Union of India & Ors. vs. Ashish Agarwal (2022)

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August 26, 2023

This article has been written by Dhivyaprabha pursuing a Diploma in US Tax Compliance and Paralegal Work at LawSikho, and has been edited by Shashwat Kaushik. This article discusses the case of Union of India & Ors. vs. Ashish Agarwal (2022).

It has been published by Rachit Garg.

Introduction

The re-assessment provisions under the Income Tax Act of 1961 have been the subject of many discussions and arguments during 2022. The re-assessment provisions were amended through the Finance Act, 2021, and the amendments were applicable from April 1, 2021. Still, the revenue department sent notices to the assessees from 01.04.2021 until 30.06.2021 under the old provisions in pursuance of the notification issued under the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance of 2020. In an order dated May 4, 2022, the Supreme Court of India gave a landmark judgement for the appeals made by the Union of India and the Central Board of Direct Taxes (CBDT) by reinstating the validity of over 90,000 re-assessment notices issued by the Revenue Department. The following analysis discusses the views and judgement of the Apex Court on the above issue.

Facts of the case

The Union of India & Ors. appealed before the Supreme Court against the judgements of the Allahabad High Court and various other courts to quash the re-assessment notices sent by the revenue department under Section 148 of the Income Tax Act, 1961 (the Act), stating that they are invalid because they were issued under the old provisions even after the applicable provisions of Sections 147 to 149 and 159 of the Act were amended. Before proceeding with the case analysis, it is important to understand the relevant law and the timeline of events that led to this decision by the Apex Court.

The amendments through the Finance Act 2021 were applicable w.e.f. 01.04.2021, which made significant changes to the re-assessment provisions of the Income Tax Act. Sections 147 to 149 were substituted by new sections 147, 148, 148A, and 149 of the Act, and 153A to 153C were removed to be merged under Section 147.

Following are sections 147 to 149 and section 151 of the Act before and after the Finance Act, 2021:

Section 147 – Income escaping assessment

Before the Finance Act, 2021

Subject to sections 148 to 153, the Assessing Officer (AO) may assess or reassess any income that he has reason to believe has escaped assessment in any assessment year.

During the above-mentioned assessment or reassessment, if the AO finds any other income, loss, depreciation, or other allowance that has also escaped assessment, he may assess or compute it accordingly for the assessment year it belongs to.

After the Finance Act, 2021

Subject to sections 148 to 153, the Assessing Officer (AO) may assess or reassess any income that he finds/knows has escaped assessment in any assessment year.

During the above-mentioned assessment or reassessment, if the AO finds any other income, loss, depreciation, or other allowance that has also escaped assessment, he may assess or compute it accordingly for the assessment year it belongs to, irrespective of whether Section 148A has been complied with or not.

Section 148 – Issue of notice where income has escaped assessment

Before the Finance Act, 2021

Before proceeding with Section 147, the AO should issue a notice to the assessee requiring him to submit his return or any other person’s return for whom he is assessable in the relevant assessment year in the prescribed format and within the prescribed time.

The return submitted by the assessee under this section shall be treated as if it were required to be submitted under Section 139 of the Act.

After the Finance Act, 2021

Before proceeding with Section 147 and subject to Section 148A, the AO should send a notice to the assessee along with the order passed under Section 148A (if any) asking him to submit his return or any other person’s income for whom he is assessable in the relevant assessment year. The return is to be submitted in the prescribed format and within the prescribed time.

The return that the assessee submits in accordance with this section is treated as though it were required to be submitted in accordance with Section 139 of the Act. The AO cannot send a notice under Section 148 unless he has information that taxable income has escaped assessment.

Section 148A is substituted as per the Finance Act, 2021 – Conducting inquiry and providing opportunity before the issue of notice under Section 148. Before issuing notice under 148, the AO shall:

If needed, conduct an inquiry regarding the information on taxable income that escaped assessment with the approval of the specified authority.
Give the assessee an opportunity to be heard by sending him a notice to show cause within 7 to 30 days of sending the notice or within the time extended on application by the assessee.
Consider the reply of the assessee.
Decide whether to issue a notice under Section 148 by passing an order within 1 month from the end of the month of receiving the reply for show cause notice or 1 month from the end of the month of the time given or extended time given to reply to the show cause notice.

Section 149 – Time limit for notice

Before the Finance Act, 2021

A notice cannot be issued under Section 148 for the relevant assessment year if:

Four years have passed since the end of the relevant assessment year.
Four years but not more than 6 years, have passed from the end of the relevant assessment year
- Unless the income escaping assessment is Rs. 1 lakh or more.

After Finance Act 2021:

A notice cannot be issued under Section 148 for the relevant assessment year if:

Three years have passed from the end of the relevant assessment year but subject to clause
Three years but not more than 10 years, have passed from the end of the relevant assessment year,
- Unless the AO has some evidence in possession that income in the form of an asset amounting to 50 lakhs or more has escaped assessment.

Section 151 – Sanction for issue of notice

Before Finance Act, 2021:

AO cannot issue a notice under Section 148 if 4 years have expired from the end of the relevant assessment year unless he satisfies the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner with reasons recorded that it is right to issue notice for the case.

After Finance Act, 2021:

Specified authority for fulfilling requirements under sections 148 and 148A shall be:

If 3 years or less have expired since the end of the relevant assessment year, contact the Principal Commissioner, Director, or Director.
Principal Chief Commissioner or Principal Director General, or if they are unavailable, Chief Commissioner or Director General if more than 3 years have passed from the end of the assessment year.

Under the powers given in Section 3 of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, the extension of time to issue a notice under Section 148 of the Income Tax Act.

Notifications dated 31.03.2021 and 27.04.2021 provided for an extension of the time limit to issue notice up to 30.06.2021. These notifications also had explanations that stated that the provisions that existed before the amendment by the Finance Act, 2021, applied to the re-assessment proceedings on the notices issued. Approximately 90,000 such notices were issued by the Revenue after 01.04.2021 until 30.06.2021 under the old provisions, even though the Income Tax Act, 1961, had been amended w.e.f. 01.04.2021.

Many assessees challenged the notices issued as they did not follow the procedures laid down in the amended provisions as applicable from 01.04.2021. More than 9000 writ petitions were filed, and all the high courts except the Chattisgarh high court quashed and set aside all the re-assessment notices issued under the unamended Section 148 of the Act because they were bad in law due to not following the new applicable provisions.

The Union of India and CBDT appealed to the Supreme Court against the common judgement and order of the High Court of Allahabad and other similar writ petitions to quash the re-assessment notices through Civil appeals 3005/2022 to 3020/2022.

Supreme Court’s judgement

In the order dated 04.05.2022 in the case of Union of India & Ors. vs. Ashish Agarwal (2022), the Supreme Court of India observed the following:

The Supreme Court completely agrees with the decision of the various high courts that the benefit of new provisions would be available even if the assessment is related to previous assessment years because the new provisions were made to protect the rights of the assessee.
Even if the decision of the high courts is permissible under the Finance Act, 2021 and the amended Income Tax Act, the revenue cannot be left remediless due to a bonafide/genuine mistake in following the notification issued by the government. Thus, some relief is to be provided because if the revenue suffers, it is ultimately the government that suffers.
The Supreme Court passed the following order through the powers given under Article 142 of the Indian Constitution to govern and modify/substitute all judgements and orders passed by various high courts to quash the re-assessment notices, including the High Court of Allahabad, i.e., the order shall be applicable PAN INDIA:

The notices issued under Section 148 of the unamended Income Tax Act shall be deemed to be issued under Section 148A of the amended Income Tax Act and be treated as show cause notices as per Section 148A.
The respective AOs should, within 30 days, provide the information relied upon so that the assessee can make a reply within 2 weeks.
The requirement to conduct an inquiry under Section 148A shall be dispensed with as a one-time measure.
The assessing officers shall pass orders as required under Section 148A.

Conclusion

The rarely used Article 142 of the Constitution of India was invoked to settle the controversy over the validity of re-assessment notices. The observation by the Supreme Court that the Revenue Department may have genuinely believed that the amendments had not yet been enforced paved the way to the ruling in favour of the Revenue Department. Even though the benefits of the new provisions have been provided to the assessees by the Supreme Court judgement, the order has increased taxpayers’ burden.

References

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All about forensic accounting

By

Vanshika Kapoor

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August 25, 2023

0

This article has been written by CA Partha Pratim Sen pursuing a Diploma in US Corporate Law for Company Secretaries and Chartered Accountants from LawSikho, and has been edited by Shashwat Kaushik.

It has been published by Rachit Garg.

Table of Contents

What is forensic accounting

Forensic accounting, also known as investigative accounting, is a specialised branch of accounting that combines accounting, auditing, and investigative skills to uncover financial crimes. Forensic accountants typically analyse financial data, looking for evidence of crimes. They normally work for insurance companies, financial institutions, and law enforcement agencies. These professionals can also testify in court as expert witnesses.

Who are forensic accountants

Frank John Wilson pioneered the techniques used in the field of forensic accounting today. Forensic accountants can be professionals from different backgrounds, such as accountants, auditors, and financial analysts. They can work for government agencies, law firms, accounting firms, or as independent consultants.

In terms of professional certification, there are several recognised designations for forensic accountants, including:

Certified Forensic Accountant (CrFA)
Certified Fraud Examiner (CFE)
Forensic Certified Public Accountant (FCPA)
Certified in Financial Forensics (CFF)
Chartered Accountant with forensic accounting specialisation

These certifications require extensive training and education, as well as passing rigorous exams to demonstrate expertise in forensic accounting, fraud investigation, and litigation support.

In addition to their specialised training, forensic accountants must have strong analytical skills, attention to detail, and the ability to communicate complex financial information clearly and concisely. They need to have a strong understanding of legal and regulatory requirements and be able to work closely with lawyers and law enforcement officials to build cases for prosecution.

Application of forensic accounting

Forensic accounting has a wide range of applications in various industries and legal and regulatory matters, which are illustrated as follows:

Forensic accountants can assist in the implementation of AML policies and procedures for organisations to help prevent money laundering and other financial crimes.
Forensic accountants can help businesses determine the value of their assets, liabilities, and equity, which is important in mergers and acquisitions, bankruptcy proceedings, and other business transactions.
Cybercrime and the growing list of online criminal offences require forensic investigation.
Forensic accountants can also be hired to analyse financial records in divorce cases, including property division, spouse support, and child support. They can also help determine the value of assets and identify hidden assets.
Economic Offence Wing often requires a forensic investigation.
Forensic accountants can assist insurance companies in investigating fraudulent claims, including false claims for property damage, theft, and other losses.
Forensic accountants are often required to investigate cases of fraud, including embezzlement, asset misappropriation, financial statement fraud, and bribery. They use accounting and auditing techniques to detect financial irregularities and collect evidence for legal proceedings.
Forensic accountants can provide litigation support in civil and criminal cases, including preparing financial reports, calculating damages, and serving as expert witnesses.
A forensic investigation is conducted as part of due diligence.
Multinational companies have many instances of internal fraud being reported, which warrants investigation.
RBI often flags accounts that require forensic investigation.

The Serious Fraud Investigation Office (SFIO), set up by the Ministry of Corporate Affairs, has reported many cases of fraud that warrant investigation. Overall, forensic accounting plays a critical role in identifying and preventing financial fraud and irregularities, and its applications continue to grow as the need for financial transparency and accountability increases.

Forensic accounting and investigation standards

In the current scenario, there is a lack of a standardised process related to forensic accounting and investigation. To address the void, the Institute of Chartered Accountants of India has embarked on a mission to develop the first-ever standards, namely Forensic Accounting and Investigation Standards. This move comes at a time when instances of forensic accounting and investigation assignments related to corporate and banking frauds are on the rise.

The statements and assertions issued by the Digital Accounting and Assurance Board (DAAB), which is under the Institute of Chartered Accountants of India, form the basis for the development of these standards.

These standards are principal-based and, when applied to unique situations and under specific circumstances, provide adequate scope for professional judgment. The exclusive nature of forensic assignments requires the application of forensic accounting, investigation skills, and the use of certain AI tools and software, and obviously, these would be engagement-specific.

