Learned behaviours of aggression and violence: If someone is surrounded by violence and aggression, they are more likely to become violent and aggressive because they have learned that those behaviours are okay.
  3. Inherent personality traits: There are some characteristics that criminals tend to share with each other, and some psychologists believe that certain personality traits predispose someone towards criminal behaviour.
  4. Relationship between criminality and mental illness: Some people with psychological disorders end up committing crimes. At the same time, this isn’t the case for all people with mental illness. There are higher than-standard percentages of criminals with mental illness.

All these psychological factors could have an effect on a criminal.

Conclusion

Now, it has become clear that crime is committed by individuals in society and has become an inseparable part of society. Crime is nothing but delinquent behaviour that can be seen at every point in the history of humankind. Theories associated with crime causation are not absolute; there are loops in every theory propounded and not everyone can be perfectly applied to understand the whole diverse concept of crime but these theories contributed a lot to understanding the concept of crime and its connection to society. As crime is a dynamic concept, the evolution of new criminal behaviours in individuals forces the government to regulate those behaviours by law. Several crimes, like white collar crimes, cybercrime, the Data Protection Bill, the Narcotic Drugs and Psychotropic Substances Act, 1985, etc., are evolving with the modernisation of society.

References

  1. https://www.jstor.org/stable/1172065
  2. https://scholarworks.wmich.edu/dissertations/2034/?utm_source=scholarworks.wmich.edu%2Fdissertations%2F2034&utm_medium=PDF&utm_campaign=PDFCoverPages
  3. http://www.sccjr.ac.uk/wp-content/uploads/2016/02/SCCJR-Causes-of-Crime.pdf
  4. https://studysites.sagepub.com/schram/study/materials/reference/90851_04.1r.pdf
  5. https://www.sagepub.com/sites/default/files/upm-binaries/29411_6.pdf
  6. https://study.sagepub.com/system/files/Left_Realism_Criminology.pdf
  7. https://study.com/academy/lesson/psychological-theories-of-crime-assumptions-weaknesses.html
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Doctrine of Res Judicata 

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Res Judicata
Image source - https://bit.ly/2ON887K

This article is written by Madhuri Pilania, a first-year student pursuing BBA.LLB from Symbiosis Law School, Noida; and Gautam Badlani, a student at Chanakya National Law University, Patna. This article deals with the Doctrine of Res Judicata.

It has been published by Rachit Garg.

Table of Contents

Introduction

How would you know if a person can file a suit again or not? In which conditions a person can file a suit again? So here is the answer to such questions in this article about Res Judicata under Section 11 of the Civil Procedure Code. 

Brief history and origin of Res Judicata

The concept of res judicata has evolved from the English Common Law System. The Common Law system has been derived from the overriding concept of judicial consistency. Res judicata took its place first in the Code of Civil Procedure from Common Law and then into the Indian Legal System. If either of the parties in a case approaches the same court for the judgment of the same issue then the suit will be struck by the doctrine of res judicata. Res judicata plays a role in administrative law as well. It helps to administer how efficiently the Judiciary works and disposes of the case. The doctrine of res judicata becomes applicable where there is more than one petition filed in the same or in some other court of India with the same parties and same facts. The parties involved in a case may file the same suit again just to harass the reputation of the opposite party and may do to get compensation twice. So to prevent such overloads and extra cases, the doctrine of res judicata plays a major role and importance in the Code of Civil Procedure.

Earlier res judicata was termed as Purva Nyaya or former judgment by the Hindu lawyers and Muslim jurists according to ancient Hindu Law. The countries of the Commonwealth and the European Continent have accepted that once the matter has been brought to trial once, it must not be tried again. The principle of res judicata is originated from the Seventh Amendment to the U.S. Constitution. It addresses the finality of judgments in a civil jury trial. Once a court has rendered a verdict in a civil trial, it cannot be changed by another court except there are very specific conditions. 

Res Judicata meaning

Res means “subject matter” and judicata means “adjudged” or decided and together it means “a matter adjudged”. 

In simpler words, the thing has been judged by the court, the issue before a court has already been decided by another court and between the same parties. Hence, the court will dismiss the case as it has been decided by another court. Res judicata applies to both civil and criminal legal systems. No suit which has been directly or indirectly tried in a former suit can be tried again.

