Class action suits under Companies Act, 2013

March 21, 2014

(This article was written by Partha Prateem Ray Choudhury, a graduate of Dibrugarh University, during his internship with iPleaders)

Introduction

The introduction of class action suits is one of the major changes introduced by the Companies Act, 2013. The major objective behind the provision of class action suits is to safeguard the interests of the minority shareholders. So, class action suits are expected to play an important role to address numerous prejudicial and abusive conduct committed by the Board of Directors and other managerial personnel as it has been statutory recognized under the Companies Act, 2013.

What is class action suit?

A class action suit is a lawsuit where a group of people representing a common interest may approach the Tribunal to sue or be sued.

It is a procedural instrument that enables one or more plaintiffs to file and prosecute litigation on behalf of a larger group or class having common rights and grievances.

Who are entitled to file class action suits?

1) Members:

a) In case of a company having share capital, member or members:

not less than 100 members of the company or

not less than 10% of the total number of its members, whichever is less or

any member or members singly or jointly holding not less than 10% of the issued share capital of the company.

Provided that the applicants have paid all calls and other sums due on their shares.

b) In case of a company not having a share capital, member or members:

not less than 1/5^th of the total number of its members.

2) Depositors:

The number of depositors shall not be less than 100 or

not less than 10% of the total number of its depositors, whichever is less or

any depositor or depositors singly or jointly holding not less than 10% of the total value of outstanding deposits of the company.

Who may be sued through class action suits?

A class action suit may be filed against the following authorities:

A company or its directors for any fraudulent, unlawful or wrongful act or omission;

an auditor including audit firm of a company for any improper or misleading statement of particulars made in the audit report or for any unlawful or fraudulent conduct.

an expert or advisor or consultant for an incorrect or misleading statement made to the company.

Which reliefs may be claimed through class action suits?

Any member or depositor on behalf of such members or depositors may file a class action suit before the National Company Law Tribunal (NCLT) to:

A) restrain the company from committing an act which is beyond the powers of the articles or memorandum of association of the company;

B) restrain the company from committing breach of any provision of company’s memorandum or articles;

C) to declare a resolution as void for altering the memorandum or articles of the company or passed by suppression of the material facts or obtained by mis-statement to the members or depositors;

D) to restrain the company and its directors from acting on such resolutions;

E) restrain the company from committing any acts which is contrary to the provisions of the Act or any other law for the time being in force;

F) restrain the company from taking action contrary to any resolution passed by its members;

G) claim damages or compensation on demand any other suitable action against :

i) the company or its directors for any fraudulent, wrongful or unlawful act;

ii) an auditor including audit firm of a company for any improper or misleading statement of particulars made in the audit report or for any unlawful or fraudulent conduct.

iii) an expert or advisor or consultant for an incorrect or misleading statement made to the company.

Considerations by NCLT on receipt of an application [Section 245(4)]

On receipt of an application, the NCLT shall take into account:

whether the member or depositor has acted in good faith while making the application to seek an order;

any evidence which identifies the involvement of any person other than the directors or officers of the company on matters claimed as reliefs;

whether the cause of action could be pursued by the member or the depositor in his own right than through an order;

any evidence relating to the views of members or depositors who have no personal interest directly or indirectly in the matter;

whether the cause of action is an act or omission that is yet to occur or already occurred and in the circumstances is likely to be:

a) authorized by the company before it occurs or

b) ratified by the company after it occurs.

Publication of notice by NCLT on admission of a class action suit [Section 245(5)]:

The Tribunal shall-

I. serve a public notice on admission of the application to all the members or depositors of the class in prescribed manner;

II. all similar applications may be consolidated into a single application and a lead applicant be appointed who shall be in charge of the proceedings on the applicants side;

III. two class action application for the same cause of action shall not be allowed;

IV. cost or expenses connected with the class action suit will be paid by the company and any other persons responsible for the oppressive act.

Penalties for non-compliance with NCLT order

1) An order passed by the NCLT shall be binding on the company, members, depositors, auditors including audit form, consultant or advisor or any other person associated with the company [Section 245(6)]

2) A company, which fails to comply with the order of the NCLT under Section 245(7):

shall be punishable with a minimum fine of INR 5 lakh which may extend to INR 25 lakh and
every officer of the company who is in default shall be punishable with imprisonment which may extend to 3 years with fine of minimum INR 25 thousand which may extend up to INR 1 lakh.

3) If an application is found to be frivolous or vexatious, NCLT may reject the application by recording the reasons in writing and order the applicant to pay a compensation not exceeding INR 1 lakh to the opposite party [Section 245(8)].

4) No provision relating to class action suit under Section 245 of the new Act shall be applicable to banking company [Section 245(9)].

Conclusion

It may be concluded that class action suits will be an apt platform for members and depositors to raise their grievances against the management of a company including directors, advisors, consultants, auditors etc for acts or omission that is prejudicial, unlawful or wrongful to the interest of the company. Class action suits may be undertaken as a redressal tool by minority shareholders having common interest for promotion of transparent corporate governance.

Appointment and role of Independent Directors under Companies Act, 2013

Amartya Bag

March 19, 2014

(This article was written by Partha Prateem Ray Choudhury, a graduate of Dibrugarh University, during his internship with iPleaders)

Introduction

Independent Directors play a pivotal role in maintaining a transparent working environment in the corporate regime. The Companies Act, 1956 does not expressly provide for Independent Directors except Clause 49 of the listing agreement that is applicable on all listed companies which mandates the appointment of Independent Directors on the Board. Independent Directors constitute such category of Directors who are expected to have impartial and objective judgment for the proper functioning of the company. Section 149(4) of the Companies Act, 2013 provides for a special class of Directors called “Independent Directors”.

Who can become an Independent Director (ID)?

As per Section 149(6) of the Companies Act, 2013 an ID in relation to a company means a director other than a managing director or a whole-time director or a nominee director-

1) who is a person of integrity and possesses relevant expertise and experience;

2) who is not a promoter of the company or its holding, subsidiary or associate company;

ii) who is not related to promoters or directors in the company, its holding, subsidiary or associate company

3) who has no any pecuniary relationship with the company, its holding, subsidiary or associate company or their promoters or directors amounting to 2% or more of its gross turnover or total income or INR 50 lakh, whichever is lower during the 2 immediately preceding financial years or during the current financial year,

4) who neither himself nor any of his relatives-

i) holds the position of a Key Managerial Personnel (KMP) or has been an employee of the company or its holding, subsidiary or associate company in any of the 3 financial years immediately preceding the financial year in which he is proposed to be appointed;

ii) is an employee or proprietor or a partner in any of the 3 financial years immediately preceding the financial years in which he is proposed to be appointed of-

a) a firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company; or

b) any legal or a consulting firm that has any transaction with the company, its holding, subsidiary or associate company amounting to 10% or more of the gross turnover of such firm;

iii) holds together with his relatives 2% or more of the total voting power of the company

iv) or is a Chief Executive or Director of any non profit organization that receives 25% or more of its receipts from the company or holds 2% or more voting power of the company

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Which companies must appoint an Independent Director?

