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Punishment for hacking of computers

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This article is written by Monesh Mehndiratta, a law student at Graphic Era Hill University, Dehradun. The article explains the meaning of cyber crimes and particularly deals with hacking as an offence. It further provides provisions and legislations punishing and preventing hacking in countries like the USA and India. 

It has been published by Rachit Garg.

Introduction

Hey! Be careful. 

Your computer might be the next to get hacked. 

Yes, it’s true. Hacking of computers and other devices like mobile phones, laptops, etc. is very common nowadays. You cannot even imagine how many hackers on the other side are trying to get into your computer every minute. In such a scenario, it is important to have knowledge regarding hacking and the offences related to it. Until and unless you are aware of this information, you cannot approach the right authority or take steps to prevent hacking. You might be aware that, presently, crime is not only committed physically in the real world where the accused comes in front of you, but it can also be committed in the virtual space where you do not even know who the accused is. This is because he can easily hide his identity in virtual space. These crimes that are committed in virtual space by breaking into someone’s computer or other devices are known as cyber crimes. 

Hacking is one of the most common cyber crimes committed these days, where a person tries to break into your device to extract your personal information and then further use the information against you. It must be noted that everything, whether a picture or any information stored online, can be hacked. This makes our computers, laptops, mobile phones, etc. prone to hacking. This also becomes a nightmare for us as we are unaware of this crime and other information related to it. But you need not worry. You have come to the right platform. By the end of this article, you will be aware of the crimes related to hacking, the laws punishing such crimes, punishments and methods to prevent such crimes. Let us begin. 

Meaning and nature of cyber crimes 

With the advancement of technology and education, we have been able to invent devices like computers, laptops, mobile phones, etc. that help us communicate with our near and dear ones or anyone in the world. Not only this, but we also store our personal information, like bank details, contacts, photographs, and other important information, in these devices. Who would have thought that this miracle of humanity would turn out to be a nightmare for us one day? There is no doubt that these inventions have been a great help to us, but at the same time, they have given birth to various new crimes where these devices are used as a medium to commit crimes. We constantly fear that our devices will be stolen because they contain our personal information. It is important to know that just because our device is safely kept in front of our eyes, that does not mean that the information cannot be stolen. While you are relaxing, there might be hundreds of people trying to break into your device and steal the precious information. 

It is shocking but true that where technology has given us useful inventions, it has also paved the way for new crimes. These crimes that are done with the help of computers as a medium are known as “cybercrimes,” and people who commit these crimes are known as “cyber criminals.” Some of these crimes are hacking, cyberterrorism, cybervandalism, email-spoofing, etc. Any illegal criminal activity done with the help of a computer as a medium, target, or means of committing crime is known as “cybercrime.” Cybercrimes cover a wide range of crimes committed against the confidentiality and security of a nation or the privacy of an individual. The feature that makes them different from conventional crimes is the medium used to commit the crimes and the involvement of virtual cyberspace, where a person can anonymously commit a crime without being present at the crime scene. 

Cybercrimes are transnational in nature, which means that a person can easily commit crime in another country without being present there. These crimes can be detected only with the international cooperation of law enforcement agencies. Another challenge with these crimes is the concept of dual criminality, which helps the perpetrators escape liability. For example, if person X is a citizen of India and lives here but hacks the computer of a person living in America, it is very difficult to determine the country where he will be punished and what laws will be applicable. Thus, uniform international laws dealing with punishment and prevention of cybercrimes at the international level are the need of the hour.   

Reasons for cyber crimes

In order to formulate guidelines and laws for the prevention of cybercrimes, it is necessary to understand the reasons behind the commission of such crimes. The following are the main reasons behind the commission of these crimes:

  • Availability of large data in a small space – with the help of computers a person can easily store large data in a small space which makes it prone to cyber crimes as the information can easily be made available by just breaking into someone’s computer. 
  • Systems are easily accessible – the unique feature of cyber crimes is that a person can easily commit the crimes in the virtual medium without being present at the crime scene. This virtual medium makes the system accessible for the hackers to extract the stored information.
  • Loopholes in technology – it is the technology that gave us computers, raptors and mobile phones. At the same time, it increased the greater risk of commission of cyber crimes. Cyber criminals take the advantage of loopholes in technology to commit crimes and use it as their weapon. 
  • Lack of evidence – another significant feature of computers is that the evidence can be destroyed in seconds. This further creates problems for the investigating agencies to gather relevant information and evidence to prove the commission of crime and arrest the accused. 
  • Inaccessibility of criminals – for once it can be imagined that the investigating agencies are able to gather evidence but this is not the end. It is very difficult to recognise the criminals in these crimes because their identity is hidden.  
  • Negligence – any slight negligence on the part of the victim in ensuring security of his/her personal information stored in the computers can lead to catastrophic consequences. Victim’s mistake can give unauthorised access to the cybercriminal to enter into his system and accomplish his goals. 

Intellectual property issue in cyberspace

Intellectual property is the creation of one’s own mind, skills, and talent. With the advancement of technology, people and organisations have realised the importance of intellectual property and are trying their best to safeguard their creations. Patents, copyrights, trademarks, etc. are some kinds of protection that are given to intellectual properties. Cyberspace is a virtual medium in which a person communicates with others through a computer network. A cybercriminal exploits or tries to take advantage of the creations or intellectual properties of another person. For this, they break into their computer system or other electronic devices, which further leads to a violation of their right to privacy. 

Violation of copyright

Copyright protection is given to literary, dramatic, musical, or artistic works, cinematograph films, and sound recordings. Whenever a person who is not authorised to exercise the rights over these works does the same, he/she is said to have violated the copyright of the proprietor. The Copyright Act of 1957 gives various rights to the owner of copyright, and any person who exercises such rights without the permission of the owner is liable for punishment. This copyright infringement becomes an easy task when done through the internet over “cyberspace.” A person can easily break into another’s computer and take advantage of their creations, like literary or other works saved there. Thus, copyright infringement is a major issue when it comes to cyberspace. 