Res Judicata example

  • ‘A’ sued ‘B’ as he didn’t pay rent. ‘B’ pleaded for the lessening of rent on the ground as the area of the land was less than the mentioned on the lease. The Court found that the area was greater than shown in the lease. The area was excess and the principles of res judicata will not be applied. 
  • In a case, ‘A’ new lawsuit was filed in which the defendants requested that the Court dismiss the lawsuit with a plea of res judicata. She was barred from bringing a claim of res judicata because her previous claim was dismissed for fraud. The Court said that the defence of res judicata must be proved by evidence. 

Principle of Res Judicata

The principle of res judicata seeks to promote the fair administration of justice and honesty and to prevent the law from abuse. The principle of res judicata applies when a litigant attempts to file a subsequent lawsuit on the same matter, after having received a judgment in a previous case involving the same parties. In many jurisdictions, this applies not only to the specific claims made in the first case but also to claims that could have been made during the same case.

Pre-requisites for Res Judicata

 Prerequisites of res judicata includes:

  •  A judicial decision by proficient court or tribunal,
  •  Final and binding and
  •  Any decision made on the merits
  •  A fair hearing 
  •  Earlier decision right or wrong is not relevant.  

Nature and Scope of Res Judicata

Res judicata includes two concepts of claim preclusion and issue preclusion. Issue preclusion is also known as collateral estoppel. Parties cannot sue each other again after the final judgment on the basis of merits has reached in civil litigation. For example, if a plaintiff wins or loses a case against the defendant in the case say A, he cannot probably sue the defendant again in case B based on the same facts and events. Not even in a different court with the same facts and events. Whereas in issue preclusion it prohibits the relitigation of issues of law that have already been determined by the judge as part of an earlier case. 

The scope has been decided in the case of Gulam Abbas v. State of Uttar Pradesh. I  this case the court incorporated the rules as evidence as a plea of an issue already tries in an earlier case. Judgment of this case was difficult as the judges should apply res judicata. It was decided that res judicata is not exhaustive and even if the matter is not directly covered under the provisions of the section it will be considered as a case of res judicata on general principles.   

Rationale

The principle of res judicata is founded upon the principles of justice, equity, and good conscience and it applies to various civil suits and criminal proceedings. The purpose of this principle was to inculcate finality into litigation. 

Failure to Apply

When a  court fails to apply Res Judicata and renders a divergent verdict on the same claim or issue and if the third court faces the same issue, it will apply a “last in time” rule. It gives effect to the later judgment and it does not matter about the result that came differently in the second time. This situation is typically the responsibility of the parties to the suit to bring the earlier case to the judge’s attention, and the judge must decide how to apply it, whether to recognize it in the first place.

Doctrine of Res Judicata

The double jeopardy provision of the Fifth Amendment to the U.S. Constitution protects people from being put on a second trial after the case has been judged. So the doctrine of res judicata addresses this issue and it bars any party to retry a judgment once it has been decided. 

Section 11 of the Civil Procedure Court incorporates the doctrine of res judicata also known as “ rule of conclusiveness of judgment”. The doctrine of res judicata has been explained in the case of Satyadhyan Ghosal v. Deorjin Debi. The judgment of the court was delivered by Das Gupta, J. An appeal was made by landlords who attained a decree for ejectment against the tenants who were Deorajin Debi and her minor son. However, they have not been yet able to get possession in execution soon after the decree was made. An application was made by the tenant under Section 28 of the Calcutta Thika Tenancy Act and alleged that they were the Thika tenants. This application was resisted by the landlords saying they were not Thika Tenants within the meaning of the Act. 

The tenants moved to the High Court of Calcutta under the Civil Procedure Code. The court applied the principle of res judicata to achieve the finality in litigation. The result came that the original court, as well as the higher court, can proceed for any future litigation on the basis that the previous decision was correct. 

The doctrine of res judicata says –

  • That no person should be disputed twice for the same reason.
  • It is the State that decides there should be an end to a litigation
  • A judicial decision must be accepted as the correct decision.