Section 149 (4) provides that at least 1/3^rd of total number of Directors shall be ID’s in case of:

i) Public listed companies having a paid up share capital of INR 100crores or more; or

ii)Public companies which have outstanding loans or borrowings or debentures or deposits exceeding INR 200 crores;

Qualifications, Remuneration and Tenure of IDs

A) An ID shall possess appropriate balance of skills, experience and knowledge in the fields of finance, law, management, sales, marketing, administration, research, corporate governance, technical operations and other disciplines related to company’s business

B) An ID shall not be entitled to any stock option and may receive remuneration by way of fee, reimbursement of expenses for participation in Board and other meetings and profit related commission as approved by the board of members (Sections 197 & 198).

C) An ID shall hold office for a period of 5 years consecutively on the Board of a company and is eligible for reappointment on passing of a special resolution by the company (Section 152).

D) No ID shall hold office for more than 2 consecutive terms. Provided he shall be eligible for reappointment after the expiration of 3 years of ceasing to be an ID. Further, such an ID shall not be appointed or associated with the company in any capacity either directly or indirectly in those three years.

How to select an Independent Director?

Section 150 provides the manner of selection of ID’s. It states that-

i) An ID may be selected from a databank containing names, addresses and qualifications of persons who are eligible and willing to act as ID’s maintained by any body, institute or association as prescribed by the Central Government [Section 150 (1)].

ii) The appointment of ID’s shall be approved by the company in the general meeting [Section 152(2)]

iii) The data bank [Section 150(1)] shall consist of the following particulars regarding persons willing and eligible to be an ID’s. Those are:-

DIN (Director Identification Number);
Name and surname in full;
PAN number;
Father’s / Spouse’s name (if married);
Gender;
Nationality;
Occupation;
Full address with PIN code (present and permanent);
Educational and professional qualifications;
Details of experience and expertise;
List of LLP’s in which he was a designated partner consisting of names of the LLP, nature of industry and duration with dates;
List of companies in which he was a director consisting of the name of the company, nature of industry, nature of directorship and duration with dates etc.

iv) Any person who is desirous of getting his name included in the data bank of ID’s shall make an application to the body, institute or association as notified by the Central government.

v) Such data bank posted on the website shall-

be publicly accessible in the specified website,
be substantially identical to the physical panel or data bank;
be presented in a format convenient for both printing and viewing online and
contain a link to obtain a software required to view/ print the particulars free of charge.

vi) The Central government has the power to prescribe the manner of selection of ID’s who fulfills the qualifications and requirements under section 149.

Code for Independent Directors

Guidelines for professional conduct:

1) To uphold ethical standards of integrity and probity;

2) To act objectively and constructively while exercising his duties;

3) To exercise his responsibility in a bonafide manner in the interest of the company;

4) To devote sufficient time to his professional obligations for informed and balanced decision making;

5) To avoid abusing his position to the detriment of the company and refrain from any action that would lead to the loss of his independence;

6) To assist the company in ensuring best corporate governance practices.

Functions of ID’s:

1) To bring an independent judgment on issues of strategy, performance, risk management, resources, key appointments and standards of conduct;

2) To scrutinize the performance of management in meeting agreed goals and objectives;

3) To safeguard the interests of all stakeholders, esp. minority shareholders;

4) To balance the conflicting interests of all stakeholders;

5) To moderate and arbitrate in the interest of the company as a whole.

Duties of ID’s:

1) To undertake appropriate induction and regularly update and refresh their skills, knowledge and familiarity with the company;

2) To strive to attend all meetings of the Board of Directors and of the Board Committees of which he is a member;

3) To keep themselves well informed about the company and the external environment under which it operates;

4) To ensure adequate deliberations are held before approving related party transactions and assure that the same are in the interest of the company;

5) To report concerns about unethical behaviour, actual or suspected fraud of the company’s code of conduct;

6) Not to disclose confidential information including commercial secrets, technologies, advertising and sales promotion plans etc. unless such disclosure is approved by Board or by law.

Manner of appointment of ID’s:

1) The appointment process of ID’s shall be independent from the company management where the Board ensures that there is appropriate balance of skills, experience and knowledge in the Board for proper and effective discharge of its functions.

2) The appointment of ID’s shall be approved at the meeting of the shareholders.

3) The explanatory statement attached to the notice of the meeting shall include a statement that the ID proposed to be appointed fulfills the conditions mentioned in the Act.

4) The appointment of ID’s shall be formalized through a letter of appointment which states the

term of appointment,
expectation of the Board from the Director and fiduciary duties and liabilities accompanying it,
code of business ethics that the company expects its Directors and employees to follow,
list of actions that the directors should not do while functioning as such in the company
remuneration, periodic fees, reimbursements of expenses for participating in the Board meetings etc.

5) The terms and conditions for appointment of ID’s shall be posted in the company’s website.

Resignation or removal of ID’s:

1) An ID who resigns or is removed from the Board shall be replaced by a new ID within a period of 180 days from the date of such resignation.

2) The resignation and removal of an ID shall be carried out in accordance with Sections 168 and 169 of the Act (168- resignation of Directors, 169- removal of Directors by the Board)

Conclusion:

The mandatory insertion of ID’s in specified classes of companies is highly anticipated to pave the way for transparent and accountable corporate governance. One of the core objectives of appointment of ID’s is to safeguard the interests of the minority shareholders. ID’s as a regulatory authority is vested with the sole responsibility to monitor the proper conduct and impartial judgment owing to the interests of the investors. Hence, inclusion of ID’s is expected to act as a strong instrument to check intended corporate scandals in the future.

(This article is based on Draft Rules as on 18 March, 2014)

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How to comply with Corporate Social Responsibility (CSR) rules under Companies Act, 2013 ?

Amartya Bag

March 15, 2014

(This article was written by Partha Prateem Ray Choudhury, a graduate of Dibrugarh University, during his internship with iPleaders)

Introduction:

The much-awaited Companies Act, 2013 brings in some emerging add-ons to the corporate regime. One of them is the introduction of Corporate Social Responsibility (hereinafter referred to as ‘CSR’). Generally, CSR refers to certain social initiatives undertaken by companies as an obligation towards the society. In other words, it is an instrument through which the Government aims to make business establishments socially responsible who yields huge profits from the society. The CSR rules will come into effect from 1^st April, 2014.

CSR provisions under the Companies Act, 2013:

Section 135 of the Companies Act, 2013 (hereinafter stated as ‘the Act’) makes provision for CSR. Those are:-

A) Section 135(1) specifies that the following companies have to constitute Corporate Social Responsibility Committees (CSRC), namely:-

i) Companies having net worth of INR 500 crores or more; or

ii) Companies having a turnover of INR 1000 crores or more; or

iii) Companies having a net profit of INR 5 crores or more during any financial year.