The following are some copyright issues:

  • Linking – In this, a website user is permitted to to visit another website or location on the internet but just clicking on an image or a word. In this process, the rights of the owner whose webpage is linked is damaged. It also creates an apprehension in the minds of customers or people using the internet that the two web pages or websites are similar and related to each other. This also leads to reduction in their incomes and reputation. 
  • Software piracy – The act of stealing lawfully protected software is known as software piracy. This can be done through copying, spreading, altering or trading. For example, if a person downloads a copy or a replica of Microsoft Word from a different website rather than the original website, it is known as software piracy. Soft lifting, software counterfeiting and uploading – downloading are three types of piracy. 

Violation of trademark

A mark that is related to a business or company and can be used as its identity is known as a trade mark. These marks are capable of being represented diagrammatically and can help in distinguishing the products or goods of one company from another. Any unlawful use of such trademarks that results in ambiguity or confusion for the public or customers is known as trademark infringement. 

Trademark infringement has become a major concern with the development of cyberspace. Cybersquatting is often committed by cybercriminals with the help of computers in virtual space. It is the act of registering a domain name, trademark, service mark, etc. unlawfully over the internet and then using it. This unlawful use of a domain name or trademark that is similar to that of a famous company creates traffic, which helps cybersquatters earn a lot of money. 

Classification of cyber crimes

Cyber crimes are equally dangerous as other serious criminal offences because they are a threat to a person’s privacy, which is now a fundamental right and is included within the ambit of the right to life and personal liberty under Article 21 of the Indian Constitution. These cyber crimes can be classified into three categories:

  • Crime against individuals– some examples of these cyber crimes are cyber vandalism, cracking, hacking, email-spoofing, cheating, cyber child pornography, etc. 
  • Crimes against property– some of the examples are cybersquatting, cyber trespass, internet time thefts, etc. 
  • Crimes against government– examples are cyber terrorism, cyber warfare, use of pirated software, possession of unauthorised information, etc. 

Meaning of hacking

Hacking is one of the most common forms of cybercrime committed these days. People who commit this crime are called hackers. They usually take advantage of loopholes in the technology and break into someone’s computer or laptop to extract their personal information. People might commit this crime to seek monetary benefit by blackmailing the victims or simply for the sake of sheer thrill or other purposes like defamation, disrupting business and reputation, etc. 

Different forms of hacking are web-spoofing, trojan attacks, virus attacks, etc. In web-jacking a person tries to take forceful control over the website of another person for ransom or some other purpose. On the other hand, a Trojan, which is an unauthorised programme, can be used to break into someone’s system and gain control over it. These hackers can attack commercial  websites and affect their entire business. They also pose a serious threat to the security and integrity of a nation if any government site or computer system is hacked.  

Global perspective on hacking 

Every country in the world has some confidential information related to its defence, security, citizens, foreign relations, etc. With so many secrets on a large scale, it becomes the duty of every state to protect its data and that of its citizens from any breach or cyber offence. To deal with this situation, every country has devised its own methods. In the United Kingdom, the Central Government formed the National Cyber Security Centre in order to improve the condition of cybercrime in the country. This centre will be headed by professionals and experts who will devise methods to deal with cyber crimes. 

The United States of America, on the other hand, has passed the Cybersecurity Act of 2015 with an aim to strengthen defence mechanisms against cyber crimes and criminals. India has also tried to devise ways to deal with this situation and curb cyber crimes. The Central Government in India realised that the Indian Penal Code, 1860 is not efficient enough to deal with offences happening in the virtual space medium, and so the Information Technology Act, 2000 was passed, which specifically deals with offences that are committed through computers or other electronic devices over the internet.

As we all know, society is dynamic by nature and keeps changing with time and technology. One of these changes is the increase in crimes, especially cybercrimes, which pose a serious threat to one’s right to privacy and liberty. Though the countries have been able to deal with such crimes in their territories by their own mechanisms, the world at large has not been able to devise a uniform method for the same, because of which many criminals who commit crimes across the border are not punished. 

Cyber security laws in the United States

Federal hacking laws 

Hacking as a crime is also punishable in the United States of America. The Congress has enacted several federal laws to prevent cybercrime. These are:

Computer Fraud and Abuse Act

This Act, also known as anti-hacking legislation, was enacted in 1986 with the object of prohibiting any unauthorised access to someone’s computer system. It initially protected governmental entities and their computer systems, but later its scope was expanded to include computer systems, laptops, etc. of any person residing in the country. The Act also provides civil remedies like

  • Injunction, 
  • Seizure of property,
  • Impounding information stolen and devices used to commit hacking and other related crimes.

Offences punishable under the Act 

The Act also recognises certain civil violations. These are:

  • Unauthorised access of the computer and obtaining information stored therein. 
  • Trafficking a password of a computer by which it can be accessed easily. 
  • Transmission of spam. 
  • Damaging the data stored in the computer system. 

The various criminal offences that are punishable under the Act are as follows:

S.no. OffenceFirst conviction Second conviction 
Accessing or obtaining information regarding the security of the country. Imprisonment for up to 10 years. Imprisonment for up to 20 years.
Obtaining information by accessing the computer.Imprisonment for up to 1 year to 5 years. Imprisonment for up to 10 years.
Trespassing on a government computer system.Imprisonment for up to 1 year. Imprisonment for up to 10 years.
Intentionally damaging the computer system by knowing transmission Imprisonment for 1 year to 10 years. Imprisonment for up to 20 years.
Defraud and obtain value by accessing computers. Imprisonment for up to 5 years. Imprisonment for up to 10 years.
Damaging recklessly by intentional access. Imprisonment for 1 year to 5 years. Imprisonment for up to 20 years.
Causing damage and loss negligently by intentional access. Imprisonment for 1 year. Imprisonment for up to 10 years.
Trafficking in passwordImprisonment for 1 year. Imprisonment for up to 10 years.
Extortion by involving computers. Imprisonment for up to 5 years. Imprisonment for up to 10 years.