Res judicata under CPC 

Section 11 of the CPC states that once an issue has been finally decided by a court, it cannot be made the subject matter of another suit. The Courts are barred from entertaining suits in which the matter directly and substantially at issue has already been finally decided by another court in a previous suit. 

The 1976 Amendment Act expanded the scope of Section 11 and brought execution proceedings within the purview of this Act. The definition of res judicata provided under Section 11 is not exhaustive. 

The rationale of the principle of res judicata can be traced to three judicial maxims:

  • Nemo debet bis vexari pro una et eadem causa: This maxim means no person shall be subject to prosecution for the same action twice. This principle aims to protect an offender from frivolous litigation. The aim of the criminal justice system is reformation, not vexatious litigation against the offender. 
  • Res judicata pro veritate accipitur: A decision of a judicial authority must be duly accepted as correct. If the judicial decision is not respected as conclusive, then there will be indefinite litigation, which will lead to confusion and chaos. 
  • Interest republicae ut sit finis litium: The interest of state lies in an end to litigation. It is a part of the public policy of the country that the courts should not be overburdened by the piling up of repeated suits over the same subject matter.   

The jurisprudential significance of these three principles makes res judicata a universal concept. 

Directly and substantially in issue 

Merely because a matter was in issue in a former suit would not suffice to invoke the doctrine of res judicata. It is necessary that the matter be directly and substantially in issue in the previous suit. It should have been alleged by one party and admitted or denied by the other party. The admission or denial may be done expressly or by necessary implication.

The doctrine of res judicata applies where the issues in the two suits are identical in nature. Thus, even if the cause of action, object, and relief claimed in the two suits are distinct, the doctrine of res judicata can be invoked so long as the issues are identical. 

A suit may also involve certain subsidiary issues that are secondary to the primary issues. Those issues that are ancillary to the substantial and direct issues are known as collateral or incidental issues. The doctrine of res judicata cannot be invoked with respect to these collateral or incidental issues. 

Decision on merits 

The decision of a court will operate as res judicata only if it is given on the merits of the case. Thus, if a suit is dismissed due to an absence of jurisdiction or if a compromise decree is passed by the court, then such a dismissal or suit will not operate as res judicata. Similarly, if a suit is dismissed on procedural grounds such as misjoinder of parties or due to failure in furnishing security, then such a decision would not operate as res judicata. 

Constructive Res Judicata

The rule of constructive res judicata in Section 11 of the Civil Procedure Code is an artificial form of res judicata. It provides that if a plea has been taken by a party in a proceeding between him and the defendant he will not be permitted to take pleas against the same party in the following proceeding with reference to the same matter.  It is opposed to public policies on which the principle of res judicata is based. It would mean harassment and hardship to the defendant. The rule of constructive res judicata helps in raising the bar. Hence this rule is known as the rule of constructive res judicata which in reality is an aspect of augmentation of the general principles of res judicata. 

In the case of State of Uttar Pradesh v. Nawab Hussain, M was a sub-inspector and was dismissed from the service of D.I.G. he challenged the order of dismissal by filing a writ petition in the High Court. He said that he did not get a reasonable opportunity of being heard before the passing of the order. However, the argument was negatived and the petition was dismissed. He again filed a petition on the ground that he was appointed by the I.G.P. and had no power to dismiss him. The defendant argued that the suit was barred by constructive res judicata. However, the trial court, the first appellate court as well as the High Court held that the suit was not barred by the doctrine of res judicata. The Supreme Court held that the suit was barred by constructive res judicata as the plea was within the knowledge of the plaintiff, M and he could have taken this argument in his earlier suit. 

The doctrine of constructive res judicata has been incorporated in Explanation IV to Section 11 of the Code of Civil Procedure, 1908. Explanation IV provides that all those matters that ought to have been made a ground of defence or attached to a suit but were omitted, will also be deemed to have been directly or substantially in issue in such a suit. If a party fails to raise a reasonable ground of defence or attack during a suit, then such an issue is presumed to have been decided against the defaulting party. 

Every judicial action has its foundation in a cause of action. When the courts pronounce a final order, the cause of action is deemed extinguished. Thus, the same cause of action cannot be agitated again in order to claim relief that should have been claimed in the initial suit. The cause of action cannot survive the judgement and is deemed to have been merged in the judgement. 