B) Every foreign company [Section 2(42)] having its branch or project office in India shall comply with the provisions of Section 135 of the Act.

Provided the net worth, turnover or net profit of a foreign company shall be computed in accordance with the balance sheet and profit and loss account of such company [Sections 381(1)(a) and 198(1)(a)[1]].

C) Every company which ceases to be a company under Section 135(1) for 3 consecutive financial years shall not be required to constitute a CSRC and comply with the provisions of sub-section (2) to (5) of Section 135

Functions of CSRC:

The CSRC shall comprise of minimum 3 or more Directors among whom one of them would be an Independent Director. Some of its important functions are:-

A) To specify and formulate a list of CSR projects which a company plans to undertake in the implementation year.

B) To specify modalities of execution in the chosen areas and determine implementation schedules for the same.

C) CSR projects of a company should focus on integrating business models with social and environmental priorities and processes in order to create a shared value.

D) The CSRC has to formulate and recommend a CSR policy containing activities as specified in Schedule VII which may be undertaken by the company as a part of their CSR initiatives.

E) The CSRC is entrusted to recommend expenses that would be incurred in CSR activities.

F) CSRC is also authorized to monitor the implementation of CSR policy for a company at regular intervals in a transparent way.

Obligations of the Board of Directors:

The Board of Directors (BoD) of a company has to comply with the following responsibilities:-

1) The BoD has to approve the Corporate Social Responsibility Policy (CSRP) recommended by the CSRC and disclose contents of such policy in its Report and company’s website.

2) To ensure that the activities as stated in CSRP are undertaken by the company.

3) The Board should ensure that the company spends at least 2% of the average net profits accumulated in the preceding three financial years for CSR activities.

N.B: The net profit includes accumulated profits before tax as per books of accounts in accordance with Section 198. But it does not include any profits arising from branches outside India.

4) The BoD has to implement CSRP’s through trusts or societies which are not set up by the company.

5) If a company fails to comply with the CSR initiatives in a financial year, the BoD has to provide an explanation for that.

6) The format of annual report on CSR activities has to be included in the Board’s report by qualifying companies.

Activities specified as CSR:

Schedule VII of the Act lays down certain activities that may be undertaken by a company as a part of their CSR initiatives. Those are:-

i) Elimination of extreme hunger and poverty.

ii) Advancement of education.

iii) Furtherance of gender equality and empowerment of women.

iv) Minimizing child mortality and improving maternal health.

v) Eradicating AIDS, malaria and other diseases.

vi) Ensuring environment sustainability.

vii) Enhancing vocational skills.

viii) Promoting social business projects.

Additional guidelines:

a) The taxation on CSR spending by a company is levied in accordance with the IT Act as notified by the Central Board on Direct Taxes (CBDT)

b) The projects undertaken as a part of CSR is excluded from normal business projects.

c) Any surplus arising from implementation of CSR programmes will not be a part of business projects.

d) A company may conduct its CSR programmes through Trusts, Societies or Section 8 companies operating in India which is not set up by the company itself.

e) CSR programmes undertaken in India will only be taken into consideration.

f) Company shall give preference to the local area of its operation for spending the amount earmarked for undertaking CSR activities.

g) Activities which are not exclusively for the benefit of the employees of the company and their family members shall only be considered as CSR activities.

Conclusion:

The introduction of CSR is certainly an important step towards ensuring social obligation for companies. It may be used as a useful tool by companies by undertaking certain programmes for the benefit of the society. Companies tend to be socially responsible towards the society through CSR initiatives. In other words, implementation of CSR policies is more of a moral pursuit of companies for social cause.

[1] Section 381(1) (a) – Preparation of balance sheet and profit and loss account of a foreign company containing prescribed particulars or annexures or documents.

Section 198(1)(a)- In computing the net profits of a company in any financial year-

i) credit shall be given for the bounties and subsidies received from any Government or public authority;

ii) credit shall not be given for profits by way of premium on shares or debentures of the company, profits on sale of forfeited shares of the company, profits of capital nature etc..

Powers and functions of National Financial Reporting Authority under Companies Act, 2013

Amartya Bag

March 13, 2014

(This article was written by Partha Prateem Ray Choudhury, a graduate of Dibrugarh University, during his internship with iPleaders)

Introduction

Quality of accounting and auditing plays a pivotal role in corporate governance. Under Section 210A of the Companies Act, 1956 an advisory Committee called ‘National Advisory Committee on Accounting Standards’ (NACAS) had been constituted by the Central Government to advise it on the formulation and laying down of accounting standards and auditing policies. As per the new Companies Act, 2013 NACAS will be replaced by National Financial Reporting Authority (NFRA). The National Financial Reporting Authority (NFRA) is a quasi- judicial body which regulates aspects related to accounting and auditing.

Provisions relating to NFRA under Companies Act, 2013

Section 132 of the Companies Act, 2013 (hereinafter referred to as ‘the Act’) provides for the constitution of NFRA by the Central Government to provide for matters relating to accounting and auditing.

Composition of NFRA

The NFRA shall consist of the following persons to be appointed by the Central Government, namely:-

1) A Chairperson who is an eminent person and has expertise in accounting, auditing, finance or law.

2) A maximum of 15 members comprising of

a) Member- Accounting,

b) Member- Auditing and

c) Member- Enforcement.

3) A representative of the Ministry of Corporate Affairs who is not below the rank of Joint Secretary or equivalent.

4) A representative of RBI, nominated by it and who is a member of RBI Board.

5) A representative of SEBI who is its Chairman or whole-time member and is nominated by SEBI.

6) A retired Chief Justice of a High Court or a person who had been a High Court Judge for not less than 5 years to be nominated by the central government.

7) President of the Institute of Chartered Accountants of India (ICAI).

The Chairperson and other members who are in full time employment of NFRA cannot be associated with any audit firm including related consultancy firms during the course of their employment and two years after the expiry of such appointment.

Structure of NFRA

NFRA shall consist of the following committees:-

i) Accounting Standards Committee,

ii) Auditing Standards Committee, and

iii) Enforcement Committee.

Powers and Functions of NFRA

A) NFRA may investigate either suo-motu or on a reference made by the Central Government in matters of professional misconduct committed by any member or Chartered Accountants firm.

B) To make recommendations to the Central Government on formulation and laying down of accounting standards and auditing policies for adoption by companies or their auditors.

C) To monitor and implement compliance relating to accounting standards and auditing policies as prescribed.

D) To oversee the quality of service of professions associated with compliance of accounting standards and auditing policies and suggest measures for improvement

E) NFRA shall have equivalent powers as a civil court under the Code of Civil Procedure, 1908. It can exercise the powers related to:-

i) discovery and production of books or other documents as specified by NFRA;

ii) summoning and enforcing the attendance of persons and examining them on oath;

iii) inspection of books, registers and other documents of any person;

iv) issuing commissions for examination of witness or other documents.