Cyber security laws in the EU

The European Union has four major regulations that regulate cybersecurity. These are:

  • European Union Agency for Cyber Security (ENISA) – this Agency was established in 2004 with an aim to raise network and information security across all the internetwork operations in the union. It recommends a course of action to be followed during a security breach. It also provides direct support and makes policies in this regard. 
  • NIS Directive – The European Union in 2016 established Network Information Systems (NIS) Directive to improve cybersecurity in their territory which is now replaced by NIS2 in 2023. The focus was on the digital service providers and operators of essential services which are mainly involved in social and economic activities and will be affected majorly in case of data or security breach. 
  • Cyber Security Act 2019 – this Act provides a certified framework to the companies across EU against cybercrimes in digital products and services.
  • EU GDPR –  the EU General Data Protection Regulation was established in 2016 and enforced in 2018 with the aim to standardise the system of data protection among all the members in the European Union. 

Hacking laws in India

According to a 2021 report of the United States Federal Bureau of Investigation, India is ranked among the top five countries as the victims of cybercrimes. The virtual space medium of cybercrime has no territorial boundaries and so poses a big threat to law enforcement agencies. An internet user is subject to the laws of their state, but this concept conflicts when it comes to international level disputes. This loophole resulted in fewer chances of criminals being caught, and they misused computer technology to commit crimes. It is necessary to regulate and prevent such crimes in order to protect personal data and the privacy of individuals. In lieu of this object, the Indian Government enacted the Information Technology Act, 2000 (IT Act, 2000). The Act not only prescribes punishment for hacking but also mentions other cybercrimes and offences related to hacking. 

The Information Technology Act, 2000

With the expansion of the internet and technology, traditional crimes like conspiracy, solicitation, fraud, etc. are now committed through computers, laptops, mobiles, tablets, etc. This necessitated the enactment of new laws in order to curb these illegal activities. Thus, the IT Act was enacted to regulate and bring e-commerce under the framework of the law. It enumerates various cybercrimes along with their punishments. Apart from this, it also provides protection of data and privacy under Section 43 of the IT Rules, 2011. Some of its features are:

  • Legal recognition of e-commerce which includes e-transactions as well. 
  • Electronic records are recognised like any other record in a document. 
  • Digital signatures are now legally recognised but it must be authenticated by the certifying authorities. 
  • A Cyber Law Appellate Tribunal has been set up under the Act to hear appeals related to cyber crimes mentioned under the Act.
  • The Act does not apply to negotiable instruments, power of attorney, trust, will or any other contract for sale.

Punishment for hacking

The punishment for hacking is given in Section 66 of the IT Act, 2000. The Section also enumerates the essential ingredients of hacking. These are as follows:

  • There must be an intention to cause wrong to a person. 
  • Damage must be caused by unlawful and illegal means. 
  • There must be knowledge that the information contained in the computer, laptop or mobile is important and confidential, which if revealed, destroyed or altered can cause serious damage to the person to whom it belongs. 

According to the Section, the offence of hacking is punishable by imprisonment up to three years or a fine extending to five lakh rupees, or both. One of the fastest growing crimes under hacking is identity theft, in which a person tampers with or appropriates personal information about another person without their permission or consent. The Section is also related to the Indian Penal Code, 1860 (IPC), as the words ‘dishonestly’ and ‘fraudulently’ used in the Section, have the same meaning as those given under Section 24 and Section 25 of the Indian Penal Code, 1860 respectively. Further, Section 66B of the IT Act, 2000 provides punishment to a person who dishonestly receives a stolen computer system or other communication device. The punishment includes imprisonment up to 3 years, or a fine not exceeding one lakh rupees, or both. 

Other offences related to hacking punishable under the Act

The following are mentioned under Chapters IX and XI of the Act, along with their punishments:

Unauthorised access

Any person who accesses or tries to access computers or other devices like laptops, mobiles, etc. of another person without their permission, is liable to be punished. According to Section 43 of the Act, the punishment for such unauthorised access is a fine not exceeding one crore rupees. The term ‘access’ has been defined under Section 2 (1) (a) of the Act.

Tampering with documents in computer

The act of tampering with documents stored in the computer is punishable under Section 65 of the IT Act, 2000. If any person tries to conceal, destroy, or alter, or causes another to do the same with the computer source and documents stored therein, either knowingly or intentionally, they are liable to be punished under this Section. A person doing so will be punished with imprisonment up to 3 years or a fine not exceeding two lakh rupees or both. 

Accessing protected system

Section 70 of the Act is related to a computer system that is declared to be protected by the appropriate government. If any person other than those who are authorised by the government to access, accesses or tries to access such protected computer systems without permission, he/she will be punished with 10 years of imprisonment along with a fine. 

Breach of privacy or confidentiality. 

The Act also prescribes punishment for a person who breaches the privacy or confidentiality of another person without consent by accessing his/her electronic record, book, register, information, or document in contravention to the provisions of the Act. The punishment includes imprisonment up to 2 years or a fine up to one lakh rupees or both, as given under Section 72 of the Act. 

Ethical hacking vs hacking

We all know that hacking is an illegal activity and is also punishable by law. However, at times some institutions, organisations, companies, and even the government hire certain experts in hacking to hack their systems in order to understand the loopholes so that they can be corrected in time. This type of hacking is known as ethical hacking and is permissible. The experts of ethical hacking are hired by governmental agencies like the Central Bureau of Investigation, National Security Agency, Federal Bureau of Investigation, etc. 

It can be seen as a field of study in which an expert in computer security hacks the system of the owner with his/her consent in order to determine the vulnerabilities of the technology used by them. These companies, institutions, or organisations hire the experts who specialise in ethical hacking and also pay them for the same. This kind of hacking serves as a source of help for the police in their investigation. Currently, cybersecurity and networking are emerging as fast growing industries and careers for youngsters to pursue. This is because the internet has become a vital part of everyone’s daily life. A person can hardly imagine his/her life without the internet. Where technology has simplified the work of people, it has also paved the way for threats and harm to them. Thus, it becomes necessary to regulate the online activities and crimes committed over the internet behind the shield of virtual space. 