Res Judicata and Estoppel

Estoppel means the principle which prevents a person from asserting something that is contrary to what is implied by a previous action. It deals in Section 115 to Section 117 of the Indian Evidence act. The rule of constructive res judicata is the rule of estoppel. In some areas the doctrine of res judicata differs from the doctrine of estoppel –

  • Estoppel flows from the act of parties whereas res judicata is the result of the decision of the court. 
  • Estoppel proceeds upon the doctrine of equity, a person has induced another to alter his position to his disadvantage can not turn around and take advantage of such alteration. In other words, res judicata bars multiplicity of suits and estoppel precludes multiplicity of representation of cases. 
  • Estoppel is a rule of evidence and is enough for the party whereas res judicata expels the jurisdiction of a court to try a case and prevents an enquiry at the threshold (in limine). 
  • Res judicata forbidden a person averring the same thing twice in the litigations and estoppel prevents the person from saying two opposite things at a time.
  • According to the principle of res judicata, it presumes the truth of decision in the former suit while the rule of estoppel precludes the party ton deny what he or she has once called truth. 
    • The object of res sub judice is to prevent two concurrent courts from entertaining the same suit simultaneously. This ensures that two parallel litigations are not carried on with respect to the same subject matter and the same relief. The doctrine of res judicata, on the other hand, is to prevent a subsequent suit from being filed over a subject matter that has already been decided by a competent court.

The doctrine of res subjudice is contained in Section 10 of the Code of Civil Procedure, 1908. It provides that a court shall not admit a suit whose subject matter is directly and substantially in issue in a previously instituted suit. 

Res judicata and Res Subjudice

The doctrine of res judicata and res subjudice varies in some factors – 

  • Res sub judice applies to a matter that is pending trial whereas res judicata applies to a matter adjudicated or arbitrated. 
  • Res subjudice prohibits the trial of a suit that is pending decision in a previous suit whereas res judicata prohibits the trial of a suit that has been decided in a former suit. 

Res judicata and suit withdrawal

The principle of res judicata will also apply where a suit has been withdrawn under Order 23, Rule 1  without the prior permission of the court. Order 23, Rule 1, gives the plaintiff the option to withdraw or abandon, at any time after the suit has been instituted, his claims. However, the liberty under Order 23 Rule 1 cannot be exercised for the purpose of instituting a fresh suit on the same subject matter after withdrawing the current suit. 

If any party withdraws the suit or abandons the claims, then it will be barred by the principle of res judicata from instituting a fresh suit with respect to the same claims.

However, if the party obtains the express permission of the court before withdrawing the claims and the court authorises the party to institute a fresh suit, then the same would not be barred by res judicata. 

Res judicata and Issue Estoppel

A person who has once been tried by a court of proficient jurisdiction for an offence and convicted of that offence cannot be tried again for the same offence as long as acquittal operates. This is given under Section 300(1) of the Civil Procedure Court. A party cannot proceed to reopen the case if the matter is finally decided by a competent or proficient court. This principle applies to criminal proceedings and it is not allowed in the stage of the same proceedings to try a person for an offence for which he has been acquitted. 

Res Judicata and Stare Decisis

Res judicata means a case that has already been decided or a matter settled by a decision or judgment. Res judicata and stare decisis both are related to matters of adjudication (arbitration). Stare decisis rests on legal principles whereas res judicata is based on the conclusiveness of judgment. Res judicata binds the parties while stare decisis operates between strangers and bins the courts to take a contrary view on the law already decided. Stare decisis is mostly about legal principle while res judicata relates to controversy. 

Res judicata and writ petition 

The doctrine of res judicata also applies to writ petitions filed under Articles 32 and 226. If this doctrine is not applied to writ petitions, then it would be open to parties to challenge every decided issue through a writ petition, and there would be no end to litigation. 

Thus, if any issue has been raised before and decided by the Supreme Court under Article 32, then the same issue cannot be raised by the same parties before the High Court under Article 226. Similarly, if any issue has been decided by the High Court under Article 226, then a writ petition under Article 32 concerning the same issue and involving the same parties would be barred by the doctrine of res judicata.  