F) NFRA may impose penalties:

i) not less than one lakh rupees which may extend up to five times of the fees received in case of individuals and

ii) not less than ten lakh rupees which may extend up to ten times of the fees received in case of firms.

G) NFRA may consider an investigation based on monitoring and compliance review of auditor or audit firm upon recommendations by Member- Accounting and Member- Auditing.

H) NFRA shall receive a final report from the Committee on Enforcement on matters referred to them and issue a notice in writing to the investigated company or the professional on whom the action is proposed to be taken.

I) NFRA may conduct quality review of the following class of companies:-

a) Listed companies,

b) Unlisted companies having net worth or paid up capital of not less than 500 crores or annual turnover of not less than 1000 crores as on 31^st March of immediately preceding financial year,

c) Companies having securities listed outside India.

J) NFRA may debar any member or a firm from engaging himself or itself from practice as a member of the Institute of Chartered Accountants of India for a minimum period of six months which may extend upto ten years on account of proved misconduct.

K) NFRA shall have the power to accept or overrule clarifications received or objections raised in writing.

L) NFRA may investigate against the auditor or audit firms which conducts-

a) audit of 200 or more companies in a year,

b) audit of 20 or more listed companies

Functions of Committee on Accounting Standards:

a) To examine matters relating to formulation and laying down accounting standards for consideration by NFRA.

b) To recommend any new standard to ICAI which the Committee deems necessary to be examined for formulation.

c) To examine recommendations made by ICAI.

d) To recommend NFRA on the new or amended standards for its approval and to be forwarded to the Central Government to be notified as a part of accounting standards.

e) To scrutinize the financial statements of such companies as decided by the Committee on Accounting Standards or NFRA and to issue such reports to NFRA.

Functions of Committee on Auditing Standards:

Apart from the above similar functions as Committee on Accounting Standards, the Committee on Auditing Standards has to discharge the following functions:-

i) To examine matters relating to formulation and laying down auditing standards for consideration by NFRA.

ii) The Committee on Auditing Standards shall monitor the compliance of auditors, audit firms and the audit LLPs.

iii) It may investigate or review selected audit engagements including an individual or firm or an LLP.

iv) The Committee may evaluate the sufficiency of the quality control system of the auditor and manner of documentation and communication of that system by the auditor.

Functions of the Committee on Enforcement:

i) To investigate matters relating to professional or other misconduct committed by auditor, individual, firm or an LLP on recommendation by NFRA.

ii) The Committee on Enforcement shall complete its investigation within a period of 6 months on any matters referred to it. In case of delay, specific time extension has to be sought by providing reasonable justifications to NFRA.

Complaints:

Complaint filing authorities and procedures:

1) A complaint may be filed by or on behalf of any Central or State government which shall be authorized by persons holding the rank of Joint Secretary or equivalent and signed by person who is an Under Secretary or equivalent in the Central or State government.

2) A complaint filed by Reserve Bank of India (RBI) or Securities Exchange Bank of India (SEBI) or any Regulator, shall be authorized by an officer holding the post of Joint Secretary to the Government of India and signed by an officer holding the equivalent post of Under Secretary or equivalent to the Central or State Government.

3) A complaint filed by a company, bank or a firm shall be accompanied by a resolution duly passed by the Board of Directors of the company or bank or the partners of the firm specifically authorizing an officer or a person to make the complaint on behalf of the company, bank or firm.

4) Every complaint received by the Office of Committee of Enforcement shall be acknowledged by ordinary post together with an acknowledgement number.

Fees: Any complaint made by any person other than the Central or State government, company, statutory authority shall be accompanied by a fee drawn in the form of a demand draft on any bank in India in favour of the NFRA payable at a place where the Office of Committee on Enforcement is situated.

Registration of Complaints:

1) The Member-Enforcement or an officer authorized by it shall endorse on every complaint the date on which it is received and shall sign on each such endorsement.

2) The Member-Enforcement shall scrutinize such received endorsements.

3) After scrutiny, if the complaint is in proper order, it shall be duly registered and a unique reference number shall be allotted which has to be quoted in all future correspondence.

Withdrawal of Complaint: On receipt of any letter of withdrawal, the Member- Enforcement shall place it before the Committee on Enforcement and if it is of the view that if the circumstances so warrant, it may permit the withdrawal at any stage.

Investigation procedures of Complaints:

A) The Member- Enforcement shall within 60 days after receipt of complaint shall:-

1) in case of complaint against an individual professional, send particulars of acts of commission or a copy of the complaint to the Professional at his professional address.

2) in case of complaints against a firm, send particulars of the acts of commission to the firm at the address of its head office as entered last in the Registrars of Offices and firms maintained by ICAI.

B) A member whose name is disclosed by the firm shall be responsible for answering the complaint

C) A member who has been informed about a complaint filed against him shall within 21 days and not exceeding 30 days of the service of complaint; forward a written statement in his defence to the Member- Enforcement.

D) On receipt of the written statement, the Member- Enforcement shall send a copy to the complainant. The complainant shall within 21 days not exceeding 30 days forward to the Member- Enforcement his rejoinder on the written statement.

E) On perusal of the complaint, the respondent’s written statement and rejoinder of the complainant, the Member- Enforcement may call for additional particulars or documents connected therewith from the respondent or complainant as he may consider appropriate.

Mode of sending notice:

Every notice or letter issued by the Member Enforcement shall be sent to the member or the firm by registered post with acknowledgement due or by speed post

Additional guidelines

a) The headquarters of NFRA shall be at New Delhi,

b) The Central Government may constitute and Appellate Authority consisting of a Chairperson and not more than two other members for hearing appeals arising out of orders of NFRA.

c) Any person aggrieved by any order of NFRA may prefer an appeal to such Appellate Authority constituted by the Central Government.

d) The qualifications for appointment, manner of selection and terms of service of the Chairperson and other members for appointment to the Appellate Authority are to be followed by NFRA as prescribed.

e) The Central Government may appoint a secretary or other employees for the smooth functioning of NFRA, if it deems necessary.

f) The NFRA may be caused to maintain such books of accounts prescribed by the Central Government in consultation with the Comptroller and Auditor General of India (CAG).

g) The accounts of NFRA must be audited and certified by the CAG together with the audit report and forwarded to the Central Government by NFRA.

h) NFRA has to prepare an annual report stating a list of activities undertaken in a financial year and forward a copy to the Central Government. Thereafter the audit and annual report given by CAG has to be laid before each house of Parliament.

Conclusion

The introduction of NFRA is an important step to build up a transparent mechanism for accounting, auditing and financial reporting. Unlike NACAS, NFRA will not be just being an advisory body; instead it has been empowered to regulate accounting standards and auditing policies along with powers to investigate certain matters related to professional misconduct by chartered accountants in corporate bodies. Therefore, it has a huge role to play in the field of financial reporting for effective corporate governance.

(The article has been written based on the Draft Rules published by the MCA, as on 10 March, 2014)

How to establish a One Person Company ?