Objective of Forensic Accounting and Investigation Standards (FAIS)

The objectives of Forensic Accounting and Investigation Standards (FAIS) as promulgated by ICAI are:

FAIS seeks to provide the minimum standards for undertaking these engagements.
The standard provides an indicative benchmark relating to service quality, and this is engagement-specific.
The guidance from government agencies and regulators is incorporated into these standards so that one can develop an understanding of what should be expected from forensic accounting and investigation services.
The standards, being principle-based provide adequate scope for professional judgement.
These standards have laid down a minimum set of requirements every ICAI member is obligated to follow while conducting forensic accounting and investigation assignments.

Stakeholders or participants in FAIS

List of external stakeholders who have been contributory factors in developing these standards:

Computer Emergency Response Team (CERT),
Comptroller and Auditor General of India,
Central Board of Direct Taxes,
Central Board of Indirect Taxes and Customs,
Central Bureau of Investigation,
Data Security Council of India,
Economic Offence Wing,
Enforcement Directorate,
Insolvency and Bankruptcy Board of India,
Institute of Company Secretaries of India,
Institute of Cost Accountants of India,
Insurance Regulatory and Development Authority,
Indian Bank’s Association,
Ministry of Corporate Affairs,
National Company Law Tribunal,
National Bank for Agriculture and Rural Development,
National Stock Exchange of India Ltd.,
National Cyber Coordination Centre,
National Crime Records Bureau,
Reserve Bank of India,
Securities and Exchange Board of India,
Serious Fraud Investigation Office,
Standing Conference of Public Enterprise, and
Telecom Regulatory Authority of India

Global development in the area of forensic accounting and its importance

For several years, forensic accountants have played a pivotal role in assisting in lawsuit matters. Both forensic accounting and corporate intelligence skills are essential for any effective financial investigation to take place, whether related to a scam, swindle, misconduct, or any other unlawful activity. Until recently, forensic accountants used to be a part of the broad field of corporate advisory, mainly looking into niches like risk compliance and management consulting, but now forensic accountants are becoming more specialised by attaining skills and proficiency in different areas such as computer forensics, insolvency, valuation, asset tracing, identification, and recovery. In addition, many reputable institutions are now offering education and training in forensic accounting, whereby professionals and students are trained to decode and interpret evidence related to financial fraud.

With professional accountants like Chartered Accountants and Certified Public Accountants gradually gaining training and skill in forensic accounting, the scope of this field has gradually expanded over the past 10 to 15 years, requiring its practitioners to develop an expanded skill set in the fields of accounting, insolvency law, appraisal and communications, business intelligence, and fact-finding. With these specialisations, modern forensic accountants are becoming an essential, prominent, and sometimes indispensable part of the legal support team.

Overview of fraud and its pattern from 2022 onwards

Frauds tend to be of two types occupational fraud and computer-based occupational fraud. Frauds that are committed by stakeholder groups forming an integral part of the organisation, such as employees, managers, officers, or owners, to the detriment of the business are known as occupational fraud, and when these frauds are technology assisted or driven, they are called computer-based occupational fraud.

There has been a rising trend related to occupational fraud since the COVID-19 period because of the sudden shift to remote offices. With many employees working from less secured environments, the surge in electronic communication, disruption in regular work procedures, and unsupervised working environments combined have provided fertile breeding grounds for occupational fraud schemes and unscrupulous activities like creating fake signatures, requesting fraudulent payments, fabricating invoices, and manipulating accounting records. In addition to these internal threats, there are external threats as well, like cyber attacks of various sorts, the most common being phishing attempts, getting tricked into downloading malware, or unknowingly granting access to sensitive company information. The Corona virus has created a hurdle and has made it difficult for internal auditors to prevent, detect, and investigate fraud, mainly because of travel limitations, ongoing delays in communications, and a lack of access to evidence. In addition, there are three typical challenges associated with hiring remote workforces: interview challenges, a lack of adequate control, and a lack of oversight. The combination of these factors provides dreadful scope for fraud to occur and prosper.

The rise of occupational fraud has been evidenced in various publications, one of which is the recent Association of Certified Fraud Examiners (ACFE) 2022 Report. This report talks about the costs, methods, victims, and perpetrators of occupational fraud, all compiled from 2,110 real fraud cases investigated in 133 countries, resulting in a total loss of US$3.6 billion. These frauds are committed by individuals against their employers and have affected organizations in every region and industry across the globe.

These organisations have lost approximately 5% of their revenue each year to fraud, principally originating from asset misappropriation, corruption, and financial statement fraud.

Some most prevalent fraudulent schemes

Asset misappropriation- This entails theft or misuse of company assets and is the most common, occurring in almost 86% of the cases.
Financial statement fraud- This scheme involves the intentional overstating or understating of financial statements, as the case might be, to deceive the users of financial statements, various stakeholders, and the market at large. This type of fraud is less common..
Corruption schemes- This involves dishonesty by people in positions of power, which includes bribery, kickbacks, and conflicts of interest. These schemes occurred in 50% of the cases reviewed.

In addition to these pandemic-related security issues, the surge in block chain technology and use of crypto currencies is becoming a dominant contributory factor, which is propelling the rise of fraud cases. In this dynamic and ever evolving digital landscape, crypto currencies are becoming the new vehicle for money laundering. According to the 2022 Report of the Association of Certified Fraud Examiners (ACFE), approximately 8% of all fraud cases now involve the use of crypto currencies.

Given that these occupational frauds are predictably on the rise and given the need to investigate these financial wrongs and unearth the myriad ways these financial crimes are conducted, we have to resort to forensic accounting or investigative accounting to fight back against these rampant crimes.

Importance of forensic accounting or investigative accounting as a tool to fight back rampant crimes

This massive amount of data arises from transactions emanating from several interrelated industries, such as telecommunications, marketing, entertainment, banking, financial services, and government cyber security, to name a few. Data analytics tools are used to analyse these data sets to uncover trends, patterns, and correlations, help make data-driven decisions, and reveal evidence of fraud. Although one of the biggest values of this “big data” is its ability to shed light on previously unseen insights, it becomes effectively useless if the investigators cannot easily understand it. This is where data analysis and other software come in handy. Visual database software can link, analyse, summarise, and illustrate the information collected by connecting seemingly incongruent mazes of data points and integrating them, which, once done, helps in determining the title of assets or identifying relationships between different entities and individuals.

Conclusion

Although evidence collected using big data solutions is of immense benefit, when this is analysed by forensic accounting investigators, the power of data analytics is further enhanced as it can lead to persuasive conclusions. It is the flawless blending of these two apparently different investigative approaches that can result in clear-cut success in most fraud investigations.

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

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

All you need to know about management and control of companies

By

Vanshika Kapoor

-

August 25, 2023

0

This article has been written by Arnab Sarkar pursuing Crack California Bar Examination – Test Prep Course at LawSikho, and has been edited by Shashwat Kaushik.

It has been published by Rachit Garg.

Table of Contents

Introduction

A company is a legal entity that may be formed by a natural person/s a legal person/s or both. Every member of the same company has the same or a specific purpose to achieve the company’s goal. Managing a company means managing its administration as well as its systems to develop its business and profit-making machinery. With respect to the goal, the company is formed by voluntary associations as non-profit organisations, by business entities as profit-making associations, by financial entities like banks, or by any programme like educational institutions.

Need for management and control of a company

To achieve this goal, every company needs strong and effective management. There are different levels of management that aim to organise and coordinate the business of the Company. Literally, management means the process of planning and organising the resources and activities of a business to achieve a goal. Efficient management can complete the task with minimal cost; in this respect, it can be said that efficient management is the primary need of a company. Most of the management team supervises a company, its service, or its production. However, an efficient body of management should be multidimensional. It will influence their team members to apply their strengths towards achieving the company’s goal. A dynamic body of management adapts to new market requirements by implying updated technology. An intangible body of management consists of ideology, policies, and human interaction; it helps to improve a company’s target achievement ratios, employee satisfaction levels, and overall ease of operation.

Management and control of a company

Management of the company means the process of planning, organising, leading, and controlling all the efforts of the company members and using all the resources of the company to achieve the company’s goal. To fulfil the goal or objective of the company, there are a number of stakeholders, like directors, managers, officers, and shareholders. In a simple sentence, it can be said that forming such bodies of members and, accordingly, proper planning to achieve goals is the responsibility of the management of the company in general. In the management of companies, every individual, whether legal or natural, has a specific role and responsibilities to achieve the goals of the company. Maintaining such roles and responsibilities towards every individual attached to the company and the proper distribution of such roles and responsibilities in view of the ultimate development of the company is the main goal of the management of any company.

Body of management to control a company

The body of management comprises various stakeholders, as said earlier, like directors, managers, officers, shareholders or partners, and executive workers. The entire body of management has specific roles and responsibilities to achieve the ultimate goal of the company. We can define the body of management like owners, partners, or shareholders; at the top they may be called the board directors, or the directors may appoint in the form of managerial, executive, sales, etc.; then come officers like CEO, COO, CTO, CLO, CMO, etc.; then come other executive managers and workers. Arranging funds or accumulating material resources is the main objective or role of the owners, partners, or shareholders; developing ideas with resources and investment to achieve the goal of the company is controlled by chief officers like the CEO, COO, CLO, CMO, etc.; and executing such ideas and making them happen in the real world is the responsibility of the executive managers and workers. We can clarify the positions, roles, and responsibilities of management in a company as follows:

Shareholders

Shareholders are basically people who invest funds for the company’s growth with the desire to build their own profit. In a simple equation, if the company can develop its business and make a profit, it will distribute it to its shareholders. So the role and responsibility of the shareholder are very clear the shareholders have to manage the fund for the company, and in return, they will get the profit. As the company has grown, its need for funds has grown, and as a consequence, the legal ownership has become widely dispersed.

Directors

In a system of management, a director or the board of directors plays the most vital role in a company. Directors are none other than the representatives elected by the shareholders. In general, directors may be executive or non-executive. Executive directors are the decision makers for the company; they are involved with the regular management of the company, and non-executive directors offer advice for the company without being involved with the regular management. In view of the Companies Act of 2013, a private limited company should have a minimum of two directors, a limited company should have a minimum of three directors, and only one director can form a one person company. According to Section 2(34) of the Companies Act 2013, a ‘director’ is a person appointed to the board of the company by the shareholders, and a group of such individuals is called the board of directors. Since the company is an artificial legal person created by law, it is necessary to control the management and act through the natural persons who are the directors of the company. There are many types of directors as per their roles and responsibilities, such as:

Managing director- According to Section 2(54) of the Companies Act 2013, someone who entrusted with substantial power of the management affairs of the company

Whole time director- according to Section 2(94) of the Companies Act 2013, the whole time director means a director in the whole time employment with the company.

On the basis of function in the company, the managing directors and the whole time directors are called executive directors. Both types of directors are directly involved with the company’s regular management and control. According to Rule 2(1)(k) of the Companies (Specification of Definitions and Details) Rules of 2014, the executive director means whole time director.

Independent director- According to Section 149 of the Companies Act, 2013, when read along with Rules 4 and 5 of the Companies (Appointment and Qualification of Directors) Rules of 2014, it will be clear that the position of independent director is a non-executive director to Examine the performance of the management in meeting the decided goals and objectives and examine the reporting of performance.

Nominee director- The nominee director has been appointed by virtue of Section 161(3) of the Companies Act 2013 as a non-executive director who will be active in decision making in financial matters in an investee company, including fundraising plans such as debt raising and investment planning.

Beside these, there are many other types of directors on the basis of appointment and other ways, like additional directors, alternate directors, women directors, residential directors, etc.

Officers

In the management of a company, the board of directors is responsible for the overall direction of the company, but the day-to-day work is carried out by the officers of the company. To carry out the company’s day-to-day work, the company may appoint as many officers as it requires. Such officers may be designated as executive officers, law officers, sales officers, operating officers, etc. In any company, if the company’s bylaws permit, one or more directors can also serve as officers. In a small company, one person can serve as a shareholder, a director, and an officer. If the company requires it, then the same person can serve in more than one officer position at the same time. Also, additional officers can be appointed based on the growth of the company. There are various types of chief officers, according to their roles and responsibilities. Some of the most popular types of chief officers are:

Chief Executive Officer (CEO) is the person who is ultimately accountable for a company’s decision making, operation, marketing, resource management, strategy making etc. It is not necessary that the CEO of a company be the owner or head of the company; sometimes it may be.