However, if any writ petition is dismissed by the High Court on any procedural grounds due to the laches of the parties, then the same would not be sufficient to invoke res judicata, and such a dismissal order would not bar an alternate remedy under Article 32. Similarly, if a petition is dismissed in limine (at the very outset) and no speaking order is made by the court, then such a dismissal would not involve the bar of res judicata. 

Lastly, if a writ petition under Article 226 is withdrawn, then there would be no bar of res judicata as there would be no judgment on the merits of the case. 

Representative suit

A representative suit can be filed where numerous parties have a common interest and the court permits one or a few of them to collectively represent the interests of all the parties. The purpose of a representative suit is to avoid complex litigation. A representative suit can be filed under Order I Rule 8 of CPC. 

The decision made in a representative suit is binding on all the parties whose interests were represented in the suit. Explanation VI to Section 11 of the CPC states that where bona fide litigation is initiated in respect of a common private right or a public right, the outcome of such litigation would operate as res judicata on all persons having an interest in that right. It is not necessary that all the interested parties be named in the litigation. The only prerequisite is that the interests of these persons must have been represented in a bona fide manner by the institutor of the litigation. 

What is Res Judicata and Collateral Estoppel?

The doctrine of collateral estoppel says that an issue or case that has been litigated cannot be litigated again. For collateral estoppel to apply, the following requirements are required.

The issue in the first and second case is the same; The party against whom the doctrine is invoked had the full opportunity to litigate the issue; That party actually litigated the issue; The issue litigated must have been necessary to the final judgment.

The doctrine of res judicata bars the re-litigation of a claim that has already been litigated. There are four factors that must be satisfied for res judicata to apply:

  • A previous case in which the same claim was raised or could have been raised;
  • The judgment in the prior case involved the same parties or their privies;
  • The previous case was resolved by a final judgment on the merits;
  • The parties should have a fair opportunity to be heard.

For example, Abela sued John who is a supervisor for sexually harassing her and due to that, she had to quit her job. Abela provided the evidence by producing emails written by him. But John argued that the emails were not real but the judge said that the emails were real and could be submitted as evidence. After a few months after the trial, Abela filed a lawsuit against her employer as he did not take any action about the complaint. If the emails that were submitted by Abela, were not genuine the issue would fall under collateral estoppel. The issue of authenticity of the emails was already decided in the previous case and hence the court cannot redecide the issue.

Res Judicata landmark cases

Brobston v. Darby Borough 

In the case of Brobston v. Darby Borough,  Brobston was the plaintiff who was injured while driving a vehicle on a public highway in the Borough of Darby. Due to a transit company that was occupying the street, the steering wheel of the machine operating pulled by the driver’s hand. This resulted in injury to the complainant. A suit was filed against the street railway in the Court of Philadelphia to recover damages. It was proved that negligence was there on the part of both the parties also known as contributory negligence. The judgment was passed in favour of the defendant. Later action was again brought against the same defendant based on the same cause of action and against the same transit company. The judgment in the first proceeding was brought to the attention of the court. The plaintiff admitted that Brobston was the same person who was the plaintiff in the action brought earlier in Philadelphia. 

The action was brought for injuries occurring at the same place and the verdict of the court was in favour of the defendant. The facts and cause of action were the same but the only difference was the name of the defendant. The legal question involved was what are the rights of the plaintiff in this case. The court refused the facts which were proven by the counsel. Hence a nonsuit was entered because of the earlier judgment. The plaintiff should have been permitted to call the witness but no merit was seen. 

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These conditions were entered in the record to enable the Court to pass the legal question involved. The plaintiff had the right to recover under the circumstances. The counsel made an offer to prove the facts which the court had refused to do. A complaint was made that the plaintiff must have been permitted to call the witness to establish the matters. The facts were essential for the legal determination of liability before the court and consent of both the parties were needed.

Lowe v. Haggerty

In the case of Lowe v. Haggerty, a question was raised considering the effect of former judgment for defendant when he was sued by the guest. It was held that a suit was bar by the driver of the car which had been struck by any other person. There was no previous record that disclosed what was in the first proceeding. It was held that it was not possible to determine what was the issue involved in the previous suit. A different situation was there the court disposed of the record made by the parties. Nonsuit was not granted in this case and the plaintiff’s appeal was refused.