Both hacking and ethical hacking involve breaches of the right to privacy, and the hackers in both kinds have to gain the same education and undergo the same training, but there can be differentiation between the two. One may use the education in a bad way to steal confidential or personal data, while the other may channelise and utilise the skills to remove vulnerabilities or weaknesses of a computer system or other such devices and the technology used therein. Hacking is an offence punishable by law in India. However, ethical hacking is permitted, but the field of ethical hacking has not developed yet, it is still growing and might increase the pace in a few years. Some educational institutions do provide a course in ethical hacking, which means this is a growing profession. 

Basis of comparison Ethical hacking Hacking
Intention The intention of the expert or hacker is to determine the vulnerabilities or weaknesses of the computer systems of a particular organisation, firm, or company by whom he/she is hired to do so.In hacking, hackers have a mala fide intention to steal data or other confidential information by breaking into the computer system or other communication devices. 
Reason These hackers are hired by companies, organisations, and even governments in order to prevent future hacking by correcting the loopholes in the technology used by them.  The hackers might do so in order to take revenge, out of enmity, or to cause wrongful loss and have wrongful gain. 
Legality Ethical hacking is permissible. Hacking is against the law and thus prohibited. 
Punishment There is no punishment for ethical hacking, as it is done with the consent of the system’s owner. It is punishable by law. 
Funds These ethical hackers or experts are paid by the organisation or company that hired them to do so. Hackers earn profit by either blackmailing or selling  confidential information to the other party. 

Ethical hacking as a source of help 

Now, we are aware that hacking is punishable by law, while ethical hacking is permitted and serves as a source of help for the police and other investigating agencies. Ethical hackers help them identify the criminals by decoding multiple situations, especially when a case involves a technicality. In India, there have been instances where ethical hackers have proved to be an asset for the police. They joined hands with them to prevent such cyber crimes. Two of such instances have been discussed below:

Gurgaon case

In 2016, a girl living in Gurgaon filed a case of harassment and defamation against a boy who hacked her Facebook account and sent multiple obscene messages to her family and friends. It was also alleged that the boy photoshopped her pictures online with the purpose of defaming her publicly. This case was finally transferred to the cyber cell, where the young ethical hackers and engineers helped the police officers decode the password. It was found that all the allegations made by the girl were true, and the accused was finally caught.  

Bank fraud case

Another instance where the ethical hackers helped in the investigation was a bank fraud case where a woman claimed that somebody hacked her bank account and stole five lakh rupees. When the cyber police officers and hackers investigated, they found a suspicious application installed on her phone that helped the hacker access her bank account. Further, the bank was asked to provide the IP address of all the devices used in making transactions from her account. With this, the police were able to catch the criminal and put him behind bars. 

Methods to avoid hacking 

In order to avoid an attack or hacking of your computer system or other communication devices, one must use the following measures:

  • Use strong passwords and make sure you change regularly. 
  • Avoid sharing passwords with anyone.
  • Keep the computer software updated. 
  • Use antivirus software or internet protection. 
  • Avoid downloading unnecessary files from unknown websites and sources. 
  • While working over wifi, it must be encrypted with passwords. 
  • Use two step authentication or verification process. This will make things difficult for the hackers to break into your computers. 
  • Ignore mails from a suspicious website and delete them frequently. 
  • Take regular backups of data and information stored in the computer. 
  • Before selling or discarding the system, all information stored therein must be deleted. 

Steps to be taken if your computer has been hacked 

A person must try to avoid a cyber attack by following the above-mentioned measures because only a vulnerable computer or electronic device can be hacked. However, if your computer has been hacked, you must immediately do the following:

  • If your computer has been hacked you will see certain applications installed in your device about which you know nothing. Never click or use such installed applications rather deactivate or uninstall them. 
  • Immediately reset all your passwords along with passwords of your bank accounts and other important details. 
  • You must log out from all online accounts and inform your friends and family that your system has been hacked so they must not reply or pay heed to any fraudulent or suspicious message or email sent in your name. 
  • Try to disconnect the internet. This will help you in avoiding a cyber attack by a hacker. 
  • You must try to reload the operating system and install updates from trusted websites which will avoid any virus attack. 
  • You must also remove any external device or hardware attached to your system bug before doing so do not forget to take backup of all your work and necessary information stored therein. If, in case, a hard drive is vulnerable to hacking you must immediately wipe off all your information from there. 
  • Install security software or antivirus in your system. 
  • Contact your bank and monitor your accounts and financial credits. 
  • Report to the police officers if necessary. 

Conclusion

Cybercrimes pose a serious threat to Article 21 of the Constitution, as they prevent a person from enjoying his personal liberty and privacy. Every cybercrime starts with a person trying to break into your system. This act of breaking into someone’s computer without permission is known as hacking and is the most dangerous cyber crime. Once a person is able to access your computer, he/she will use your personal information to extract money or take revenge on you. Thus, it was necessary to curb this crime. The Indian Penal Code, 1860 was inefficient in dealing with these crimes, and so the legislatures enacted the IT Act, 2000 which specifically deals with cyber crimes. The Act provides separate punishment for hacking and other cyber crimes. It has also become a global concern as every country is either its victim or prone to be the one. Countries like the United States of America, United Kingdom, member states of the European Union etc have devised their own ways and means to regulate cyber crimes in their territory but the problem still persists. Most of the time, criminals escape due to dual criminality as there are no uniform international regulations or standards to regulate the crimes. It becomes very difficult to punish the accused if arrested , in case the crime has been committed in another country while the accused resides in a different country. 