Chief Operating Officer (COO) is the second highest executive in a company and is in charge of company’s day-to-day operations as well as executing the company’s goals

Chief Financial Officer (CFO) is a person who manages the company’s finances, including financial planning, management financial risk, record keeping, financial reporting, etc.

Chief Marketing Officer (CMO) is a corporate executive responsible for managing the marketing activities of the company.

Chief Technological Officer (CTO) is an executive who focuses on scientific and technological issues within the company

Chief Information Officer (CIO) is a high ranking executive responsible for managing and implementing information and computer technology in a company.

Chief Legal Officer (CLO) is a legal executive who used to confront or manage litigation risk on major legal and regulatory issues.

Managers

In a company, there might be a number of positions for managers as per their roles and nature of work. Managers report to the chief officers, president, or director of the company. Supervisors and executives are working under the managers. Managers are several types in respect of functions, such as account managers to manage and maintain account books, recruiter managers and human resource managers to recruit people and develop human resources to run the company’s works, technological managers to develop the product or service of the company, sales and marketing managers to manage and develop sales and marketing of the company, regional managers to develop company’s operations on regional basis, general managers to manage the company’s overall functions, etc.

Supervisor, production/sales executives and field workers

After the manager, the supervisor has the responsibility to ensure the product and service of the company in its particular field. Production executives, sales executives, and field workers all report to the supervisor, and the supervisor reports to managers. To control proper service and continue product quality, any company should depend upon these stakeholders; in short, these people are the backbone of the company to manage and properly control.

Conclusion

Management is the respiratory system of any company. Good management of a company can help increase company activity and take good care of the employees. It can also help to utilise the financial resources in the best possible manner for the company to achieve profit and sales targets and ensure the utilisation of material resources with minimal wastage. A responsible team of management can help the company update its machinery and equipment and supervise its replacement or updating when needed. It can be concluded that without an efficient body of management, no company can run its business.

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

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

Can smart contracts serve as a substitute for Contract Law

By

Vanshika Kapoor

-

August 25, 2023

0

This article has been written by Sanjay Kumar Sah pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution at LawSikho, and has been edited by Shashwat Kaushik.

It has been published by Rachit Garg.

Table of Contents

Introduction

Before we start the discussion on the title “whether smart contracts can serve as a substitute for contract law : an analysis”, we must know something about smart contracts, like what a smart contract is and how it is different from a normal contract, etc. We know that we are living in an era in which technology is growing very fast in such a way that if a new technology comes in one day, it will be replaced by another superior technology in a few days, especially in the world of IT Technology. IT technology is a very fast-growing area where uncertainty always exists. No one would forecast the timing of a new technology, i.e., up until which time it will be replaced by another superior technology.

What is a smart contract

A smart contract also establishes the terms of an agreement. But a smart contract’s terms are executed as code running on a blockchain like Ethereum. Smart contracts allow developers to build apps that take advantage of blockchain security, reliability, and accessibility while offering, unlike a traditional contract, sophisticated peer-to-peer functionality—everything from loans and insurance to logistics and gaming.

Contract law is the law of the land under which an agreement/contract is to be constituted between at least two parties, to which both parties consent. A contract by civil law is, as embedded meaning implies, a contract that is formed under the law of the land between two or more parties who are sound minded, majority age, competent to contract, enter into an agreement with each other’s consent after a long deliberation between them, and last but not least, is enforceable by the law of the land. The contract by law contains two major ingredients like “Force Majeure” and “Third party rights’ ‘. Force Majeure is a specific clause that indicates situations that are outside the control of the parties, are unforeseeable, and under which the parties cannot be compelled to perform under the agreement. Usually a duration is specified, and if the force majeure period extends beyond the specified duration, the parties can choose to terminate the agreement.

Third party and smart contracts

Whereas third party rights specify that the rights under the agreement are for the benefit of the successors and permitted assigns of the parties and not any other third party. Only third parties with express authorisation from parties to the agreement may be allowed to enforce the provisions of the agreement. This clause aims to restrict third-party claims under the agreement.

If we analyse the above information about smart contracts and contract law, we find that a smart contract is written in a specific machine language, such as block chain technology, which is encrypted and does not involve third-party intervention. It cannot be tempered. It is self-verified and self enforced. For example, a vending machine works on the same principle, i.e., the seller, through the printed description on the machine, tells about the services he is providing through the machine, and if anybody wants to take the service of the seller, he puts some coins in the machine, and the machine delivers the product of his choice. During this process, the seller and the buyer enter into a contract between them for selling and buying goods that is self-enforced, however temporary. But if the machine fails to deliver the specified service despite payment due to a technical or power failure, the buyer cannot claim or return his money at the same time. If he wants to claim his money back, the only remedy is to take legal action in a court of law, which is a very expensive and cumbersome task for a small amount in comparison to the legal expenditure he will have to bear.

On the other hand, contract law specifically provides the way for any loss to any party due to breach; they have the equal right to claim in the specified court of law mentioned in the contract, which is mandatory under contract law.

Can smart contracts serve as a substitute for Contract Law?

Without a doubt, both contracts—contract law and smart contracts—apply the human mind’s application. But how the two documents were prepared was very different. In preparing smart contracts, specific machine language, which is in coded form, is used. No one knows whether any deliberations take place between the parties or not because smart contracts have a set machine format. Like Bitcoins, it is neither legal nor respects the sovereignty of any country because the specific machine language is the sole intellectual property of a human/company that is situated in a far-flung remote area, and the user is another person who is seated/situated in another country/area. The supporters of smart contracts claim that this is tamper-proof, but can it be true. As we all know, any computer program has a source code that is not shared by the company with its customers who use their software. In these circumstances, can anybody say that smart contracts could not be tempered by those who have reached the source code of the software?

On the other hand, while preparing contract law, detailed deliberations have taken place. It passed through many stages, from preparing bills for putting in the Assembly of Parliament, as the case may be, to passing by the Assembly or Parliament. The contract law respects the sovereignty of the country and is also enforceable by a court of law, which is the pious soul of it and is not possessed by smart contracts.

Enforceability of smart contracts

Generally, people are unaware of the enforceability of smart contracts and are dicey about them because of their unique nature. Its unique nature means that it is different from traditional paper contracts. However, smart contracts are enforceable in court as long as they adhere to traditional contractual rules. Those rules include the following:

Offer, acceptance and consideration
- Offer- It is the first step in the formation of a contract. When one or both parties offer the terms of the agreement.
- Acceptance- Acceptance means when one or both parties accept the invitation or offer.
- Consideration- When a party accepts the terms of the agreement and gives something in return, it is said to be a consideration. Consideration is very
Legally permissible terms

The terms of the contract must not be illegal or impossible to perform. This means the terms should not ask the party to commit an act contrary to the law. For e.g- Waiving off a right that the party cannot legally waive off.

Legal to sign electronically

The smart contract must be legally electronically signable, as there are lot of agreements that are not legally signable like wills, testimonies, court orders, etc. So an electronic signature is an important factor here.

Legal challenges to smart contracts

Once smart contracts are in place, they cannot be modified. New technological advancements bring about new problems, such as:

Automatic enforcement

Once a smart contract is set in place, it is automatically enforced, so any flaw or illegality can’t be modified or removed afterwards.

Modifying the contract

Once a smart contract is set in motion, it cannot be modified; it can only be withdrawn or cancelled. Maintaining a backup is also recommended for this reason. So a careful analysis of smart contracts is a must before setting them in motion.

Handling disputes

Each party to the smart contract must be thorough with the terms to avoid any dispute because handling disputes gets difficult once it’s set in motion as it cannot be amended; it can only be cancelled.

Conclusion

In view of the above deliberations, in my opinion, smart contracts could not be a substitute for contract law unless and until efforts are made to bring them under the law of the land. Smart contracts will likely be widely used in the future but not in the present because of their rigid nature and limitations. These contracts can’t be used in every field, whereas normal paper contracts can be used in every field.

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

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

Popular culture in Indian media

By

Vanshika Kapoor

-

August 24, 2023

0

This article has been written by Sk Ashfaq Hassan, pursuing a Diploma in Legal English Communication – oratory, writing, listening and accuracy from LawSikho and edited by Shashwat Kaushik.

It has been published by Rachit Garg.

Table of Contents

Introduction

The consumption of various forms of visuals, audios, videos, images, symbols, and signs provided by media does not merely entertain people but also communicates meanings, ideas, beliefs, and attitudes and attempts to influence the behaviour of its users, shape their interests, and affect norms and values existing in a society. This social phenomenon is known as “popular culture”. In other words, it is a set of widely accepted and promoted practices, trends, and activities through one of the strong tools known as media, which helps it disseminate its content to the masses at a given time. The concept of popular culture can be used as an analytical tool to enhance critical thinking ability, which is a must in this digital era of unending information.

India, with the highest-population is home to diverse cultural groups, and this is well reflected in Bollywood and other regional film industries, TV shows, “music”, “news”, and digital education channels. Popular culture in the media influences people’s preferences for foods, clothes, the design of houses, and drinks. Take a look at “Chai”, barely a few centuries old on Indian soil and now regarded as the national drink of India. The Indian Premier League is one of the much-awaited popular cultural events of India with broad commercial reach, where cricket enthusiasts from different sections join together to support their favourite team, and millions watch it live on TV and mobiles. The young population of India, highly influenced by fashion advertisements and social media stars, feels the urge to change their lifestyles to match their celebrity idols. Gen Z doesn’t want to get themselves labelled as outdated by their peers; they actively follow new trends in clothing and are conscious of their body shapes and overall looks. A few reasons why popular culture emerges in the first place are that it provides shared experiences, which makes it easy to connect with others, and it gives entertainment and employment to people, which shapes the cultural landscape.

An insight into movies: the heart and soul of popular culture

Indian cinema, since its beginning, has been the most effective form of cultural expression in the modern era. The first film, Raja Harishchandra, made in 1913 by Dadasaheb, laid the foundation of Indian cinema. The silent film with a mythological genre gave its audience a taste of Indian culture. The advancements made in technology helped filmmakers make more engaging movies through the introduction of sound, colour, and music, which became internal parts of movies. Till the 1990s, Indian cinema was occupied with social themes like “rich-poor, and love-violence” and reflected traditional values in terms of family, gender roles, food preferences, and heroine dress sense. After introducing liberalisation, privatisation, and globalisation, western influence began growing gradually in cinemas, and more private TV channels found their way into the Indian media market. A new middle class emerged, and women could be seen taking on more independent roles. This was also mirrored in one of the advertisements for Bajaj Motor Bikes, where a woman enjoys a bike ride, identifying herself as married only by the sindoor on her head. Also, the role of regional film industries now making their way into mainstream Indian culture cannot be undermined.

Movies and music play a key role in evoking feelings and emotions and increasing the awareness of their audiences. “Mother India,” a patriotic movie, displays the struggles of the poor and illustrates Nehru’s utopian dream of progress in nation building. Munna Bhai MBBS, Lage Raho Munna Bhai propagates the three basic principles of non-violence, truthfulness, and fearlessness of Gandhism. The patriotic emotion is reinforced in the audience when they watch movies like Border, Chak De India, etc., and social attitudes about caste, colour, and religion are mirrored in movies like Kala, OMG, etc.

The emergence of OTT platforms such as Netflix, Amazon Prime, Sony Liv, etc with the promise of access to content anywhere on internet devices, gives working-class individuals an opportunity to relate their experiences in shows like Mirzapur, Bhaukaal, Kota Factory, Scam 1992, etc. Likewise, Lust Stories, Four More Shots Please!, and Western series like Game of Thrones, Money Heist, etc. are mostly preferred by urban middle-class individuals. romantic songs, punjabi songs, k-pop, rap songs, etc. form the soul of Indian popular culture. Movies, with their captivating and educational power, remain the heart of Indian pop culture.

Youth and popular culture

The country’s youth and student population are the main stakeholders in popular culture. Gen Z’s ideas, identities, and way of living are highly influenced by the various platforms of media such as social media, movies, web series, music, online gaming, influencers, news media, and commercial software with a promise to help its users fulfil their desires. Concepts like live in relationships, speed dating, hookup culture, etc, are becoming popular among youths. The Western sense of fashion with some Indian taste offered by premium brands is what most of the youth’s dressing style is nowadays.