Henderson v. Henderson

Henderson v Henderson was a case in which the English Court confirmed that a party can not raise a claim in litigation which was raised in the previous suit. In 1808, two brothers Bethel and Jordan Henderson became business partners and they operated in both Bristol and Newfoundland. In 1817, their father died on a date that was not recorded. The wife of Jordan Henderson was appointed as the administrator and she brought legal proceedings in the Court. She also brought separate proceedings and claimed that he had failed to provide an account as executor of the will. The Court of Appeal held that there was no estoppel by convention and that the proceedings were an abuse under the rule in Henderson v Henderson. The Court of Appeal held that just one of Mr Johnson’s claims should be struck out for a reflective loss.

Johnson v. Gore Wood and Company

Johnson v Gore Wood and Company is a leading UK case in which the House of Lords decided the case relating to litigating issues that had already been determined in the previous litigation.  Mr Johnson was a director and majority shareholder in a lot of companies, including Westway Homes Limited and Gore Wood & Co were a firm of lawyers who acted for the companies and also occasionally worked for Mr Johnson in his personal capacity.

In 1998, Gore Wood was acting for the company and served notice to acquire land from a third party upon the lawyers for that third party. The third-party alleged that this was not service, and refused to convey the land. Legal proceedings followed and ultimately the company succeeded. However, because the third party was penurious and was funded by legal aid, the wood company was unable to regain the full amount of its losses and legal costs.

Accordingly, the wood company issued proceedings against Gore Wood for negligence and alleged that their losses would have been entirely prevented if Gore Wood had properly served the original notice on the third party instead of the third party’s lawyers. 

Gore Wood ultimately settled those claims, and the settlement agreement included two provisions that were later proved that they were important. Firstly, it included a clause stating that any amount which Mr Johnson wished to subsequently claim against Gore Wood in his personal capacity would be limited to an amount, excluding interest and costs. The confidentiality clause contained an exception which permitted the settlement agreement to be referred which Mr Johnson brought against Gore Wood.

Mr Johnson then issued proceedings against Gore Wood in his personal name, and Gore Wood made applications to dismiss some or all of the claims on the basis that it was an abuse of process to seek to litigate again the issues which had already been compromised in the agreement.

Res Judicata landmark cases in India

Daryao v. State of Uttar Pradesh

In the historic case of Daryao v. State of Uttar Pradesh, the doctrine of res judicata is of universal application was established. The Supreme Court of India placed the doctrine of res judicata on a still broader foundation. In this case, petitioners filed a writ petition in the High Court of Allahabad under Article 226 of the Constitution. But the suit was dismissed. Then they filed independent petitions in the Supreme Court under the writ jurisdiction of Article 32 of the Constitution. The defendants raised an objection regarding the petition by asserting that the prior decision of the High Court would be operated as res judicata to a petition under Article 32. The Supreme Court dismissed and disagreed with the petitions.

The court held that the rule of res judicata applies to a petition under Article 32 of the Constitution. If a petition is filed by the petitioner in the High Court under Article 226  of the Constitution and it is dismissed on the basis of merits, it would be operated as res judicata to bar a similar petition in the Supreme Court under Article 32 of the Constitution.

Devilal Modi vs. Sales Tax Officer

In the leading case of Devilal Modi vs. STO, B challenged the validity of an order of assessment under Article 226. The petition was dismissed on the basis of merits. The Supreme Court also dismissed the appeal that was made against the order on the basis of merits. B again filed another writ petition in the same High Court against the same order of assessment. This time the petition was dismissed by the High Court. The Supreme Court held that the petition was barred by the principle of res judicata. 

Avtar Singh v. Jagjit Singh

A peculiar problem arose in the case of Avtar Singh v. Jagjit Singh. A filed a civil suit, a contention regarding the arbitration of the Court was taken by B. The objection was sustained and the plaint was returned to the plaintiff for the presentation. The Revenue Court did not have any jurisdiction when A approached the Revenue Court so he returned the petition. Once again A filed a suit in the Civil Court. B contended that the suit was barred by the doctrine of res judicata. 