With the efforts of the Indian Government to prevent hacking and other cybercrimes, India has reached the 10th position in cyber security among different countries in the world. This was given under the Global Cyber Security Index 2020. However, this is not the end of the story. The challenge of curbing cyber crimes still persists, and with the advancement of technology and education the problem will increase. For now, artificial intelligence (AI) poses a big challenge. There is no provision that provides liability in case AI is used to commit these crimes. Another challenge is the investigation of these crimes. It becomes very difficult to arrest an accused if the identity is hidden behind virtual space. There is a need to hire experts in cyber police agencies who can easily track these crimes and the criminals. Moreover, with the advancement of online trends privacy will be hindered at every step. This calls for a need to take collaborative steps. The government, regulating and investigating agencies and companies must come together to fight the disease of cyber crimes. 

Frequently asked questions (FAQs)

What is a virus hoax?

It is a message in the form of e-mail describing a particular virus and issuing a warning related to it, which does not exist. The computer users are requested to forward the message to their friends and family, and soon it spreads like a chain of letters. Experts usually advise ignoring such messages rather than acting as requested in the message. 

What are the types of hackers?

Hackers can be generally classified into 3 categories:

  • White hat hackers – these are permitted by any organisation or government to hack their system so that the loopholes of technology could be recognised and corrected in a timely manner in order to avoid actual hacking of their systems in future. 
  • Black hat hackers – these hackers try to break into someone’s computer by hacking their system to steal personal or important information. They have bad intentions and the activity is illegal and punishable by law. 
  • Grey hat hackers – these hackers do not have any bad or malafide intentions but once they hack a system by taking advantage of flaws in the technology used, they can demand monetary benefits from the organisation or person whose system is hacked. 

The other categories of hackers are:

  • Blue hat hackers – people who hack the computer system or laptops, mobiles etc with intention to take revenge from a person or organisation are called blue hat hackers. 
  • Green hat hackers – these hackers do not have sufficient experience and can be called beginners. 
  • Red hat hackers – these hackers are vigilant but not associated with any institution or organisation. They might or might not have malafide intentions behind hacking. 

Is stalking a cyber crime?

Cyberstalking is an offence and involves activities through which a person’s movements and daily activities are noticed across the internet. The stalkers harass the victim and cause emotional distress to him/her. A person can easily commit the crime of cyberstalking by keeping a record of the victim’s activity and gathering personal details with the help of social media. This is usually done with the aim of taking revenge, seeking monetary benefits or threatening a person. 

Who is empowered under the IT Act to investigate cyber offences?

According to Section 28 of the Act, the power of investigation is conferred on the controller or certifying authorities. These powers are similar to those exercised by income tax authorities. 

References


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Surrogacy Act

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Surrogacy Regulation Bill 2016

This article is written by Anjali Sinha, a legal professional. This article provides a detailed study of the history and evolution of the Surrogacy Act. It also deals with some important provisions, their importance, and connected loopholes that are required to be overcome for the smooth functioning of the provisions of the Surrogacy Act in India.

It has been published by Rachit Garg.

Introduction 

Surrogacy means the surrogate mother agrees to carry the child for another person. After the birth of a child, the biological mother leaves the care and custody to the intended parent or parents. Surrogacy involves complicated legal and medical steps that must be followed. It is important to know about the process, seek professional advice, and build a support network with Fertility World Surrogacy Center India. However, the major question arises as to whether India allows commercial surrogacy. The answer is an unequivocal yes. Commercial surrogacy has been allowed in India since 2002.

The Surrogacy Act of 2021 prohibits and punishes commercial surrogacy, permitting it only in instances of altruism. This provision has the effect of preventing surrogates from receiving any financial compensation for their role, with the exception of insurance and medical coverage. In addition, the Surrogacy Act specifies the conditions under which surrogacy is permitted, the criteria for the surrogate and the intended parents, and a regulatory framework for surrogacy clinics.

History and Evolution of the Surrogacy Act 

According to a 2012 Confederation of Indian Industry report, the size of the Indian surrogacy industry was $2 Billion annually. And it’s estimated that more than 3,000 fertility clinics around the country are doing it. The unregulated business of surrogacy has raised concerns such as unethical practices in which brokers and commercial agencies have profited the most, exploitation of surrogate mothers, abandonment of children born from surrogacy, riots like organ trade, importation of embryos, etc. to regulate surrogacy in the country has entered into validity.

Recommendations of the Law Commission of India

It emphasised the need to pass a law that would regulate commercial surrogacy. The Law Commission of India, in its 208th report, recommended a ban on commercial surrogacy. The reasons were:

  • Use of surrogacy mainly by foreigners.
  • Lack of proper legal framework.
  • The exploitation of surrogate mothers as they may have been forced to practice surrogacy due to poverty and lack of education.

Therefore, by a  notification in 2015,  the Government of India banned surrogacy for foreign nationals. 

In the Lok Sabha, the first Surrogacy (Regulation) Bill was introduced in November 2016.

Below are some of the key points of the Bill:

  • Commercial surrogacy must be completely banned.
  • The surrogate mother must be a close relative of the applicants.
  • Couples must prove they are infertile.
  • All surrogacy clinics would have to be registered.
  • All registered clinics should keep surrogacy records for 25 years.
  • No single parent, couples living in India or homosexuals can become surrogate parents through surrogacy.
  • Women who were not married or childless could not become surrogate mothers either.

However, this law failed to be enforced and lapsed after the dissolution of Parliament.

The Surrogacy (Regulation) Bill, 2019 was introduced in the Lok Sabha on 15 July 2019 and passed by the Lok Sabha on 5 August 2019. Further, it was referred to a select committee for further discussion.

The Surrogacy (Regulation) Bill, 2019

There is a need for the constitution of surrogacy committees at the national and state levels to oversee all the regulations and related procedures. The committee will only allow ethical, altruistic surrogacy.

Eligibility for surrogacy:

The marriage solemnised must have been completed five years. Further, a certificate of necessity, as well as a certificate of eligibility, are required to be submitted if and when required. They must also undertake not to abandon a child born through surrogacy.

Criteria for a surrogate mother:

  • The woman, a close relative of the intended couple, must be married with a child of her own and should be between 25-35 years of age. No previous surrogacy.
  • Insurance cover for a certain period to cover not only the period of pregnancy but also the surrogate mother afterwards. 
  • The Bill also seeks to regulate the operation of surrogacy clinics. 