They are creative and enthusiastic about share their moments and achievements in life on platforms like Facebook, Instagram, Twitter, Snapchat, etc. Youths know how to effectively use these platforms to grab opportunities, share their activism, and more easily connect to people from different countries sharing common interests. They don’t like missing posts, movies, cricket matches, or TV shows about their favourite celebrities. Gen Z doesn’t want to get themselves labelled as outdated by their peers; they actively follow new trends in clothing and are conscious of their bodies and looks.

The internet and digital gadgets empowered the media and made the whole world available at your fingertips. The dark side of this development is commonly known digital addictions among youths, such as social media addiction or zombie scrolling, porn addiction, gaming, etc. Popular culture in the media provides and promotes continuous consumption of content through addictive techniques that result in desensitisation and resensitisation of certain ideas and beliefs, particularly among young minds and children.

Politics and popular culture

Popular culture does not only reflect the existing interests of people; in contrast, it deliberately attempts to change and shape the cultural landscape of a society at a given time. Political parties spend crores of rupees on advertisements ahead of elections, and more coverage is intentionally given to selected news in media channels controlled by capitalists to reap political benefits. Adolf Hitler used propaganda movies to glorify his ideology and justify the killing of Jews. Through the media, he created a favourable popular culture to legitimise his actions. In this digital era of unending information and technological advancement, it has become easier to manufacture public opinions and shape the political preferences of the masses. The algorithm of social media works in such a way that it shows content based on individuals’ likes and beliefs, and the person might not be aware of the other side of the coin. The advent of Artificial Intelligence (AI) not only promises to increase the productivity of humans but also has the potential to adversely impact human lives with its extraordinary utilities, such as creating deep fakes and biassed programs.

Role of laws in regulating media and popular culture

Considering the crucial role of media in disseminating content, it becomes necessary to balance and hold them accountable. These are the following laws that endeavour to keep a check on the content of media:

The Information Technology Act, 2000

Section 79 of the Act states that intermediary online platforms such as Facebook, Twitter, Youtube, etc. are not liable for content posted on their platforms by users unless they themselves publish it. However, these intermediary platforms are required to remove or delete unlawful and inappropriate content if approached by the affected party or government agencies.
The material that is categorised as obscene and circulated on online platforms attracts Section 67 of the Act and is subjected to legal action.
Unfortunately, hate speech and incitement are becoming the norm in the media. To control them, Section 69A of the Act, which mainly applies to hate content affecting national security, could be potentially used to reduce instances of hate speech in the media.

The provisions of the above Act indirectly affect the regulation of content on digital platforms, and the Information Technology (Intermediary Guidelines and Digital Media Code) Rules of 2021 hold the media liable for their transgressions against laws.

Central Board of Film Certification

The CBFC, empowered by the Cinematograph Act of 1952, examines and categorises film content for public display in the following categories U (universal), UA (parental guidance is advised for children below 12 years), A (Adult), and S (Special). The CBFC ensures that the content of films complies with the provisions of the Act and follows the guidelines laid down in the Cinematographic (Certification) Rules of 1983.

The Copyright Act of 1957

The Copyright Act of 1957 protects the rights of content creators and helps them to take and sustain their due credit. The Press Council of India is an autonomous body that governs the conduct and ethics of the print press in India. The Advertising Standards Council of India monitors and regulates advertisements. The Indian Penal Code of 1860 consists of provisions against offensive, defamatory, and harmful content.

Popular culture in the media plays a key role in shaping the perceptions of law and justice of its consumers, so laws that regulate the media are not very effective in keeping a check on the uncontrolled influence of popular culture. Laws must be updated as media technology is growing and developing new forms. It is a very challenging and uneasy task to make new laws that could monitor their negative impact, as it involves serious questions such as freedom of expression.

Conclusion

The popular culture in the media is complex and dynamic in nature. Recent technological developments have provided the media with an explosion of the internet and gadgets, resulting in an increase in the media’s penetrating power in far flung places. The powerful media is further empowered by progressive government policies, thereby forming crucial factors in the creation of Indian popular culture. It has an optimistic as well as a non-optimistic impact on our lives. Its influence is inevitable and consists of a blend of different cultures. Though it accommodates trends based outside of India that are observed at a superficial level, Indian traditional norms seem to be prevalent in most parts of Indian society. Only the test of time will determine what will prevail.

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

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

Home loan practical guide

By

Vanshika Kapoor

-

August 24, 2023

0

This article has been written by Parin Karania pursuing a Diploma in US Corporate Law for Company Secretaries and Chartered Accountants from LawSikho, and has been edited by Shashwat Kaushik.

It has been published by Rachit Garg.

Introduction

A home loan is a type of loan provided by a bank or financial institution to help you purchase your dream home. It is a long-term loan, usually with a tenure of 15-30 years, and is secured against the property you are purchasing. The loan amount, interest rate, and tenure of the loan are determined by your income, credit score, and the value of the property.

If you’re considering taking out a home loan, there are several things you should keep in mind. In this article, we’ll cover some of the key practical considerations while taking a home loan.

Key practical considerations while taking a home loan

Some key practical considerations while taking a home loan are:

Decide on your budget

Before you start looking for a home loan, it’s important to determine your budget. This will help you determine how much you can afford to borrow and what kind of home you can realistically afford. There are several factors to consider when determining your budget, including your income, expenses, and other financial obligations.

Shop around for a loan

Once you have determined your budget, it’s time to start shopping around for a home loan. There are many different lenders and loan plans available, so it’s important to do your research and compare your options. Some key factors to consider when comparing loans include the interest rate, fees, repayment terms, and any additional features or benefits.

Consider pre-approval

A pre-approval is a letter from a lender stating that you are eligible for a home loan up to a certain amount. A pre-approval can be a helpful tool when house hunting, as it can give you a better idea of what you can afford and help you narrow your search. To get pre-approval, you’ll need to provide the lender with your financial information, such as your income, expenses, and credit score. Normally, pre-approval is valid for 6 months only, so make your dream home decision accordingly.

Understand the loan terms

Before you sign on the dotted line, it’s important to understand the terms of your home loan. This includes the interest rate, repayment terms, fees, and any other conditions or requirements. Make sure you read and understand all the fine print before agreeing to the loan.

Plan for repayments

Once you have taken out a home loan, it’s important to plan for repayments. Ensure you understand how much you need to repay each month and plan your budget accordingly. It’s also a good idea to set up reminders to ensure you don’t miss any payments.

Consider extra payments

If you can make extra payments on your home loan, it’s worth considering. Making extra payments can help you pay off your loan faster and save on interest charges.

Features and benefits of home loans

Fast loan processing: The home loan documentation requirement is very crisp. Also, the eligibility criteria are not very strict. This helps banks and financial institutions process loans faster.
Low-interest rate: Home loan rates of interest are lower than other secured loans.
Multi-purpose: Available for various purposes like buying a new residential flat or building, constructing a new house on a plot, doing home renovations, or extending your current house.
Easy availability: All the banks and financial institutions are offering various housing loan schemes. You can avail yourself of a home loan after checking your eligibility and meeting your requirements.
Tax benefits: You can claim a tax deduction of Rs. 1.5 lakhs on the principal repayment under Section 80C of the Income Tax Act of 1961 and Rs. 2 lakhs on the interest repayment under Section 24B of the said Act. You can also claim a home loan tax deduction when you pay for the registration fees and stamp duty charges under Section 80C.
Long tenure: Since the loan amount involved in home loans is huge, the tenure of home loans goes up to 30 years, which makes EMI affordable and ensures that the monthly budget is not under any kind of pressure.

Eligibility criteria for a home loan

Age: Your age should be 23 years to 62 years upon maturity of the loan, and you must be an Indian citizen.

Income: Only stable income will be taken into account to check eligibility

Credit score: A credit score above 750 is considered good. But with a credit score of less than 750, you can also get a home loan, but the ROI will differ. Therefore, it is advisable to have some credit history; if you don’t have any credit history, then you might need to pay a higher ROI. To generate credit history, one can apply for a credit card and get a credit score of more than 750 by paying with the card before the due date.

Loan to value ratio: 80% to 95% of property value; it depends on a case-to-case basis.

Employment status: Salaried or non-salaried both are eligible, but document requirements and ROI will differ.

Key terms with respect to home loans

Some key terms with respect to home loans are explained below.

Approved Project Financing (APF)

The APF (Approved Project Financing) number is indeed provided by banks and financial institutions to authorised builders of a house, building, or project. This number signifies that the bank has evaluated and approved the project based on various parameters, such as legal, technical, and financial aspects. Having an APF number for a project streamlines the loan application process for home buyers as it simplifies the documentation requirements. However, it’s essential to note that just because a project has an APF number doesn’t guarantee loan approval; buyers must still meet the bank’s eligibility criteria. Home buyers should indeed check which banks or financial institutions have provided an APF number to their interested projects and apply for a loan with them. It’s also recommended to compare loan offers from different banks to choose the one that best suits their needs.

Floating rate of interest and fixed rate of interest

It’s true that most home buyers opt for floating interest rates when borrowing home loans, which are linked to the REPO rate. The advantage of floating interest rates is that they may be lower than fixed interest rates and may reduce the overall cost of the loan. Additionally, if the REPO rate decreases, the floating interest rate may also decrease, resulting in lower EMIs.

On the other hand, fixed interest rates remain constant throughout the tenure of the loan, which means that the borrower can predict their EMI and plan their repayments accordingly. However, fixed interest rates are generally higher than floating interest rates by around 1%, and banks may charge pre-payment penalties if the borrower wishes to pay off their loan early. Furthermore, converting from a fixed interest rate to a floating interest rate may also incur conversion charges.

Whether to opt for a floating or fixed interest rate depends on the borrower’s individual preferences and financial situation. If the borrower prefers certainty and predictability, a fixed interest rate may be a better option. However, if they’re comfortable with fluctuations and willing to take on some risk, a floating interest rate may be more cost-effective. Therefore, it’s not recommended to always select a floating or fixed interest rate without considering your financial situation and risk tolerance. It’s essential to weigh the pros and cons of both options and choose the one that best suits your needs.

Home loan insurance

A home loan insurance plan is a scheme under which the insurer will settle the outstanding home loan amount with the lender or bank in case of an unforeseen situation. Some of the comprehensive home loan insurance plans offer coverage for the applicant, the house, and all its contents. This insurance premium is added to the loan amount, and the EMI of the home loan increases accordingly. This insurance is not compulsory for borrowers, but bank officials suggest borrowers take it. The loan tenure and insurance coverage period must be the same. It is not advisable to opt for a shorter cover period, thinking that you will extend it later. There is a very strong chance that you might forget to extend in the long run. Also, as you grow older, it becomes more difficult for you to get good coverage. Even if you get one, it will be expensive.

Down payment

The amount of money that the borrower pays upfront when purchasing a home is typically expressed as a percentage of the purchase price.

Stamp duty and registration fees

Usually, home buyers don’t consider the cost of stamp duty and registration fees when purchasing a home. Normally, it is around 8% of the value of the property. While planning the home purchase, consider the cost of stamp duty and registration fees.

Refinancing the down payment

If the borrower had made a larger down payment to the builder or seller of the home, If the loan agreement permits, the borrower who made the additional payment will receive a portion of the loan amount. The borrower may be able to receive a portion of the loan amount in their savings account. This would typically depend on the terms of the loan agreement and the policies of the lender. The borrower should check with their lender regarding the possibility of a part-disbursement of the loan amount to their savings account.

ROI – differs with size of loan

If the loan size is not more than Rs. 30 lakh, some banks charge a lower ROI by 10 to 20 basis points compared to higher loan amounts. So, if you are taking a loan of Rs 31 lakh, then reduce your loan to Rs 30 lakh and avail yourself of such benefits. If your loan size is very large and you have sufficient income support, then you can have healthy bargaining power, and the bank will provide you with a loan at the lowest ROI as per their norms.

Margin percentage – differs with size of loan

Normally, banks approve and sanction 80% of the value of property; the remaining 20% needs to be paid by the borrower. This 20% is called the Margin Percentage. Some banks keep only a 10% margin if the loan size is less than Rs 30 lakh. So small buyers will get a higher loan amount, which is very helpful for them. It’s important to note that the margin percentage may vary depending on the lender, the borrower’s creditworthiness, and the type of loan. Borrowers should carefully evaluate their financial situation and choose a margin percentage that they can comfortably afford.