Amartya Bag

March 7, 2014

This article was written by Partha Prateem Ray Choudhury, a graduate of Centre for Juridical Studies, Dibrugarh University, during his internship with iPleaders.

Introduction

The new Companies Act, 2013 is expected to simplify business in today’s dynamic corporate environment. Further, the Act has been compressed to 470 sections, 29 chapters and 7 schedules. It also aims to make business more transparent and accountable for the investors in the forthcoming days. The Act explores certain evolving areas of business such as inclusion of One Person Company, Key Managerial Personnel, Secretarial Audit, etc. Here I am going to explore a new form of business structure which has been allowed under the 2013 Act, known as One Person Company.

One Person Company

Individual owners often face the difficulty to borne unlimited liability in the event of losses incurred while doing business. So, they require an alternative to carry on their business smoothly. The idea of One Person Company was first mooted by JJ Irani Committee in 2005. The Act makes provision for One Person Company ( hereinafter stated as ‘OPC’ ) under Section 3(1). OPC refers to such a company which has only one member and can work with minimum one Director. The letters ‘OPC’ has to be suffixed after the name of a company so as to distinguish it from other companies. An OPC can avail the benefits of a private limited company as provided in the Companies Act, 1956.

Incorporation

An OPC may be formed by a person for the attainment of any lawful object. Some of the important features of incorporation are as follows:-

1) An OPC may be formed only by an individual who is a citizen of India as a private limited company.

2) The Memorandum of Association ( hereinafter referred to as ‘MoA’) of the OPC should name a person as a nominee who holds the authority to run the business in the event of subscriber’s death.

3) The name of the nominee should be inserted only after obtaining his written consent.

4) The MoA and Articles of Association ( hereinafter stated as ‘AoA’ ) of the OPC has to be filed with the Registrar of Companies along with the written consent of the nominee for incorporation.

5) The word “One Person Company” has to be written in brackets after the name of the company.

6) An OPC may alter the name of the member in its MoA by providing prior notice or on receipt of alteration request from the member. Thereafter, the OPC must file such alteration to the Registrar of Companies.

Board of Directors and Board Meetings:

An OPC must have a minimum of one Director. It can be extended to a maximum of 15 by passing a special resolution as in case of any other company.

An OPC having only one Director has to pass and enter all resolutions in the minutes-book and signed and dated by the member. Such date shall be taken as the date of meeting of the OPC. An OPC is not required to hold annual general meeting as in case of other private limited companies [Section 96(1)]. But it has to conduct atleast one meeting in each half of the calendar year having a gap of minimum 90 days.

Financial Statements

The financial statements of an OPC can be signed by only one Director. Further, the financial statements has to be duly filed with the Registrar by the member of the OPC with all the necessary documents within 3 months of closure of financial year. However, cash flow statements is not a mandatory part of financial statements. The annual return of an OPC has to signed by a Company Secretary. In his absence, it may be signed by the Director as per Section 92 of the Act.

Differences between an OPC and sole proprietorship

Although an OPC seems to be on the same line as sole proprietorship, but there exists a thin line of differences between them. Those are:-

a) An OPC has a separate legal status as provided by the Companies Act, 2013 although it is operated by only one person. On the other hand, a sole proprietorship lacks such sanction.

b) An OPC can avail limited liability unlike a sole proprietor in the event of incurring losses.

c) An OPC can avail the benefits of a private limited company whereas sole proprietorship has no such benefits.

Guidelines of OPC under the Draft Rules of Companies Act, 2013

A) Only a natural person will be allowed to incorporate an OPC.

B) A resident of India who has been residing for not less than one hundred and eighty two days in the preceding financial year can incorporate an OPC. Only one person can be a nominee for the sole member of the OPC.

C) Only five OPC’s can be incorporated by a person.

D) A person being a member of an OPC is also entitled to be a nominee in another OPC where he is a member.

E) The nominee may withdraw his consent by giving a notice in writing to the sole member of the OPC. Moreover, the sole member must nominate another person within 15 days of receipt of such notice of withdrawal.

F) The OPC has to intimate such alteration of withdrawal of consent of the nominee as well as the nomination of the new person within thirty days of receipt of withdrawal notice to the Registrar of Companies.

G) If the sole member of the OPC becomes incapable to contract due to death, the nominee gets the authority to run the company. Further, the new member has to nominate another person as the nominee with his prior written consent that has to be filed with the Registrar of Companies.

H) An OPC which contravenes the above rules may be penalized where the sole member or any other Officer of the OPC may be subjected to a fine that may extend to five thousand rupees.

Conversion of OPC into a public company or private company:

Section 469 (1) of the Companies Act, 2013 provides that-

1) A company shall cease to be an OPC if its paid up share capital exceeds 50 lakh INR and average annual turnover exceeds 2 crore INR during the preceding 3 consecutive financial years .

2) Such OPC has to convert itself into either a private company with a minimum of 2 members and 2 directors or a public company with a minimum of 7 members and 3 directors within:

i) 6months from the date on which it’s paid up shares exceeds 50 lakh INR or

ii) last day of the relevant period when its average annual turnover exceeds 2 crore INR or

iii) close of the financial year during which its balance sheet total exceeds 1 crore INR.

3) The OPC shall alter the memorandum and articles of association by an ordinary or special resolution to give effect to the conversion [(Section122 (3)].

4) The OPC has to notify to the Registrar within 30 days that it has ceased to be an OPC and has to convert itself into a private or public company as its paid up share capital and average annual turnover has crossed the threshold limit.

Conclusion

The OPC model is an evolving concept in India although it has been working successfully in developed nations since a long time. The provision of OPC in the Companies Act is expected to cater to the much-awaited needs of solo entrepreneurs who generally faces the problem of unlimited liability in the event of incurring losses. The enforcement of an OPC would encourage individual establishments to grow more as an organized business in the form of a private limited company. Moreover, operational burden of compliance has also been lessened to a large extent as an OPC. Hence, an OPC can be stated to be a useful model for individuals to commence a structured business having limited liability with the option to raise funds from the investors like any other company.

India Inclusive Innovation Fund to promote innovation amongst MSMEs

Amartya Bag

March 7, 2014

This article was written by Anumeha Karnatak of NLS Bangalore while she was interning with iPleaders.

Background

Realising the importance of innovation for economic prosperity of any nation in the 21^st century, the then President declared 2010 as the ‘Decade of Innovation’. To carry forward the agenda, the Prime Minister approved the formation of the National Innovation Council under the chairmanship of Sam Pitroda who is also the adviser to the PM on Public Information Infrastructure and Innovations.

For the last couple of years, Indian government has focused on ‘inclusive economic growth’ that seeks to ensure that the fruits of higher growth are shared by every section of people on the economic ladder. Such a growth tends to couple itself with development. The main rationale behind setting up of the NIC is to facilitate co-operation and collaboration among different stakeholders such as businessmen, NGOs, professionals, government etc. engaged in innovative activities. Recently, the NIC in collaboration with the Ministry of Micro, Small and Medium Enterprises (MSME) announced the establishment of India Inclusive Innovation Fund which seeks to finance innovations which will directly address the concerns of the economically backward and challenged sections of the society.