Furthermore, surrogacy clinics in the country need to be registered under the Act to avoid cancellation or suspension of their service. However, sex selection is not allowed.

Reasons for banning Indian surrogacy:

When Indian surrogacy first reached its peak, the industry had no regulations, and unsafe and unethical practices developed in response. Surrogates are exposed to unethical treatment, poor living conditions, and exploitation. Due to demand from international intended parents, Indian surrogacy agencies effectively operated “baby factories”. 

Here, Indian women were forced to live until they gave birth to the children of their intended parents, without family assistance, and abandoned them when they were pregnant. Surrogates in India are also said to receive a fraction of what the intended parents paid to the surrogacy agency, about $4,000 to $5,000 in compensation. Surrogates were used in commercial surrogacy. Financial gain, poverty and lack of education attracted them again and again to the process of surrogacy. As a result, their health deteriorated as they effectively became “baby-making machines” year after year. Surrogate mothers do not even receive the support services they need for themselves and their families during this emotional journey. For all these reasons, the Government of India has tried to take steps to make the process safe for all concerned people.

Surrogacy Regulation Act 2020

On February 26, 2020, the Union Cabinet approved the new Surrogacy Regulation Act, 2020, allowing any woman who wishes or has the willingness to become a surrogate mother. The Bill had been put on the back burner due to the COVID-19 pandemic, but thereafter it was expected to be introduced as Bill 2021 in the lower house of the Indian Parliament in its upcoming session. The Bill was a significant improvement to overcome the loopholes of the Surrogacy Regulation Act of 2019 but continues to adopt a needs-based approach rather than a rights-based approach, which is pending to be enacted into law before obtaining presidential assent and serving its purpose. 

Some of the main features of the proposed surrogacy legislation are:

  1. Establishment of regulatory bodies: The Bill proposes to regulate surrogacy by establishing a National Surrogacy Board at the central level, a State Surrogacy Board at the state level and one or more competent authorities or agencies for each Union Territory.
  2. Specify minimum standards for physical infrastructure, laboratory and diagnostic equipment and professional staff to be employed by surrogacy clinics.
  3. Ban on commercial surrogacy: The Law Commission of India has recommended a ban on commercial surrogacy by enacting appropriate legislation in its 228th report.
  4. It only allows altruistic surrogacy to stop the growth of the uterus rental industry and prevent the exploitation of surrogate mothers.
  5. Banning surrogacy for commercial purposes can also be understood to mean a ban on fashionable surrogacy when it is just for convenience rather than a medical necessity. 

Countries like Australia, New Zealand, the United Kingdom, Canada, Netherlands, South Africa, etc. are also following the same.

  1. Omission of the definition of infertility: The Surrogacy (Regulation) Act 2019 required at least one member of an intended couple to suffer from “proven infertility” to be eligible for the surrogacy process. However, the 2020 Bill modified possible surrogacy for couples if the prospective couple has a medical indication requiring gestational surrogacy.
  2. An Indian woman who is widowed or divorced between the ages of 35 and 45 and who intends to use surrogacy, opts for surrogacy.

The Surrogacy (Regulation) Act, 2021

Under the Surrogacy (Regulation) Act 2021, a widowed or divorced woman between the ages of 35 and 45, or a married couple, defined as legally married, can use surrogacy if she has a medical condition that requires this option. It also bans surrogacy for commercial purposes, which is punishable with imprisonment for 10 years and a fine of up to Rs 10 lakh. The law only allows altruistic surrogacy only when there is no exchange of money and when the surrogate mother is genetically related to those looking for a child.

Important provisions of the Act

This Act consists of eight chapters and 54 sections that deal with the regulation of surrogacy in India. The Surrogacy (Regulations) Act, 2021, received the President’s assent on 25th December 2021.

Definition clauses

Section 2 of the Act deals with the various definitions under the Act:

  1. Section 2(b) defines the term altruistic surrogacy which means that only medical expenses, insurance coverage and other prescribed expenses will only be provided to the surrogate mother irrespective of any extra charges, expenses, fees, remuneration or monetary incentives of any nature.
  2. Section 2(g) defines the term ‘commercial surrogacy’ which means providing all kinds of monetary incentives whether in cash or kind. However, the same is not allowed to be practised.
  3. Section 2(h) provides the meaning of ‘couple’ i.e., a legally married couple wherein a man and a woman must be aged above 21 years and 18 years.
  4. Section 2(r) provides the meaning of ‘intending couple’ i.e., the couples who are intending to become a parent through the procedure of surrogacy and they must be between the age of 23 to 50 years in case of female and between 26 to 55 years in case of male as per Section 4(iii)(c)(I).
  5. Section 2(s) describes the meaning of ‘intending women’. The term includes women between the age of 35 to 45 years who is either a widow or divorced and the one who intends to avail of surrogacy.
  6. Section 2(zd) defines the term ‘surrogacy’ which means a procedure in which a woman carries the child and gives birth to a child of an intending couple and thereafter handovers the child to intending couples after the child is born.

Regulation of surrogacy clinics

Section 3 of the Act provides the regulation of surrogacy clinics:

  • Every surrogacy clinic must be registered under the Act to conduct the procedure of surrogacy.
  • Commercial surrogacy is strictly banned and in no case, it will be allowed or practised by surrogacy clinics, paediatricians, gynaecologists or any registered medical practitioner.
  • All the procedures related to surrogacy must be conducted at registered surrogacy clinics and no person shall be employed on an honorary basis.
  • In no case, sex selection is allowed or storage of human embryos or gamete is allowed for the purpose of surrogacy.

Regulation of surrogacy and surrogacy procedures

As per Section 4, if a surrogacy clinic is not registered under this Act, it cannot participate in, collaborate with, or assist in any way with activities related to surrogacy and surrogacy procedures; or employ, cause to be employed, or solicit the services of anyone who lacks the required qualifications, whether on an honorarium or for payment.