Margin percentage – differs based on category of builder

Big builders like Lodha, L&T, etc. are termed a category builder by banks. If you are purchasing a home from such builders, Banks will fund your home loan by 95% of the value of the property, and only a 5% margin will need to be paid by you. Normally, big builders have agreements with private banks, and accordingly, such private banks will keep less margin money than 5%. It’s important to note that the specific loan terms may vary depending on the lender, the borrower’s creditworthiness, and the type of loan. Borrowers should carefully evaluate their financial situation and choose a loan amount and down payment that they can comfortably afford.

Different banks – different rates of interest (ROI)

Every bank will charge an ROI on a home loan. Public and private bank ROI is lower than cooperative bank ROI, while NBFC ROI is much higher than the banks. When the REPO rate is declining, the ROI of public and private banks will also decline as ROI is linked with REPO. To reduce the ROI, the borrower will have to file one application with fees normally below Rs.1000/-. But co-operative bank ROI is not linked with REPO. Therefore, they will not reduce their ROI when REPO is reduced, and similarly, they will not increase ROI when REPO increases. Therefore, when REPO is increasing ROI, the Co-operative bank will be lower than the government and private banks for one or one and a half years; afterwards, co-operative will increase ROI, and then it will be higher than the government and private banks. To reduce the ROI when the REPO rate reduces, the borrower will have to file one application with fees normally below Rs.1000/- and some banks don’t charge any fees.

Conclusion

A home loan can be a practical way to achieve the dream of homeownership. Taking out a home loan is a major financial decision that requires careful consideration and planning. By understanding the basics and some advanced terms and scenarios of home loans and considering factors such as your credit score, down payment, income and expenses, loan term, ROI, fees, APF, etc., you can make an informed decision and find a loan that works for you.

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

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

Cloud computing concept’s emergence in human resource management

By

Vanshika Kapoor

-

August 24, 2023

0

This article has been written by Shailaja Prabakar pursuing a Diploma in Strategic HR for Startups and Emerging Industries from LawSikho, and has been edited by Shashwat Kaushik.

It has been published by Rachit Garg.

Table of Contents

Introduction

Cloud computing has become the new normal of business operations in recent years, and its immense benefits continue to be experienced and nurtured every day around the world. One of the revolutionary changes in this technological era is the unification of cloud computing and Human Resource Management (HRM). According to the PwC HR Technology Survey 2022, HR Leaders from different countries have reported that technology investments with cloud vendors in the HR domain have met and even exceeded their expectations and have paved the way to strengthening their businesses. Such tech-driven adoptions have helped several companies recognise their employees and manage them better, thereby helping the emergence of HR as a strategic partner. This article focuses on the top 5 challenges faced by HR today, the 5 reasons why cloud technology is best for HRM, the factors that decide the right cloud solution for a business, and the future of cloud-driven strategic HRM.

Challenges in human resource management

The evolution and growth of HRM since World War – II have been steady, and it is quite fascinating to see how the intervention of technology in people management transformed companies from being work-centric to employee-centric to achieve their business goals. HR leaders around the globe are now looking at ways to improve employee-centricity and adopt strategic HRM, where employees are considered strategic partners and a competitive advantage in boosting organisational performance. However, there are several intricate challenges involved in managing people effectively and foreseeing the human capital needs of the future. The top 5 challenges faced by HR leaders, according to the HR Tech Survey conducted by PwC (2022) and Gartner (2023) in the past two years, have been discussed below:

HR analytics and recruitment: As companies expand globally with a parallelly growing workforce, end-to-end hiring procedures have become more complex. Recruiters are now focused on hiring the “best-fit” rather than the “right-fit” candidates because the former aligns best with a company’s vision, mission, values, and goals. It is in this pursuit of growing a sustainable workforce that global companies are spending more time and effort than anticipated to fill the open positions. The PwC HR Tech Survey 2022 shows that 39% of HR leaders in the US are unable to fully unlock the capabilities of HR analytics to streamline their recruitment procedures
Modernization of HR systems: Gartner’s 2023 research shows that 57% of HR leaders around the world are struggling to adopt modern HR technology. This is further supported by PwC’s 2022 report, which states that 36% of HR leaders in the US face trouble using cloud computing in HR systems. The complexity of transferring data from computer files into cloud storage, paired with the centralization of organisational data, has always held HR away from adopting innovation and, hence, stands as a barrier to HR technology transformation.
Employee upskilling: Upskilling is an integral part of professional work environments, and it brings immense long-term benefits to individuals and organisations. The traditional approach to Learning and Development (L&D) initiatives cannot be applied anymore due to the impact of advancements in tools, processes, and culture shifts in the workplace. This raises L&D challenges that include:
- Flexibility in time and place for employees in offering training programmes.
- Understanding learners’ needs.
- Retention capability and performance after learners finish a training course.
- Metrics to measure the efficiency of learning programmes.
Employee retention: Employee retention refers to the practise of holding on to an employee to prevent him from leaving their company and joining another. Employee retention is important because, without skilled employees, the company would not be able to flourish. Because the number of people who joined or left the company has a direct impact on its growth.
Growth of remote and hybrid work cultures: As a result of the pandemic, remote and hybrid work cultures have quickly expanded, and as a result, employees no longer prefer to work from offices but rather prefer WFH (work from home) arrangements. Managing employees who are working from home could be a challenging task.

Benefits of using cloud computing in HRM systems

A cloud-driven Human Resources Information System (HRIS) is the one-stop solution for all the challenges discussed in the previous section. Cloud technology offers remarkable opportunities to develop traditional HRM systems into architectures with agility, allowing faster responses to industrial demands and trends. It also guarantees flexibility, scalability, centralization of data, faster implementation, reduced cost, and access to innovation.

Five reasons why HR leaders must migrate towards cloud-based HRIS are described as follows:

Better talent management

Recruiters and managers can use HRIS tools to identify sources of recruitment that can fetch potential candidates with a competitive and aspirational mindset who align with the organization’s values and performance goals. From sourcing to onboarding candidates, cloud-based HRIS can greatly reduce recruitment costs and time and allow automation of application and recruitment tasks.

Reduced paperwork and increased efficiency

From candidate applications to employee payroll, every intricate detail can be stored and managed on cloud platforms. Cloud technology paired with Robotic Process Automation (RPA), the Internet of Things (IoT), and Artificial Intelligence (AI) can drastically reduce the time spent on unplanned and repetitive tasks while enhancing data analytics, employee information security, and background and credential verification.

Improved learning experience

Cloud-based learning portals help employees choose their field of study with self-paced learning options, access coursework anytime and anywhere, and reduce costs spent on training resources. Given this flexibility of usage, HR managers can leverage these platforms to train their employees in skills that are essential for organisational growth.

Better employee engagement and retention

Ever since “The Great Resignation” trend started in the wake of the COVID-19 pandemic, HR teams have been struggling to create strategies for better employee engagement and retention. Cloud-based HRIS solutions can go a long way in solving this issue – they can help HR managers identify skill gaps and performance shortfalls and access the employee life-cycle in the company, through which managers can build a robust career plan for their employees and aid their career growth. Such practices, if followed consistently, can help companies retain the best talent and reduce employee turnover.

Building better remote work management

Another huge challenge for HR teams is managing their employees who work remotely. Cloud-based HRIS systems can help measure the quality and quantity of outcomes delivered by every employee and how often every employee collaborates with other teams and colleagues to complete tasks. Results from such studies are capable of highlighting employee disengagement, and managers can schedule one-on-one meetings with the identified employees to boost productivity. Additionally, HR teams can use cloud-based HRIS to analyse the performance of on-site versus remote employees and modify their remote work policies accordingly.

The future of cloud computing in human resource management

The versatility of cloud-based HRM tools has triggered research enthusiasts, IT industries, and HR teams across the world to disrupt and transform HR practices into more innovative people management strategies. Here are some of the advancements that are anticipated in cloud-based HRIS solutions in this decade:

The merging of the Internet of Things (IoT) and Cloud Computing is expected to revolutionise HR activities in the workplace. Researchers are working on building a unified platform that can improve HR’s response time and agility.
Artificial Intelligence (AI) is the new talk of the tech town, and its exceptional capabilities have left the world awestruck, paving the way to a smarter world. Incorporating AI into cloud-based HR solutions can provide exceptional benefits and a 360-degree support system for all HR needs, thus steering organisations towards healthy leadership in the future.
Gamification of HR solutions in the cloud is another trend that has started to gain popularity in recent years. It involves using gaming principles to turn ordinary tasks into exciting work, which helps improve sourcing and engage the best recruits.

Conclusion

The intervention of cloud computing technology in HRM has resulted in the creation of innovative HRIS tools that can help automate and improve existing HR practices and manoeuvre organisations towards a better tomorrow. Implementation costs, security concerns, complexity in integration, and a lack of awareness and support from leaders are some of the most common barriers.

References

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Contract as a lawful agreement : an insight

By

Vanshika Kapoor

-

August 24, 2023

0

This article has been written by Riya Sharma pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution at LawSikho, and has been edited by Shashwat Kaushik. It gives a brief overview of a contract being a lawful agreement, alongside the important pointers about the same.

It has been published by Rachit Garg.

Introduction

A contract is nothing but a lawful agreement, and an agreement is a set of promises that further form consideration for both parties to a contract. Contracts are a very common part of everyone’s day-to-day life. We enter into millions of contracts on a daily basis, and we aren’t aware of it. All transactions, ranging from booking a cab to purchasing an air conditioner, are contracts.

This article aims to shed light on the concept of “contracts as lawful agreements” and exploring all the basic elements of contracts that make them valid. Apart from this, it has been explained in this article that a contract is more than just a piece of paper because, when we enter into a contract, many things have to be kept in mind, which are specified in this article.

What is a contract

In simple terms, contracts are agreements that are enforceable by law. When an agreement satisfies all the essentials of a valid contract, then it becomes a contract. If an agreement lacks any one essential element, it can never become a valid contract. According to Section 2(h) of The Indian Contract Act, 1872, “an agreement enforceable by law is a contract.”

Illustration

Mr. Ram offers his golden watch for sale at 50,000/- rupees to Mr. Krishna, which he accepts. In this illustration, we see that it is an agreement between both Ram and Krishna that has consideration and mutual duty towards each other, and once it is enforceable by law, it becomes a contract.

Stages of a contract

Following are the stages and steps taken by both parties to make a valid contract.

Proposal ➡️ acceptance ➡️ promise ➡️ consideration ➡️ agreement ➡️ enforceability by law = Contract

Proposal/offer

According to Section 2(a) of the Indian Contract Act, “when one person signifies to another his willingness to do or to abstain from doing anything, with the view to obtaining the assent of that other, he is said to make a proposal.” In simple terms, a proposal is a way to initiate the first step towards a contract. As the definition says, when one person signifies to another his willingness to do or not do something for the purpose of obtaining his assent.

The word “signifies” means that there must be a communication of a proposal, which is defined under Section 3 of the Indian Contract Act, 1872. The term offer is a synonym for the term proposal, with the basic difference between them being that “offer” is used in English law and “proposal” is used in Indian law.

Illustration

Person “A” wants to sell his car to person “B” for 5 lakh rupees. Here, “A” shows his willingness to sell his car to “B.” The offer must be clear and definite. For example, ‘A’ wants to sell his remote control car to ‘B’ for 600/- rupees. ‘B’ accepts the offer

An invitation to offer is not considered an offer, for example, in an auction advertisement, prospectus, or catalogue. Because they are not an offer but an invitation to offer, which is also known as an “invitation to treat.” An invitation to offer is nothing but the circulation of an offer. It is made with the intention of negotiating more offers.

For example- Asking an employee what salary he/she is expecting while recruiting. In simple terms, it is an attempt to call an offer before a definite or clear offer.

Harris vs. Nickerson (1872)

Facts of the case

In this case, the defendant advertised an auction on a specific date or place. According to the advertisement, the plaintiff travelled and reached the place mentioned in the advertisement, but by the time the plaintiff reached there, the defendant had cancelled the auction.

The plaintiff files suit against the defendant for breach of contract and also for his loss because he spends his money on travel.