Mathura Prasad v. Dossabai N.B. Jeejeebhoy

In the case of  Mathura Prasad v. Dossibai N.B. Jeejeebhoy, it was held that res judicata constitutes between the parties to the previous case and cannot move again in collateral proceedings. Generally, a decision by a competent court operates as res judicata even on point of law. However, a question of law which is not related to facts that gives rise to the right, will not operate as res judicata. When the cause of action is different or the law is different, the decision has been already altered by an authority. The decision made will be declared as valid and res judicata will not operate in the subsequent proceeding. 

Exceptions to res judicata

Cases where Res Judicata does not apply

The principle of res judicata does not apply in the Writ of Habeas Corpus as far as High Courts are concerned. Article 32 gives power to the Supreme Court to issue writs and some power is given to High Courts under Article 226. The Courts need to give proper reasoning while applying the doctrine of res judicata. There are some exceptions to res judicata which allow the party to challenge the validity of the original judgment even outside the appeals. These exceptions are usually known as collateral attacks and are based on jurisdictional issues. It is not based on the wisdom of the earlier decision of the court but the authority to issue it. Res judicata may not be applicable when cases appear that they need relitigation. 

Pure question of law

The principle of res judicata does not apply to pure questions of law. For example, if any decision is rendered by a court of incompetent jurisdiction, a challenge to the jurisdiction of the court, being a pure question of law, would not be barred by res judicata. If a court does have the competent jurisdiction to try a case, then the decision rendered by it cannot be accorded finality by relying on the principle of res judicata. Thus, the jurisdiction of the court, being a pure question of law, can always be challenged in a subsequent suit. Similarly, if any other pure question of law is erroneously decided by a court, then such erroneous interpretation can be challenged in a subsequent suit, and it would not be barred by res judicata. 

Instalment Supply private limited vs. Union of India

In cases of income tax or sales tax, the doctrine of res judicata does not apply. It was discussed in the case of Instalment Supply private limited vs. Union of India where the Supreme Court held that assessment of each year is final for that year and it will not govern in the subsequent years. As it determines the tax only for that particular period. 

P. Bandhopadhya and others v. Union of India and others

In the case of P. Bandhopadhya and others v. Union of India and others, The appeal was made in the Bombay High Court and the appellants asserted that they will be entitled to receive an amount as damages. The Supreme Court bench held that the appellants were not entitled to receive damages which were pensionary benefits under the Pension Rules 1972. They were entitled to receive benefits as the case was barred by the principle of res judicata. 

In the case of Public Interest Litigation, the doctrine of res judicata does not apply. As the primary object of res judicata is to bring an end to litigation so there is no reason to extend the principle of public interest litigation. 

Dismissal of special leave petition in limine does not operate as res judicata between the parties. A fresh petition will not be filed either under Article 32 or under Article 226 of the Constitution.  

Beliram and Brothers v. Chaudhari Mohammed Afzal

In the case of Beliram and Brothers v. Chaudhari Mohammed Afzal, it was held that a minors suit cannot be brought by the guardian of the minors. However, it was brought in collaboration with the defendants and the decree obtained was by fraud within the Indian Evidence Act, 1872 and it will not operate res judicata. 

Jallur Venkata Seshayya v. Thadviconda Koteswara Rao

In the case of Jallur Venkata Seshayya vs. Thadviconda Koteswara Rao, a suit was filed in the Court so that certain temples are called public temples. A similar suit was dismissed by the Court two years ago and the plaintiff contended that it was negligence on the part of the plaintiffs (of the previous suit) and therefore the doctrine of res judicata can not be applied. However, the privy council said that the documents were suppressed which means that the plaintiff in the earlier suit had bona fide intention( something that is genuine and there is no intention to deceive). 

Can Res Judicata be waived?

In the case of P.C. Ray and Company Private Limited v. Union of India it was held that the plea of res judicata may be waived by a party to a proceeding. If a defendant does not raise the defence of res judicata then it will be waived. The principle of res judicata belongs to the procedure and either party can waive the plea of res judicata. The court can decline the question of res judicata on the ground that it has not been raised in the proceedings. 

How to defeat Res Judicata? 