Any person, surrogacy clinic, paediatrician, gynaecologist, embryologist, or registered medical practitioner shall not engage in, offer, promote, associate with, or use commercial surrogacy in any form; or store a human gamete or embryo for surrogacy, with the exception of storage for other legal uses like sperm banks, IVF, or medical research; or carry out sex selection for surrogacy or cause it to be carried out.

Written consent of the surrogate mother

As per Section 6, the surrogate mother in question must be informed of all known side effects and effects of these procedures, and the surrogate mother must provide written informed consent in the language she understands.

Prohibition to abandon a child

Section 7 provides a prohibition to abandoning a child born out of surrogacy on the ground of a birth defect, any genetic defect or any other medical condition whether in India or outside India.

Rights of a surrogate child

Section 8 of the Act provides that the child born out of surrogacy will be considered to be a biological child of the intending couple and shall have all the rights that a natural child shall have under any law for the time being in force.

Section 10 of the Act describes that no organization or person can force a surrogate mother to abort at any stage except under conditions that may be prescribed in certain circumstances.

Registration of surrogacy clinics

Registration

As per Section 11, it is necessary for a surrogacy clinic to be properly registered under this Act before it can offer any kind of surrogacy services or establish a surrogacy clinic. Each surrogacy centre that is directing surrogacy or surrogacy strategies, halfway or only, will, within a time period of sixty days from the date of the arrangement of suitable power, apply for enlistment.

Certificate of registration

Section 12 of the Act provides that after proper scrutiny and satisfaction that the applicant has complied with all the requirements and has made payment of fees as prescribed, the appropriate authority shall provide the certificate of registration to the applicant.

However, if the appropriate authority is of the opinion that the applicant has not met the requirements, then the application can be rejected by recording reasons in writing for such a rejection.

Cancellation or suspension of registration

Chapter IV provides for the registration of surrogacy clinics, as no person is permitted to establish a surrogacy clinic without being registered under the Act. Also, the registration can be cancelled or suspended under Section 13 upon receipt of the complaint or suo motu. The liability lies on the clinic to show cause as to why registration should not be cancelled or suspended as per the reason mentioned in the notice.

Appeal 

As per Section 14, an appeal can be made within a period of 30 days from the date of communication of the order of rejection.

Establishment of Registry

Section 15 provides for the establishment of the National Assisted Reproductive Technology and Surrogacy Registry. Further, Section 16 provides that the bodies registered under Section 15 of the Act must also be registered under Section 9 of the Assisted Reproductive Technology Act.

As per Section 17, the establishment of a national registry for surrogacy and assisted reproductive technology: The National Assisted Reproductive Technology and Surrogacy Registry will be the name of the registry that will be used to register surrogacy clinics under this Act.

Meeting of Board

As per Section 19, a meeting is to be held once every six months, which will be presided over by the chairperson and, in his absence, by the vice-chairperson. All issues raised in the meeting are to be decided by the majority vote.

Disqualification of members

Section 21 provides for the disqualification of members on the grounds of insolvency, moral turpitude, physical or mental incapability, prejudicial to the public interest, or any such ground as deemed fit by the Central Government to prove the misbehaviour or incapacity to be a member. The member shall be removed only by order of the Central Government in that regard.

Re-appointment 

As per Section 24, an ex officio member can be re-appointed for two consecutive terms.

Functions of Board

Section 25 provides the functions of the board:

  • To advise the Central Government in matters relating to surrogacy.
  • The implementation of the Act must be reviewed and monitored by the board periodically.
  • A code of conduct is to be provided for the person working at surrogacy clinics.
  • Supervising the functioning of clinics, boards and registries.
  • Such other functions may be prescribed.

Appointment of Appropriate Authority

Section 35 of the Act provides that the Central Government within 90 days of the commencement of the Act should appoint an authority for each territory and the State Government should appoint at least one authority for the state or any part of the state.

Power of appropriate authorities

Section 37 provides the power of the appropriate authority, mentioning the power to summon a person who is in violation of the provisions of the Act, search any suspected place, production of documents relating to violation of any provision of the Act and any other power as may be prescribed for time to time as per the case and situation.

Punishment for not allowing altruistic surrogacy

As per Section 40, if any intending couple is not allowed to follow the procedure of altruistic surrogacy, then the person, clinic, laboratory, or any authorised person or authority is liable for imprisonment, which may be extended to five years, and a fine up to five lakh rupees for the first offence, and for a subsequent offence, a punishment of imprisonment up to ten years and a fine up to ten lakh rupees.

Classification of the offence under the Act

According to Section 43, every offence under this Act shall be cognizable, non-bailable and non-compoundable.

Miscellaneous 

Chapter VIII deals with the power to make rules, regulations, search and seizure, the power to remove difficulties, and other transitional provisions.

Maintenance of records

As per Section 46, all records are to be preserved for a period of 25 years. However, in cases of criminal or other proceedings, it shall be preserved until the final disposal of such proceedings. The records shall be made available for inspection if and when required. 

Power to search and seize records

If the appropriate authority under Section 47 has a reason to believe that an act has been conducted, then a search and seizure of records can be conducted.

Advantages of the Act

For most surrogates, the ability to bring life to another family is the most beautiful and greatest thing one can imagine. Naturally, most women want to weigh the pros and cons of being a surrogate mother before embarking on this journey. While most surrogates consider the experience of carrying a child for a childless couple as something extraordinary and wonderful, there are definitely some minor downsides to being a surrogate that you need to consider as well.

Women who embark on the journey of a surrogate have various reasons for doing so. Most surrogate mothers find the opportunity to contribute to the joy of another family an extremely satisfying and highly rewarding experience. Here are some other benefits and advantages of making a life-changing decision.

  1. Surrogacy is a fulfilling experience

There is nothing like carrying a child for someone who is unable to do so themselves. Most substitutes look back on their experiences with a sense of fulfilment and accomplishment. Surrogates are usually women who are caring and compassionate with a strong urge to help those in need. Enabling those struggling with infertility to have a child and complete their family can be a life-changing experience that brings happiness and satisfaction to all involved.