The fund is to be registered under the SEBI’s Alternative Investment Fund Category I guidelines with an initial outlay of Rs. 500 crores. 20% of this amount will be funded by the Ministry of MSME while the balance amount will come from banks, insurance companies and financial institutions. The ultimate aim of the fund is to increase fund corpus to Rs. 5000 crores in 2 years. The fund seeks to invest not just in enterprises focused on inclusive innovation (Bottom of the Pyramid focused companies) but also in other funds that provide financial support to these enterprises. Therefore the investee base is going to be very wide.

Following are some of the objectives that the fund seeks to achieve:

To focus on the disadvantaged sections of the society: The fund seeks to provide support to enterprises engaged in developing innovative solutions for customers belonging to the lower strata of society.

To combine social and commercial returns: The fund will not compromise with the profitability of the enterprises. They will still be able to earn modest returns. However, the social impact of their investments will also be significant.

To promote generation of employment: The fund also promises to provide support to enterprises that employ the poor citizens of the country.

To help establish a model for Winder Inclusive Innovation Funding: By providing monetory support to the Bottom of the Pyramid (BOP) focused enterprises, the fund will set an example for other enterprises also to engage in innovative and socially meaningful projects.

Selection Criteria:

The fund will cater to the needs of Indian entities only. Any individual, firm or institution can apply for the fund. The criteria used in selection of applicants include:

Technical potential to commercialise the idea, process, product, patent etc and take it to the market.
Ability to bring together skill, professional and organisational potential in the enterprise.
Fund is open to entities at the Bottom of the Pyramid (BOP). Although ‘BOP’ is not defined anywhere, it is by implication likely to include micro enterprises.

All applications will be examined by a committee comprising representatives from various Ministries of finance, science and technology, civil society groups etc. The entire process will be supervised and mediated by the NIC.

To widen its base, the fund will seek potential investees from the following 4 sources:

Open broadcast. Because of sensational publicity and outreach activities, the fund will attract many targeted enterprises.
Angel and venture capital networks with established investments in various SMEs and other institutionalised social-venture interested communities.
Community organisations such as NGOs and NPOs.
Other funds.

In order to de-risk investee enterprises, the fund will set up a network of mentors who will provide the necessary guidance to innovators and entrepreneurs so that the correct balance between profits and social acheivements is struck. The fund also seeks to launch an incubation programme to train entrepreneurs in various domains such as finance, marketing and operations.

Overall benefits:

It will be able to make sure that the benefits of growth are able to reach the disadvantaged sections of the society.
Boost to enterprises indulging in socially beneficial innovative technology.
It will be able to provide innovative solutions to the problems of the people belonging to lower strata of the society.
It will ensure that profitability of enterprises is not compromised with.

FDA Safety and Innovation Act and its effects on Indian drug manufacturers

Amartya Bag

February 28, 2014

This article was written by Anumeha Karnatak of NLS Bangalore while she was interning with iPleaders.

The US Food and Drug Administration (USFDA) has launched a clampdown on Indian drug and pharmaceutical manufacturers not complying with the Good Manufacturing Practices (GMPs). These GMPs are general guidelines concerned with the manufacture and licensing of pharmaceutical products and are enforced by the USFDA. The agency has come down heavily on certain drug manufacturing units thanks to the FDA Safety and Innovation Act passed last year, which mandates the FDA to inspect both the domestic and the foreign drug manufacturing facilities. Warning letters have been served to many Indian companies, in addition to imposition of bans and penalties that has resulted in a deep slump in the prices of shares of such companies. Shortage in availability of low-priced generic drugs has also been reported.

In January 2012, a consent decree was issued against Ranbaxy. The decree contains, inter alia, necessary provisions in order to ensure compliance with the standard manufacturing practices or the GMPs. Recently in January, action was taken against Ranbaxy’s Toansa facility. Some of the violations that the facility has been accused of, include failure to retest raw material, intermediate goods and finished Active Pharmaceautical Ingredients (APIs) after these items showed fundamental defects during the first testing; and consequent failure to report those defects. Under the decree issued, Ranbaxy is prohibited from distributing in the US the pharmaceutical products manufactured using API from Toansa; manufacturing API at its Toansa facility for FDA regulated products; exporting API from Toansa to the US for any purpose; and supplying API from Toansa to other firms, including other facilities of Ranbaxy that make products for American consumers. Ranbaxy is now required to hire a third-party expert to carefully and thoroughly inspect the facility and submit a report to the USFDA certifying that the material used and methods involved in production conform to the GMPs. Other Ranbaxy facilities against which similar decrees have been issued in the past include those in Poanta Sahib, Dewas and Mohali. Similarly, an import alert has been imposed on Wockhordt Ltd.’s Chikalthana facility. Such an alert results in detention of goods at the dock if they fail to conform to certain norms, in this case the GMPs. Other firms that have been served notices include Surat-based Amrutam Life Care that allegedly indulged in illegal sale of drugs in the form of dietary supplements and ayurvedic medicines used for curing diabetes. According to the USFDA, the firm used certain ‘unapproved’ APIs in manufacturing different products.

The Indian government seems to have learnt a big lesson from sudden increase in the number of drug manufacturing companies facing severe actions by the USFDA in cases involving non-compliance with the GMPs. The Drug Controller General of India, inspired by the US story, is contemplating over initiating such a system of checks and balances. “If foreign regulators can make surprise checks on Indian pharma companies, we can do the same for both domestic as well as foreign drug makers”, said GN Singh, the Drug Controller General of India. We hope that in time to come, India is able to emulate the same level of vigilance as showed by the US.

Appreciating evidence in a sexual harassment complaints inquiry

Amartya Bag

February 28, 2014

The possibility of abuse of the complaints committee mechanism under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 by unscrupulous employees is a worrisome issue for the members of the ICC. It is important for the ICC to understand what evidence should be taken into account while adjudging the complaints.