The doctrine of res judicata would not apply to the case until the conditions are met. The essential condition for the applicability is that the succeeding suit or proceeding is founded on the same cause of action on which the former suit was founded. The principle of res judicata can be defeated when the party has filed the suit on a reasonable ground for example in case a public interest litigation has been filed there is no reason not to extend the doctrine of res judicata. The PIL has been filed with a bona fide intention and the litigation cannot end.

The only possibility for defeating res judicata statutorily has been provided under Section 44 of the Indian Evidence Act, 1872. This Section states that in a suit filed in reference to a particular subject matter, a prior judgement on the same subject matter would not be relevant if any of the parties was able to establish that the prior judgement was delivered by an incompetent court or was based on fraud and collusion. 

The principle contained in Section 44 of the Indian Evidence Act, 1872 has been incorporated in Section 38 of the Bharatiya Sakshya Bill, 2023. 

Res judicata as a concept under administrative law

Administrative Law deals with the structure, functions, and powers of the organs of administration. Administrative Law is also known as regulatory law and it is enforced by some type of government body. The law derives its power to enforce regulation from the government body. This applies to all public officials and agencies. An administrative body of government may rulemaking or enforce a specific agenda. It is technically considered as a branch of public law. The administrative authority is different from the legislative and judicial authority and necessitates the power to issue rules and regulations that are based on grant licenses and permits. The basic principles of this law are that no person shall be unheard or deprived of his right and a person cannot be a judge on his own in a case. 

Res judicata works as a working principle under administrative law and has been adopted from the Civil Procedure Code. 

Criticism to Res Judicata

Res judicata can also be applied to judgment that may be contrary to law. The doctrine of res judicata has been used for a long time and it encloses the general effect of one judgement upon another trial or proceeding. It includes matters not only those of bar but also those matters which should be litigated. For example, if a case has been dismissed on a specific ground by a court of law or equity and it is not deemed as a final judgment and technically res judicata will apply but it is not justified. If the chancellor has denied equitable relief on a principle but it was held by the court that the plaintiff is barred from proceeding as a legal remedy. Most of the equity cases involve res judicata and do not get beyond collateral estoppel. As it raises the difficulty of overlapping more than the failure to litigate issues. 

The title to real estate and the right to collect rent depended upon one and the same construction of a will. In an interpleader over the rents, A got the decree. B appealed, without supersedeas, and secured a reversal, but, before his appeal was decided, A had sued him in ejectment, invoking the decree, and recovered a judgment for the real estate. B did not appeal from this judgment, but, after the reversal of the decree, he sued A in ejectment for the land, relying upon the reversal.

Conclusion

The Doctrine of Res Judicata can be understood as something which restricts either party to “move the clock back” during the pendency of the proceedings. The extent of res judicata is wide and it includes a lot of things which even include Public Interest Litigations. This doctrine can be applied outside the Code of Civil Procedure and covers a lot of areas which are related to the society and people. The scope and the extent have widened with the passage of time and the Supreme Court has elongated the areas with its judgments.

Frequently Asked Question (FAQs)

Does constructive res judicata apply to execution proceedings?

Like res judicata, the doctrine of constructive res judicata also applied to execution proceedings. In an execution proceedings, if the judgement debtor fails to raise certain objections, then those objections are presumed to have been decided by him. The judgement debtor cannot raise the omitted objections in a subsequent suit. 

Does res judicata also apply between co-defendants and co-plaintiffs?

Sometimes, in order to decide the dispute between the plaintiff and the defendant, it is necessary to first resolve the conflict of interest between the co-plaintiff or co-defendants. The court has to then decide the question between the co-defendants in order to grant relief to the plaintiff. In such a case, the decision of the court will also operate as res judicata between the co-defendants. 

Similarly, if it is necessary to first resolve a conflict between the co-plaintiffs in order to determine the relief to which the plaintiffs are entitled, then the decision of the court with respect to the issue between the co-plaintiffs would also operate as res judicata.

Who is a proforma defendant?

A proforma defendant is one who is added to a suit merely because his presence is essential for a complete adjudication of the suit. He is merely a nominal party to the suit and no relief is claimed against him by the plaintiff. Since no relief is claimed against him and he does not have any interest in the suit, the decision of the court will not operate as res judicata on the proforma defendant. 

References 

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