Judgement of the Court

In this case, the Court held that it was an advertisement, which is an invitation to offer and not an actual offer; hence, there is no contract made between both parties, which makes the defendant liable for the plaintiff’s loss.

Acceptance

This is the second step to creating a contract, which is to accept the offer. Acceptance is a very important part of making a contract. Without acceptance, the contract between two parties cannot come into existence.

The acceptance of the offer must be communicated because mere silence cannot be considered acceptance.

Felthouse vs. Bindley (1862)

Facts of the case

In this case, Felthouse wanted to buy a horse from his nephew and he wrote a letter to his nephew saying that he want to buy his horse for 35 pounds, and he asked his nephew not to sell the horse to anyone else Felthouse clearly mention that “if i hear no more about it i shall consider the horse mine”.

Now, his nephew never responded to that offer, but he intends to sell his horse to Felthouse one day. His horse was mistakenly sold by his auctioneer, whose name is Bindley. Felthouse sued Bindley because it was, in a sense, his horse.

Judgement of the Court

“The Court held in this case that since the nephew had not communicated his acceptance to Felthouse, it is not considered a valid contract. And Binley was not liable for Feelhouse’s loss.”

Mere silence or no rejection is not acceptance.

Chris Achter’s case

This is a very curious case coming from a Canadian court – A thumbs-up emoji as acceptance. The thumbs-up emoji proves a valid confirmation or acceptance of an offer. It was held by a Canadian Court recently in the case of a farmer that the thumbs-up emoji amounts to a valid acceptance because a thumbs-up emoji is an “implied acceptance,” which is obviously an acceptance by act or conduct.

Facts of the case

Farmer Chris Achter was a defendant here, and Mickleborough was a plaintiff in this case. Mickleborough signed a contract for grain and texted “please confirm the flax contract” to the farmer.

According to the Canadian Court, the farmer replied with a thumbs-up emoji, and later he did not send the flax to Mickleborough. Mickleborough filed a suit against the farmer for breach of contract as he did not receive grain, and he thought that Achter’s thumbs-up emoji was an acceptance of that contract.

Judgement of the Court

Judge T.J. Keene of the Courts of King’s Bench in Swift Current, Saskatchewan, Canada, agreed that the thumbs-up emoji can be a confirmation of any offer and that there is a breach of contract by the farmer with respect to the facts of this case. The judge had ordered the farmer to pay Mickleborough $82,200 in Canadian dollars.

Promise

According to Section 2(b) of the Indian Contract Act, “a proposal when accepted becomes a promise.” Thus, when any proposal or offer is accepted, it becomes a promise, which is like an assurance or commitment made by one party to another, and both parties have obligatory duties towards each other to fulfil that promise.

Illustration

‘Neetu’ books an Uber cab with a cab fare of Rs. 400/- and promises to give Rs. 400/- to the cab driver, and ‘cab driver’ promises to drop her off at her destination.

Consideration

According to Section 2(d) of the Indian Contract Act, 1872, “When at the desire of the promisor, the promisee or any other person has done or abstained, from doing or does or abstain from doing, or promises to does or abstain from doing something such act or abstinence or promise is called consideration”. Consideration is like getting something in return. A valid consideration creates a valid contract. Consideration can be of anything, such as security amount,movable or immovable property, etc. But it should be lawful in accordance with Section 23 of the ICA.

Illustration

Swati offers her dress for Rs. 1500/- to Nisha, and Nisha accepts the offer. In this illustration, a valid and lawful consideration exists. For Swati, her consideration is Rs. 1500/- and for Nisha, her consideration is that dress.

Enforceability

This is the last stage for creating a valid contract. According to Section 2(g), “An agreement which is not enforced by law is void”. When an agreement is enforceable by law, it is said to be a contract. Enforceability is an essential aspect of a valid contract. When the parties enter into a contract, they must have met the criteria for it to be enforceable by law. And if the necessary conditions are not fulfilled, neither party can seek remedies or damages for their loss, and the contract is said to be void.

Illustration

‘X’ Threatens to harm ‘Y’ if he does not sell his house for 10 lakhs. ‘Y’ sells his house at a stated price. This contract is not considered legitimate because Y’s consent was obtained by coercion without free consent. It cannot become a valid contract as it is not enforceable by law.

Essentials of Valid Consideration

According to this Section 10 of the ICA, “All agreements are contracts if they are made by the free consent of parties, competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.” An agreement has to fulfil the essential conditions to become a contract, such as:-

Agreement;
Free consent;
Competent parties;
Lawful consideration;
Lawful object; and
Must not be declared void by law.

Agreement

We often use the word agreement, and sometimes we use it interchangeably with the word contract. We enter into numerous agreements daily; they aren’t necessarily in writing. They range from buying vegetables from street vendors to purchasing a new house. Agreements occupy an important place in our day-to-day lives. Therefore, it becomes important to understand the meaning of agreement. According to Section 2(e) of The Indian Contract Act, 1872, “every promise and every set of promises, forming consideration for each other,is an agreement.”

An agreement, in other words, is an accepted proposal; it is the result of a proposal from one side and its acceptance by another. To make the above explanation more comprehensible, an illustration can be taken from our day-to-day lives: For example, Khushi offers Harsh to sell her scooter at Rs. 50,000/-. Harsh accepts the terms and agrees to pay the amount mentioned. Khushi and Harsh entered into an agreement. However, there are some accepted proposals that cannot become contacts. For example, Annie agrees to pay Joseph Rs. 1000/- if he gets her stars from the sky, the task is impossible to perform and hence void.

As we enter into numerous agreements daily that we are not aware of, not every agreement is enforced by law. And there must be an intention to create legal relations, because an agreement cannot become a valid contract if there is no intention to create legal relations. The parties must have the intention and mindset to enter into a contract.

In a leading case, Balfour vs. Balfour (1919), the validity of an agreement between a husband and wife was in question.

Facts of the case

Mr. Balfour was a civil engineer who served as the Director of Irrigation for the Government of Ceylon (now Sri Lanka). Mrs. Balfour was living with him. The husband and wife went on leave to England, and the wife fell ill in England. The doctor who treated the wife advised her to take full bed rest and stay in England. Mr. Baflour verbally agreed to pay her £30 until she returned to Ceylon. However, when their relationship worsened over time, Mr. Balfour stopped paying Mrs. Balfour the required amount of maintenance. Mrs. Balfour filed a suit against Mr. Balfour for failing to pay the maintenance amount.

Judgement of the Court

The Court dismissed the case on the grounds that the agreement entered into between the husband and wife was not a contract. Because the parties do not intend to enter into a legal obligation. The agreements that create a legal obligation are contracts, and those agreements that do not intend to create a legal relationship are not contracts.

Free consent

Free consent is the second basic element of a valid contract; there must be the free consent of the parties while entering into a contract. If there is no free consent, then the contract is declared void. Consent is defined under Section 13 of the Indian Contract Act, 1872, as “two or more persons are said to consent when they agree upon the same thing in the same sense.” Which means consent is said to be free when parties give their consent voluntarily and by their own will without any fraud, coercion, misrepresentation, mistake, or undue influence.

According to Section 14 of the Indian Contract Act, 1872, consent is said to be free when it is not caused by:

Coercion (Section 15),
Undue influence (Section 16),
Fraud (Section 17),
Misrepresentation (Section 18)
Mistake (Section 20, 21, 22).

Competent parties

According to Section 11 of the Indian Contract Act, 1872, “every person is competent to contract who is of the age of majority, of sound mind and is not disqualified from contracting by any law to which he is subject.”

Basically, every person is competent to contract but as per the law, these categories cannot have the capacity to make a contract

A minor,
unsound mind, or
people disqualified by law.

Thus, a person who is of the age of majority is of sound mind, and is not disqualified by law is a competent party to enter into a contract.

A minor is a person who has not attained the age of majority, which is above 18 years in India, and any agreement with a minor (below 18) of age is void ab initio which is null and void from the beginning.

According to Section 12 of the Indian Contract Act, 1872, a person who does not have a sense of right and wrong and is incapable of taking rational action is said to have an unsound mind. A person can have a permanent or temporary unsound mind, and these types of people cannot enter into any contract because a contract with an unsound mind is said to be void. A person who is typically of sound mind but occasionally becomes unsound-minded, however, can contract while in the state of sound mind. A person who is disqualified by law cannot make a contract as they are not competent parties to enter into contracts. Further, a prisoner cannot enter into any contract because that person is disqualified by law; similarly, an enemy or an alien is disqualified by law. Also, an insolvent person cannot indulge themselves in a contract because they are also disqualified by law.

Mohori Bibee vs. Dharmodas Ghose (1903)

Facts of the case

Dharmodas Ghose was the plaintiff in this case. He was the legal owner of his immovable property. Dharmodas decided to mortgage his immovable property, and he completed all the formalities with the defendant, Brahmo Dutta. He was the moneylender in this case, and he has an attorney for management whose name is Kedarnath. Dharmodas secured his mortgage deed for Rs. 20,000/- at a 12% interest rate. Later on, Dharmodas’s mother sent a notice to Bramho Dutta, informing and reminding him that Dharmodas is still a minor and you are entering into a contract with him at his own risk.

Dharmodas and his mother filed a suit against Bramho Dutta, saying that the mortgage was not valid as Dharmodas was a minor or infant when he entered into this contract. In this process of the case proceeding, the defendant had died, and his pleadings were further litigated by his wife, ‘Mohori Bibiee’.

Judgement of the Court

The Court gave the judgement in favour of Dharmodas Ghose because he was a minor when he entered into this contract and he was not a competent party to sign a contract. Hence, this contract is void ab-initio.

Lawful consideration

According to Sections 2(d) and 25 of the Indian Contract Act, 1872, an agreement without consideration is void, and consideration must be lawful to make an agreement a valid contract. Any consideration that is unlawful and prohibited by law cannot be considered a valid or lawful consideration.

Illustration

A promises to obtain an employment position for B in judicial services and B promises to pay Rs. 5 lakh for that. The agreement between both was declared void because A was taking a bribe, which is not a valid consideration and is considered an unlawful consideration.According to Section 24 of the Indian Contract Act 1872, “if any part of a single consideration for one or several objects or any one or more part of consideration for a single object is unlawful, the agreement is void.”

Lawful object

A lawful object is another essential element of a valid contract. An agreement must have a lawful object to make a contract valid. As the consideration should be lawful, just as the object of the contract must be lawful, this essential element of a valid contract needs to be fulfilled. Any part of several considerations for a single object and any part of several objects for a single consideration is unlawful; the agreement is declared void.

What objects and considerations are lawful

According to Section 23 of the Indian Contract Act, 1872, the consideration or object of an agreement is lawful unless:

It is forbidden by law.
Permitted by law.
A fraudulent act.
It involves or implies injury to the person or property of another.
It defeats the provisions of law.

In such a case, as mentioned above, the object and consideration are declared void.

Illustration

A offers his AK 47 gun to B, and B gives him 1 lakh rupees for that gun. In this illustration, the object of this agreement between A and B is unlawful and forbidden by law, which makes this agreement void. And it cannot become a contract.

Not declared void by law

Last but not least, it is essential to a valid contract that an agreement not be declared void by law. Any agreement that is void in the eyes of the law is considered void. According to Section 29 of the Indian Contract Act, “agreements, the meaning of which is not certain or capable of being made certain, are void.”

According to Section 56 of the Indian Contract Act, “agreements to do impossible acts are void.”

Such agreements are also declared void, which is impossible to do and cannot become a contract due to failure to fulfil the essential condition.

Illustration

A and B contract to marry each other. But unfortunately, B died before the fixed time for marriage. This contract becomes void.

All contracts are agreements, but not all agreements are contracts

“All contracts are agreements, but not all agreements are contracts”

– ANSON

There is no doubt that this statement is true. This statement has been stated by Anson, who emphasizes that there is no contract without an agreement. Not every agreement is enforceable by law. For example, an agreement to bring a gift on a friend’s birthday is not enforceable by law if the friend fails to get a gift.

In short, we can consider a contract as a wider term that deals with all types of agreements, and an agreement is a narrow term that becomes a contract only when it fulfils all the necessary conditions of a valid contract. All agreements can be considered contracts, but not every single contract is considered as a valid agreement because a void or voidable agreement or an agreement which is not enforceable by law cannot become a contract.