The Equal Employment Opportunity Commission in the USA has laid down a guideline on appreciating evidence of sexual harassment complaints. The Internal Complaints Committee may take reference of the same to come to a decision, especially when there is no prima facie evidence to prove or disprove the allegation. The ICC can take reference of the following points:

Only unwelcome conduct of sexual harassment is covered under the law. The word unwelcome need to be construed “in the sense that the employee did not solicit or incite it, and in the sense that the employee regarded the conduct as undesirable or offensive.”
In case there is conflicting evidence with regard to the question of welcomeness, the ICC should look “at the record as a whole and at the totality of circumstances . . . .”
In case the ICC has doubts on credibility of the parties or have sufficient indication that there is a possibility of some indication of welcomeness, the ICC should take into account whether the complainant made a contemporaneous complaint or protest.
When a contemporaneous complaint or protest has been made, the claim of the complainant will be considerably strengthened and also provide persuasive evidence that the sexual harassment in fact occurred as alleged.
During the inquiry, the ICC should take into account the detailed evidence of the circumstances and nature of any such complaints or protests. It will be relevant fact to take into account whether the complainant has reported the incident to the higher management, co-workers or others immediately after the incident.
In case there was a prior consensual relationship between the parties or the accused may have some reasons to believe that the advances will be welcomed, it will be relevant to understand whether the complainant communicated to the accused that the conduct is unwelcome.
In case there was a delay in filing the complaint or failure to file a complaint, the ICC should take into account, whether there was any reasonable ground for the delay and understand the reason behind it. The relevancy of such delay will depend upon “the nature of the sexual advances and the context in which the alleged incidents occurred.”
When the ICC is handling a case where the question is on welcomeness of the incident, the ICC should take into account whether the victim’s conduct is consistent, or inconsistent, with her assertion that the sexual conduct is unwelcome.
To identify whether the alleged conduct is of a sexual nature, the ICC should adopt the “reasonable person” standard.
Mere submission of the complainant to voluntary sexual conduct will not defeat a claim of sexual harassment. The ICC in its inquiry should observe ” whether [the complainant] by her conduct indicated that the alleged sexual advances were unwelcome, not whether her actual participation in sexual intercourse was voluntary.” In case, the complainant has expressed her unwillingness, the ICC should carefully judge its relevance against other evidences.
The ICC should take into account whether the complainant welcomed the sexual conduct by acting in a sexually aggressive manner, using sexually-oriented language, or soliciting the sexual conduct. However, mere wearing of provocative clothes by the complainant and publicly expressing sexual fantasies is not per se inadmissible as defense by the accused but the ICC need to carefully judge the issue to find out the truth.
If the complainant often uses sexually explicit language, it won’t negate a claim for sexual harassment altogether. Though, such evidence might be helpful in proving certain acts, like sexual comments from others are welcome, but more extreme and persistent sexual conducts, including comments, sexual assaults or “quid pro quo” harassment are not considered to be “welcomeness” from the complainant, except when the same is proved otherwise.
In proving “welcomness”, any past incident and conduct towards other persons are irrelevant, the “welcomeness” must relate to the alleged harasser.
Mere usage of foul language or sexual innuendo in a consensual setting does not waive ‘her legal protections against unwelcome harassment.'” For example, the complainant might have consented to participate in a discussion about each other’s sexual life, does not mean she gave license to other’s in the group to make sexual advances on her.
While conducting an enquiry, evidence regarding the complainant’s general character and past behavior towards others has limited, if any, probative value and ICC should not absolve from conducting a thorough examination of her behavior towards the alleged harasser.
In case the complainant has voluntarily participated in a conduct of sexual nature but later stopped participating in such acts. Under such circumstances, if she claims that she is facing hostile environment due to continued sexual conduct, the complainant has the burden of proving that she has expressed her unwillingness to continue in such conduct, and such further conduct in unwelcome and constitute harassment at workplace. In case, such conduct persists, if the complainant fails to bring the matter to higher management or in the notice of the ICC, such behavior is evidence, though not conclusive, that such conduct is welcome or unrelated to work.
As most of the cases of sexual harassment occur in private, in absence of any eye witness, a successful inquiry will depend on the credibility of the parties. The ICC should question both the complainant and the harasser in details, and try to identify the discrepancies, if any in their version. The ICC should look for corroborative evidences by questioning the co-workers, superiors, office staffs, doctors, counselors etc who have came into contact or observed the behavior of the complainant just after the alleged incident.
A credible version should generally be sufficiently detailed and consistent to be accepted as reasonable, however, where there is lack of corroborative evidence, when such evidence should reasonably exist, may dilute the credibility of the complainant. Similarly, when such corroborative evidence exists, mere denial by the harasser without any sufficient evidence to disprove will be of little weight.
The evidence that the accused has in past sexually harassed other employees, is a relevant fact.
To determine whether the complainant was facing a “hostile environment” the ICC should take into account the following: (1) whether the conduct was verbal or physical, or both; (2) how frequently it was repeated; (3) whether the conduct was hostile and patently offensive; (4) whether the alleged harasser was a co-worker or a supervisor; (5) whether the others joined in perpetrating the harassment; and (6) whether the harassment was directed at more than one individual.

The full text can be read here: http://www.eeoc.gov/policy/docs/currentissues.html

If you are an employer, compliance professional or an HR professional in need of a simple solution to implement the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 at your workplace, you can know more about the law and various compliances related to it by taking up this course which is created by National University of Juridical Sciences to train your workforce bettwe. You can also learn about implementation of sexual harassment laws by taking up this course.

What should you do if you face sexual harassment at workplace? Step by step guide

Ramanuj

February 28, 2014

what to do sexual harassment — Approach the internal complaints committee in case of sexual harassment

This article was written by Rahul Bajaj of Nagpur University while he was interning at iPleaders. Rahul is visually challenged.

Approach the internal complaints committee in case of sexual harassment

Sexual harassment in the workplace is a serious violation of a woman’s right to live and work with dignity. It not only adversely affects a woman’s self esteem and confidence, but also creates an extremely hostile work environment. Before 2013, women had very limited options to bring the perpetrators of such horrendous acts to book. However, the new Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 gives working women the right to take action against the perpetrators of sexual harassment at the workplace. This article seeks to analyze the ways in which women can use their entitlements under this Act in an efficacious manner.

Who can file a complaint for sexual harassment

The definition of “aggrieved woman” who can seek protection under the Act is very capacious and covers all women, irrespective of their age or employment status, whether in the organised or unorganised public and private sectors and covers clients, customers as well as domestic workers.

First thing to do if you think you were sexually harassed

The very first thing that women who believe they have been sexually harassed must do is to educate themselves to ensure that the incident actually counts as harassment. This is particularly important because a complaint that doesn’t necessarily count as sexual harassment will generate unnecessary stress, legal costs and damaged relationships. We have created a course for quickly learning your legal rights and duties.

You can know more about the law and various compliances related to it by taking up this course which is created by National University of Juridical Sciences. You can also learn about implementation of sexual harassment laws by taking up this course.

Broadly speaking, sexual harassment includes any incident that interferes with a woman’s success at work or creates a hostile work environment. It includes but is not limited to: A. Physical contact and sexual advances; B. Demand or request for sexual favours; C. Sexually coloured remarks; D. Showing pornography ; and E. Any other unwelcome physical, verbal or non-verbal or written conduct of a sexual Nature …and also quite a few other things that can create a hostile work environment. After determining with reasonable certainty that she has actually been subjected to sexual harassment, the aggrieved woman must figure out what specific form of sexual harassment she has been subjected to. Understanding the different forms that sexual harassment can take will immensely help an aggrieved woman to file a more cogent complaint. Many employees are actually in a position to file a written complaint, but end up not doing so because they don’t understand the definition and types of sexual harassment.