Void agreements

Void agreements are those agreements that are not enforceable by law and cannot fulfil the criteria to become valid contracts because of their lack of enforceability, and neither party can claim compensation nor damages.

Voidable agreement

A voidable agreement is different from a voidable contract. In the initial phase, voidable agreements are enforceable by law and have the capacity to become valid contracts, but due to some circumstances, they cannot come into effect and are declared voidable.

For example, Mr. Henry sold his dog to Mrs. Marie knowing that the dog was physically challenged. But Marie was not aware of it initially, and both parties signed this contract. Later, she knew that this dog was fraudulently sold to her, hence, the contract is said to be voidable.

What agreements are contract

An agreement becomes a contract when it fulfils all the necessary conditions of a valid contract, such as:

Parties must be competent.
There must be a lawful object and consideration.
There must be an intention to create a legal relationship.
There must be free consent.
The agreement must not be declared void by law.

What agreements are not contracts

There are some agreements that are unable to become contracts due to discrepancies and failure to fulfil the essential conditions of a contract.

Illustration

Mr. X offers drugs for smuggling to Mr. B, and for this, Mr. X offers Rs. 1 lakh to Mr. B, who accepts the offer. This agreement cannot be enforced by law as the object of the contract is unlawful, which is “drug smuggling.” Hence, it is said to be void

Conclusion

It is evident that “contract as a lawful agreement” plays a significant role in our day-to-day lives, and we gain valuable insight through a deeper dive into the world of contracts and agreements.

As we move forward, we come to know that all contracts are agreements, but not every agreement is a contract. Because some agreements cannot fulfil the criteria of a valid contract. Apart from this, there are some essential conditions to make a contract valid and enforceable by law, such as- there must be an intention to create a legal relationship; there must be free consent, parties must have competency; etc.

We can’t neglect contracts in our daily lives because they are a crucial part of them. Even if we are buying candy, we are entering into a contract with that shopkeeper. As we reflect on the significance of contracts and agreements in this article.

References

The Indian Contract Act, 1872 (9 of 1872) Bare Act

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Steel Authority of India Limited (SAIL) and IISCO merger : an analysis

By

Vanshika Kapoor

-

August 23, 2023

0

This article has been written by S. Hemalatha pursuing a Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) at LawSikho, and has been edited by Shashwat Kaushik.

It has been published by Rachit Garg.

Table of Contents

Introduction

The concept of merger and amalgamation took shape in India after the 1990s, i.e., after economic liberalisation. According to the Companies Act 2013, ‘merger’ means a combination of two or more entities into one. The effort involves not only combining the assets and liabilities of two distinct entities into one but also combining their organisational structures. A merger is the simple term for the joining of two distinct business entities into one new entity. The merger can take place for any of the reasons listed below:

Due to increased competition;
Technology adoption;
Business expansion and globalisation;
Due to changes in market dynamics;
To diversify the risk; or
To increase the brand’s value.

What are different types of mergers

Different types of mergers include:

A brief overview of Steel Authority of India Limited (SAIL) and ISSCO plants

SAIL (Steel Authority of India Limited) is a Maharashtra-based company that operates one of India’s largest steel plants. Five integrated plants and three special steel plants, most of which are located in India’s eastern and central regions, are used to produce the iron and steel used by SAIL. These plants are conveniently located near domestic raw material sources. They are owned and run by The Ministry of Steel, a department of the Indian government.

SAIL’s history can be traced back to Hindustan Steel Limited, which was established in Rourkela in 1954. The growth of this industry started to shape itself with the second five-year plan, which planned for rapid industrialisation in India. On December 2, 1972, the draft of the policy statement with the idea of creating a holding company to manage input and output under one roof was presented to Parliament in an effort to further accelerate the growth of the steel plants. The capital of Rs. 2000 crore was allocated for the incorporation of SAIL on January 24, 1974. With this, SAIL started its journey in India.

The Indian Iron & Steel Company (IISCO) is one of the integrated plants of SAIL, which was one of the first steel plants in India incorporated in 1918 at Burnpur. The plant first started operation as Bengal Iron Works at Kulti, West Bengal, in 1870. Later, it was merged with Bengal Iron Works in 1936 and then with Steel Corporation of Bengal in 1952. Now the Indian Iron and Steel Company (IISCO) has been amalgamated with the Steel Authority of India Limited (SAIL) with effect from February 16, 2006.

Decision of merging SAIL and IISCO

The government has decided to merge the 130 years old Indian Iron and Steel Company (IISCO), the country’s oldest steel plant, with SAIL to give it new life. When IISCO merges with SAIL, it will be the fifth integrated unit of SAIL in West Bengal. The following are the major reasons for the amalgamation of SAIL and IISCO:

By joining forces with SAIL, IISCO would be able to raise the necessary funds;
After merging, the continual losses of IISCO, which has been on the red list for the past 30 years, would take on a new form.
Because of the merger, IISCO could be modernised.
This merger will benefit both IISCO and SAIL. The IISCO uses one of the largest deposits of iron ore in the country, and now SAIL can fully utilise it. SAIL will be putting money into the modernisation of iron ore extraction as well as the plant at Burnpur
SAIL’s own iron ore deposits of around 800 million metric tonnes are spread over Jharkhand, Orissa, and Chhattisgarh. With the decision to merge with IISCO, SAIL’s deposits will increase to more than 3.2 billion metric tonnes.
The government will forgive about 900 crore of debt owed by IISCO.

Due to all these reasons, the government has decided to merge IISCO and SAIL. The merger took effect on February 16, 2006. After merger, IISCO steel became the 5th integrated steel plant of SAIL and was renamed as IISCO Steel Plant (ISP)

Benefits of the merge

After a merger with IISCO, the largest steelmaker in the nation’s reach has been further expanded. The SAIL further grows in size with five integrated steel plants under its fold. The very intention of the merger is an expansion and modernization of IISO. The government has allocated Rs 8,000 crore for the technological upgradation of IISCO, taking its annual hot metal production capacity to 2.5 million metric tonnes by 2011-12 from the present level of 0.85 million metric tonnes at the time of the merger.

The fact that IISCO’s flourishing iron ore mines at Chiria in Jharkhand are rich in both quality and quantity is another significant positive outcome of the amalgamation for SAIL. SAIL would benefit from their advantageous location.

The availability of large infrastructure facilities with IISCO will help expand the capacity of SAIL’s annual production. The Inter-plant synergy of IISCO can be better exploited for an improved and complementary product-mix. Moreover, IISCO has experienced manpower with a good work culture, and SAIL, with its financial and managerial capabilities, can be pooled for faster growth of SAIL and IISCO.

Progress of ISSCO (ISP) after merging

During its early expansion in 1953-55, it was the only Indian company to be quoted on the London Stock Exchange. The plant has gradually faced decline due to non- rehabilitation of equipment and the lack of upgrading technology. Even though several modernisation programmes have been formulated by Indian and foreign consultants, the status of the IISCO has declined due to the non implementation of the schemes. So the Union Government has decided to merge the IISCO with the SAIL for its betterment. Since the merger has been effected since February 16, 2006. It has been renamed the IISCO Steel Plant (ISP), from where the journey of the ISP reaches new milestones along with the growth of SAIL.

The following graphs depict the progress of the ISP (IISCO Steel Plant) since its amalgamation.

Random Annual Years of Sale	Total salable Steel in Metric Tonnes
Before Merge
2003 – 2004	11026
2004 – 2005	11030
After Merge
2007 – 2008	13044
2010 – 2011	12887
2013 – 2014	12880

Table -2 Growth of salable steel before and after merge

Years	Turnover (in crores)
2018	57975.21
2019	67468.10
2020	62569.95
2021	69964.28
2022	104335.39

Technologies that are adapted after merging

The adaptation of modern technology after merging

Modernised Unit	Facility	Annual Production Capacity
Coke Oven Battery	7 M Tall X 74 Ovens	0.78 MT Gross Coke
Sinter Plant	2 X 204 M2	3.8 MT Gross Sinter
Blast furnance	1 X 4060 M3	2.7 MT Hot Metal
Basic Oxygen Furnance	3 X 150 tonnes	2.5 MT Crude Steel
Billet Caster	2 X 6 Strand	1.67 MT
Beam Blank Caster	1 X 4 Strand	0.8 MT

Pros and cons of merging IISCO (ISP) with SAIL

Pros of merging SAIL and ISP

As Asia’s largest iron ore deposit, Chiria Town in the Singhbhum district of Jharkhand offers an additional benefit to the SAIL’s raw material resources, and its convenient location makes it simple for incoming and outgoing materials.
The knowledgeable, skilled, and dedicated manpower of IISCO (ISP) is an added advantage in the merger of SAIL and IISCO.
The merger ensures a country wide market for ISP steels
Upgradation of modern equipments and new technology make the 5th integrated plant of ISP perform well in the growth of SAIL
There are certain sections of product where SAIL- ISP has complete monopoly
IISCO was exposed to more facilities, both financially and technologically, after merging with SAIL

Cons of merging SAIL and ISP

After merging with giant steel production companies like SAIL, the competition in the market increases many fold.
The use of the iron ore resources of IISCO by a giant like SAIL may deplete the resources more quickly.
International competition and pricing may pose a threat to integrated units like IISCO (ISP).

Conclusion

The analysis of the merger of SAIL and IISCO has brought about various facts, such as the importance of the IISCO merger, India’s contribution to the world steel market, the current usage of new technologies, and its turnover. In order to sustain the global competitive market and steel production, the merging of weaker and stronger companies will help mitigate the problem of closure.

References

https://www.sail.co.in/en/plants/iisco-steel-plant/facilities
https://sail.co.in/en/sail-news/iisco-amalgamated-sail
https://economictimes.indiatimes.com
https://frontline.thehindu.com/economy/article30224909.ece
Annual Report of SAIL 2010-2011
Annual Report of SAIL 2013- 2014
Annual Report of SAIL 2018- 2019
Annual Report of SAIL 2020- 2021

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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The Chamber of Tax Consultants & Anr v. Union of India & Ors (2017) : an analysis

By

Vanshika Kapoor

-

August 23, 2023

0

This article has been written by Dhivyaprabha pursuing a Diploma in US Tax Compliance and Paralegal Work at LawSikho, and has been edited by Shashwat Kaushik.

It has been published by Rachit Garg.

Table of Contents

Introduction

Case Name: The Chamber of Tax Consultants & Anr. vs. Union of India & Ors., 2017

Court and order date: The Delhi High Court and order dated 08.11.2017

Petitioner: The Chamber of Tax Consultants & Anr.

Respondent: Union of India & Ors.

In the case of the Chamber of Tax Consultants & Anr. vs. Union of India & Ors. (2017), the Delhi High Court, in a judgement dated November 8, 2017, struck down parts of the “Income Computation and Disclosure Standards” (ICDS) notified by the CBDT on November 3, 2015, as violating the Income Tax Act, 1961. The order also struck down notification nos. 87 and 88 dated June 29, 2016 and Circular No. 10 of 2017 issued by the CBDT on the same grounds.

Facts of the case

A writ petition was filed by the petitioners to get the court to declare the following as constitutionally invalid because they violate Articles 14, 19(1)(g), 141, 144, and 265 of the Constitution of India.

the “Income Computation and Disclosure Standards” (ICDS) notified by the Central Board of Direct Taxes (CBDT) under Section 145 (2) of the Income Tax Act, 1961 (the Act).
Circular No. 10 of 2017 issued on March 23, 2017 by CBDT provided clarifications to the notified ICDS.
Section 145 of the Act (Substituted and amended by the Finance Acts of 1995 and 2014.

They also requested the quashing of the Notification dated September 29, 2016 and Circular No. 10 of 2017, issued on March 23, 2017.

ICDS:

The notified ICDS is based on the idea that the income computed under the headings “Profits and gains of business or profession” or “Income from other sources” need not match the amount of income as shown in the books of accounts.
The Preamble of each ICDS clearly states that the ICDS is not for the maintenance of books but only for the computation of income. The Act shall always prevail over ICDS in case of any conflict between the provisions of the two.
But according to the Chamber of Tax Consultants (CTC), for the implementation of ICDS, an assessee needs to maintain another set of books of accounts for implementing ICDS.·

Notifications and circulars:

CBDT issued notification Nos. 86/2016 and 87/2016 rescinding notification No. 32/2015 and notifying 10 ICDS applicable from Assessment year 2017-18 respectively.
CBDT, on notification no. 88/2016 dated September 29, 2016, by the powers conferred under Section 44AB read with Section 295, substituted sub-clause (d) to clause (13) in Form 3CD, in part B of the tax audit report, with sub-clauses (d) and (e) to reflect the adjustments made to profit or loss for complying with the notified ICDS.
On a further representation by the CTC, the CBDT issued clarifications by circular no. 10 of 2017 in the form of 25 Frequently asked questions for better implementation of ICDS

Section 145 is a part of Chapter XIV, which states the “Procedure for assessment”.

Method of accounting

Subject to Section 145(2), an assessee can compute income under the heading PGBP or IFOS by following either the cash or mercantile system of accounting, whichever is consistently used.
The Central Government may notify the ICDS to be followed by any assessee or for any income. (In this case, ICDS is to be followed for computing PGBP or IFOS income by assessees employing the mercantile system of accounting to maintain the books of accounts.)
The AO may assess under Section 144 (best judgement assessment) if he is unsatisfied with the books of accounts, if the method of accounting is not regularly followed, or if the income is not computed as per ICDS provisions.

Submissions by the petitioners

The ICDS was implemented to modify the basis of taxation by modifying the computation of income as per the provisions of the ICDS.
The legislation has the power to amend the provisions of the Act, but in the act of delegating power to issue AS/ICDS, this legislative power has been delegated to the executive, i.e., the Central Government. This amounts to giving up powers and delegating excessively.
Unless the enabling Act specifically confers or authorises a power to impose a tax by introducing ICDS from the mere general powers conferred on the Central Government, this is not possible.
The ICDS notification would invalidate various judgements of the Supreme Court and other courts of India and is thus contrary to the law as concluded by these judgements. With the ICDS being mandatory, the assessee can no longer compute income as per the explanation of the Act in the judgements of the courts. This leads to overriding the binding decisions of courts, which is contrary to the law.
An assessee following the cash system of accounting would avoid complying with the ICDS and its implications, as ICDS applies only to assessees opting for the mercantile system. There is no reasonable basis given for this differentiation. This violates Article 14 of the Constitution of India.
The ICDS and the notifications lacked legal certainty, which would result in unequal and discriminatory taxation. This outweighs the gains of ICDS and restricts the freedom to conduct business, which makes the notifications violative of Article 19 (1) (g) of the Indian Constitution.

Submissions by the respondents

As per the reports of the expert committee formed by the CBDT, ICDS notified under Section 145 of the Act should apply only for the computation of income, and there should not be any compulsion to maintain books following the ICDS.
At every stage of the issuance of the ICDS, stakeholders were consulted. The amended Section 145 was aimed at codifying the law, and if followed, the AO cannot reject the books of accounts. Also, ICDS monitors the powers of the AO under Section 145(3).
Reliance was placed on various decisions of the courts to state the following:

It is not prohibited for the legislature, i.e., Parliament, to delegate decision-making powers on the working of tax laws.
The doctrine of ‘updating construction’, requires acknowledging emerging trends in business, technology, and law and the need for a corresponding revision of the AS by ICAI.
Denied that the ICDS overrides the judicial precedents and the changes are brought only to bring uniformity and clarity in the income computation.
While the law has been changed, it is not possible for the legislature to override the judiciary.

Questions before the High Court

Has the parliament delegated its essential legislative powers to the Central Government through the amendments to Section 145?
Have the legislative powers been delegated excessively in the case of ICDS? Are they contrary to various judicial precedents, and should they be struck down?
Whether the violation of Articles 14, 19 (1) (g), 141, 144, and 265 of the Constitution occurred due to the amendments to Section 145 of the Act and the issuance of the notified ICDS and Circular?

Observations and judgement of the High Court

Question 1: Delegation of essential legislative functions

The High Court observed the following before providing its ruling on the question:

From the clarification to question 2 in Circular No. 10 of 2017, it is clear that the ICDS overrides the judicial precedents, which are to the contrary, but is this permissible in the exercise of legislative power?
The amendments to Section 145 allow the Central Government to notify standards for the computation of income but not to change the law as concluded by the judicial precedents, as it would lead to unrestricted powers for the Central Government.
According to Article 265 of the Constitution of India, any tax can be collected or levied only if authorised by law. The power given under Section 145 (2) cannot permit changing the recognised basic principles of accounting unless corresponding amendments are made in the Act. In case the ICDS wants to make changes to the system of accounting or tax treatment of a particular transaction, the legislation will have to first amend the act to incorporate such changes before the ICDS can instruct it to do so.
Where there is a binding judicial precedent, under Articles 141 and 144 of the Constitution, only a competent legislature can make a ‘validation law’ to override the said judicial precedent by rectifying the defects mentioned in such a precedent. Thus, an executive cannot override a judicial precedent unless the act is amended through a validation law.
Thus, the amended Section 145 (2) has to be interpreted to restrict the power of the Central Government to notify ICDS, which does not override the act or the judicial precedents. Not doing so would lead to Section 145 (2) violating the Act and Article 141 read with 144 and 256 of the Constitution of India.

Question 2: Excessive delegation of legislative powers

The Court found the petitioner’s contention valid as the ICDS notified under Section 145 (2) results in the modification of the basis of income computation under the act and various judicial precedents.

Accounting standards cannot dictate the basis on which taxable income is computed. The basic principles of taxation remain the same and will continue to be binding even when the ICDS is applied. Any change in accounting policies impacting the computation of taxable income has to be brought about by a corresponding change in the act for tax purposes.

The preamble of the ICDS itself clarifies that the ICDS is for the computation of income only and not for the maintenance of books of accounts, and the act shall prevail over the ICDS in case of conflicts.

It went on to further observe the following about the ICDS, which are contrary to the judicial precedents. The ICDS that have been challenged are discussed below.

ICDS I: This standard talks about significant accounting policies. The contention here is that the “prudence” concept has been completely ignored in ICDS I, which was present in the earlier AS-I. The respondents replied that the concept of prudence has not been ignored but followed on a case-to-case basis as income and losses have to be treated similarly and preferential treatment is to be given to losses only in certain situations.

The Court ruled that the non-acceptance of the prudence concept in ICDS I contradicts the provisions of the act and is therefore unsustainable.

ICDS II: This standard deals with the valuation of inventories. ICDS II states that the stock-in-trade of a partnership firm on the dissolution of the firm would have to be valued at the market price only, irrespective of whether its business is discontinued or continued with other partners taking over the business. It fails to acknowledge the distinction between the two scenarios, and this is contrary to the ruling in Shakthi Trading Co., by the Supreme Court. This ruling provides for the valuation of stock-in-trade at cost or market price, whichever is lower, in case the business of a partnership is continued. ICDS II amounts to taxing notional income.

ICDS II is contrary to judicial precedents and violates the Act. Thus, it is struck down.

ICDS III: It relates to construction contracts.

Paragraph 10(a) requires the ‘retention money’ to be taxed on the ‘proportionate computation’ method as it is a part of the contract. Various decisions of the courts mention that the retention money accrues to an assessee only after the defect liability period is over and the engineer certifies that the assessee has no liability attached. Thus, Para 10(a) overrides the decision of the courts.

As per the High Court, retention money is to be taxed differently on a case-to-case basis by following income accrual principles. ICDS III intends to tax retention money at the earliest stage possible, when even the receipt could be uncertain.

Therefore, Paragraph 10(a) of ICDS III violates judicial precedent.

Para 12 of ICDS III, read with Para 5 of ICDS IX, states that no incidental income can be deducted or set off against borrowing costs. But the decision of the Supreme Court in Commissioner of Income Tax vs. Bokaro Steel Limited (1998) states otherwise. The decision stated that if an assessee receives any amounts that are inextricably linked with the setting up of plant and machinery, such receipts can be deducted from the cost of its assets. To that extent, Para. 12 of ICDS III cannot be sustained and is struck down.

ICDS IV: This standard relates to revenue recognition.

According to Paragraph 5 of ICDS IV, if the ultimate collection of income from export incentives is reasonably certain, it is to be recognised in the year of claiming. This provision is contradictory to the decision of the Supreme Court in Commissioner of Income Tax vs. Excel Industries (2013). The said decision states that only in the year on which the claim is accepted by the government does a right to receive payment accrue to the assessee, and only in that year can the export incentive be recognised as income as it is said to be accrued. So, Paragraph 5 is inconsistent with the law and violates the Act. So, it is struck down.
Under Paragraph 6 of ICDS IV, only one method of revenue recognition, i.e., the proportionate completion method, is allowed, whereas in Commissioner of Income Tax vs. M/S Bilhari Investment Pvt. Ltd. (2008), the Supreme Court ordered that both the proportionate completion method and the contract completion method are valid under the mercantile system of accounting.

Thus, Paragraph 6 is contrary to the above decision and violates the Act. Therefore, it is struck down.

Paragraph 8 (1), which deals with the accrual of interest, creates a mechanism for tracking unrecognised interest amounts for future liability if accrued. Since there is neither a challenge to Section 36(1) (vii) nor is it contrary to any judicial precedent, it is not said to be Ultra Vires the act or overriding any judicial precedent and is valid.

ICDS VI: This standard deals with the effects of changes in foreign exchange rates. Marked-to-market loss/gain in the case of foreign currency derivatives held for trading or speculation purposes are not allowed as per this ICDS. It goes against the decision of the Calcutta High Court in Sutlej Cotton Mills Limited vs. Commissioner of Income Tax (1949). It is struck down because it violates the Act.
ICDS VII: It pertains to the recognition of government grants. It requires that government grants be recognised and taxed in the year of receipt.

Certain conditions are attached to a government grant, and failing to fulfil such conditions would entail returning the grant amount received. In such a scenario, no income is said to have been accrued, even if it is received in advance. Here, ICDS VII is contrary to and conflicts with accrual principles. So, it violates the Act and is struck down.

ICDS VIII: It relates to the valuation of securities. Part A of the ICDS deals with entities that are not guided by RBI guidelines. They have to follow accounting prescribed by the AS, which is different from the ICDS. Thus, they will have to maintain separate sets of books of accounts for every year since the closing value of securities will be valued differently for tax and accounting purposes.

This change cannot be brought about without a corresponding amendment to the act. Part A of ICDS VIII violates the act and is struck down.

Question 3: Constitutional validity of the ICDS

Under powers conferred by Section 119 of the Act, the CBDT can clarify the law but not change it. Some of the ICDS seeks to mandate the applicability of accounting principles, which overrides the requirements of the Act for income computation.
As concluded above, if the ICDS is permitted to override the Act, the rules, or judicial precedent, it would violate the Act and amount to an instance of excessive delegation of essential legislative functions.
There are no guiding provisions in Section 145 (2) of the Act defining the scope and ambit of the powers delegated to the central government.
For it to not be unconstitutional, Section 145 (2) has to be interpreted to restrict the power of the Central Government to notify ICDS, which does not override the act or the judicial precedents.

Conclusion

As discussed above, the High Court struck down various ICDS or parts of it to prevent it from overriding the Act or judicial precedents. It also struck down notification nos. 87/2016, 88/2016 and Circular no. 10/2017.

It is evident from the ICDS, follow-up notifications, and circulars that they meant to go beyond the powers of the act to tax incomes that were not intended to be taxed by the act. If not struck down, the ICDS would have burdened the assessees with unfair taxation. The instance of excessive delegation of legislative power is also clearly visible, which is unconstitutional and would have resulted in unrestricted power for the Central Government to exploit the taxation laws to increase tax revenue.

References

https://indiankanoon.org/doc/4944822/
https://www2.deloitte.com/content/dam/Deloitte/in/Documents/tax/Global%20Business%20Tax%20Alert/in-tax-gbt-chamber-of-tax-consultants-noexp.pdf
https://taxguru.in/income-tax/summary-delhi-high-court-judgment-case-chamber-tax-consultants-anr-uoi-ors.html
http://www.in.kpmg.com/TaxFlashNews-INT/KPMG-Flash-News-Chamber-of-Tax-Consultants-challenges-the-constitutional-validity-of-ICDS-1.pdf

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