Informal complaint

Filing a formal sexual harassment complaint can often be intimidating and challenging. In such cases, resolving the dispute informally might be an ideal solution as it helps to diffuse a minor issue without diluting or escalating the problem. In order to resolve the dispute informally, the aggrieved woman must first tell the perpetrator of sexual harassment, in no unclear terms, that his behaviour is not welcome and must urge him to refrain from such acts in future. If that doesn’t work, the woman should contact her superior i.e. HOD, SBU, Head/HR/ Woman representative of the location and should discuss the problem with that person. Section 10 of the Act delineates the procedure for conciliation which is an informal method to resolve a dispute. It is pertinent to note that the process of conciliation can only commence at the behest of the aggrieved woman. This can offer a solution which is amenable to both the parties.

Formal complaint of Sexual Harassment

If the aggrieved woman wants a formal inquiry to be conducted, she must make a complaint in writing within 3 months of the date of the incident to the internal complaints committee (ICC). If she wishes to complain for a series of incidents, she must file a complaint within 3 months of the last incident. The time limit may further be extended by three months if the woman can prove the existence of grave circumstances which caused the delay in reporting. The Internal Complaints Committee will render reasonable assistance to the aggrieved woman for filing the complaints in writing. If the aggrieved woman is unable to make a complaint on account of her physical or mental incapacity or death, her legal heirs can do so. The written complaint must include details such as the time and date of the incident, the name of the individuals involved, the place where the harassment occurred and other details that pertain to the incident. The woman should also attach all relevant documents such as written statements, emails, letters or sms sent to her by the perpetrator, list of witnesses etc in support of her complaint.

Inquiry by Internal Complaints Committee

The ICC has all the powers of a civil court. It can, therefore, inter alia, summon the parties for interrogation and demand evidence. The ICC generally calls both parties separately and asks them to present their version of the events in question. It also carefully scrutinizes the evidence provided by both the parties. The aggrieved woman must clearly and unambiguously explain her grievance in the ICC inquiry. She must present all the evidence at her disposal to support her claim and must extend her full cooperation to the ICC to ensure that the inquiry gets completed in an expeditious manner.

Conclusion

The Sexual Harassment Act encompasses many provisions for the benefit of women who want to file a grievance for sexual harassment. However, the onus is on the aggrieved woman to raise her voice against such rampant malpractices and to assert her rights.

What is Jurisdiction?

Ramanuj

February 28, 2014

This article was written by Anumeha Karnatak of NLS Bangalore while she was interning with iPleaders.

JURISDICTION

Jurisdiction can be defined as the limit of a judicial authority or the extent to which a court of law can exercise its authority over suits, cases, appeals etc. The rationale behind introducing the concept of jurisdiction in law is that a court should be able to try and adjudicate only in those matters with which it has some connection or which fall within the geographical or political or pecuniary limits of its authority. A 1921 Calcutta High Court judgment in the case of Hriday Nath Roy v. Ram Chandra sought to explain the meaning of the term ‘jurisdiction’ in a great detail. The bench observed:

‘An examination of the cases in the books discloses numerous attempts to define the term ‘jurisdiction’, which has been stated to be ‘the power to hear and determine issues of law and fact;’ ‘the authority by which three judicial officers take cognizance of and decide cause;’ ‘the authority to hear and decide a legal controversy;’ ‘the power to hear and determine the subject-matter in controversy between parties to a suit and to adjudicate or exercise any judicial power over them;’‘the power to hear, determine and pronounce judgment on the issues before the Court;’‘the power or authority which is conferred upon a Court by the Legislature to hear and determine causes between parties and to carry the judgments into effect;’ ‘the power to enquire into the facts, to apply the law, to pronounce the judgment and to carry it into execution.’

Types of Jurisdiction:

In India, there are mainly 5 types of jurisdiction which can be classified as follows:

Subject-matter jurisdiction:

It can be defined as the authority vested in a court of law to try and hear cases of a particular type and pertaining to a particular subject matter. For example, District Forums established under the Consumer Protection Act, 1986 have jurisdiction over only consumer-related cases. It cannot try criminal cases.

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Territorial jurisdiction:

Under this type of jurisdiction, geographical limits of a court’s authority are clearly delineated and specified. It cannot exercise authority beyond that territorial/geographical limit. For example, if a certain offence is committed in Madhya Pradesh, only the courts of law within the boundaries of Madhya Pradesh can try and adjudicate upon the same unless otherwise provided for in a particular piece of legislation.

Pecuniary jurisdiction:

Pecuniary means ‘related to money’. Pecuniary jurisdiction tries to address whether a court of law can try cases and suits of the monetory value/amount of the case or suit in question. For example, consumer courts have different pecuniary jurisdictions. A district forum can try cases of value upto Twenty lakh rupees only.

Original jursidiction:

It refers to the authority of a court to take cognizance of cases which can be tried and adjudicated upon in those courts in the first instance itself. It is different from appellate jurisdiction in the sense that in case of the latter, the courts rehear and review an already decided matter whereas in case of the former the cases are tried for the very first time. For example, the High Court of Allahabad has original jurisdiction with respect to matrimonial, testamentary, probate and company matters.

Appellate jurisdiction:

It refers to the authority of a court to rehear or review a case that has already been decided by a lower court. Appellate jurisdiction is generally vested in higher courts. In India, both the High Courts and the Supreme Court have appellate jurisdiction to hear matters which are brought in the form of appeal before them. They can either overrule the judgment of the lower court or uphold it. At times they can also modify the sentence.

Some of the other types of jurisdiction include:

Concurrent jurisdiction: A situation in which more than one court of law has the jurisdiction to try certain matters. Sometimes, this type of jurisdiction is also referred to as ‘co-ordinate jurisdiction’.
Admirality jurisdiction: Jurisdiction pertaining to mercantile and maritime law and cases.
Probate jurisdiction: Matters concerning the administration of an estate belonging to a dead person and its guardianship come under probate jurisdiction. For example, cases involving administration and execution of the will of a deceased person.
Summary jurisdiction: It refers to the authority of a court to try matters in accordance with the summary procedure. Such cases take form of summary trials in order to speedily resolve a dispute.

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How to establish a One Person Company ?

India Inclusive Innovation Fund to promote innovation amongst MSMEs

FDA Safety and Innovation Act and its effects on Indian drug manufacturers

Appreciating evidence in a sexual harassment complaints inquiry

What should you do if you face sexual harassment at workplace? Step by step guide

Who can file a complaint for sexual harassment

First thing to do if you think you were sexually harassed

Informal complaint

Formal complaint of Sexual Harassment

Inquiry by Internal Complaints Committee

What is Jurisdiction?

JURISDICTION

Types of Jurisdiction:

Subject-matter jurisdiction:

Territorial jurisdiction:

Pecuniary jurisdiction:

Original jursidiction:

Appellate jurisdiction:

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