  1. Surrogates are a strong support group

The journey to becoming a substitute can be challenging. Potential surrogates must agree to background checks, medical examinations, and psychological evaluations. It’s a lot to take in. Being able to share your experiences with other women involved in the process is supportive, encouraging, and fun.

  1. Surrogates can experience pregnancy again

Most women who decide to become surrogates actually enjoy their pregnancies. One of the requirements for a surrogate mother is that she needs to already be a mother. When you choose to carry for someone else, you can relive the experience of being pregnant without having to raise the baby yourself.

  1. Substitutes are generously compensated

Gestational carriers receive financial compensation for their commitment, time and associated risks. Expenditures related to travel and medication are also covered. Another advantage is obtaining health insurance for the entire duration of the replacement trip. The repayment you receive can help you achieve your personal goals, such as buying a home, paying for education or paying off debt.

  1. Substitutes are protected by law

Once a match is made, legally binding contracts are made to protect both the intended parents and you as the surrogate. The contract provides clauses that bifurcate the duties and responsibilities of both parties to ensure a healthy pregnancy. The contract will also reinforce the fact that you have no responsibility for the child after birth.

Disadvantages of being a surrogate mother

Although there are many benefits to gestational surrogates giving the gift of life to expectant couples, there are also some risks and disadvantages to consider.

Surrogacy is physically and mentally demanding. Potential surrogates must undergo a series of medical tests and be screened to make sure they are healthy enough to carry a baby to full term. You will have to deal with all of the physical demands of pregnancy, including attending appointments and going through the treatment. Choosing to be a surrogate mother is also an emotional challenge.

Carrying someone else’s baby is a huge responsibility, and most surrogate mothers experience ups and downs along the way. It is important that you take advantage of any counselling services offered or attend support groups when you need emotional help.

  1. Surrogacy is a lengthy process

The process of becoming a surrogate mother is quite lengthy and requires commitment. Between completing the online application and the birth of the baby, there are a number of follow-up appointments that you must attend. The legal contract and the medical procedure take several months to complete. Surrogates should avoid making major travel plans outside of their state or country during the process, as it takes at least a year to complete.

  1. Being a surrogate has health risks

Like any other pregnancy, there are always risks associated with carrying a baby. It is possible that you will not get pregnant the first time you transfer, and there is the possibility of pregnancy complications that could have a negative effect on your health. If you are planning to embark on this journey, you need to consider whether you are ready to take these risks and how to deal with them emotionally.

  1. Surrogates need medication to get pregnant

Medicines are part of every gestational surrogacy cycle. Surrogates may receive birth control. Other medications may include estrogen and progesterone. As a surrogate, you will also have blood drawn and undergo ultrasound checks to make sure your cycle is working properly. Some women are slightly surprised by the amount of medication prescribed to prepare for the transfer and during pregnancy. It is important to remember that this is all necessary to ensure a healthy pregnancy and birth.

  1. Surrogacy is still stigmatised

Although most people’s attitudes towards surrogacy are becoming more positive, there are still those who are negative about the idea of ​​surrogacy. When you decide to help someone become a parent, it’s important to realise that not everyone can understand your decision. Lack of information, misunderstandings, and social stigma can mean that some loved ones will not give you the support you hoped for.

Loopholes in the Act 

A few loopholes under the Act are as under:

  1. Surrogate and child exploitation:

It could be argued that the state must protect the child’s right to be born and put an end to the exploitation of poor surrogate mothers. However, the current law fails to strike a balance between these two goals.

  1. Reinforces patriarchal norms:

The Act reinforces the traditional patriarchal norms of our society that do not attach any economic value to women’s work and directly affect women’s basic reproductive rights under Article 21 of the Constitution.

  1. Denies legitimate income to surrogates:

Banning commercial surrogacy also denies surrogates a legitimate source of income, further limiting the number of women who are willing to be surrogates. Overall, this move indirectly denies children to couples who choose to adopt parenthood.

  1. Emotional Complications:

In an altruistic surrogacy, having a friend or relative as a surrogate mother can lead to emotional issues not only for the intended parents but also for the surrogate child because there is a great risk to the relationship during the surrogacy process and after the birth. Altruistic surrogacy also limits the intended couple’s choice in choosing a surrogate, as very few parents are willing to go through the process.

  1. No third-party involvement:

Altruistic surrogacy does not involve any third party. The involvement of a third party ensures that the expectant couple will bear and assist with medical and other miscellaneous expenses during the surrogacy. In general, a third party helps both the intended couple and the surrogate mother through a complex process that may not be possible in altruistic surrogacy.

Thus, the Surrogacy Act of India prohibits commercial surrogacy and the payment of monetary compensation to the surrogates. This ban goes against the decision in Suchita Srivastava v. Chandigarh Administration, 2009, which said that Article 21 of the Constitution of India covers the right to choose one’s own reproductive options. The prohibition on commercial surrogacy prevents women from using their reproductive abilities for financial gain by ignoring the mental, physical, and emotional labour and medical costs they face during and after the pregnancy. 

In its 102nd report in the year 2016, the Parliamentary Standing Committee on Health and Family Welfare called for adequate compensation for surrogates rather than the repeal of the ban on commercial surrogacy. This argument, as well as Article 23 of the Universal Declaration of Human Rights and Article 7 of the International Covenant on Economic, Social, and Cultural Rights, which mandate a fair payment in exchange for human labour, are ignored by the Surrogacy Act. 

Since oocyte donors play a crucial role in the surrogacy process, statutory reforms should protect their rights. The Surrogacy (Regulation) Act, 2021, must reflect the rights to equality and parenthood of members of the LGBTQIA+ community who wish to participate in surrogacy. The disclosure of donors’ identities should be voluntary. At last, it is important that the arrangements for granting payment to proxies be made to safeguard the powerless against abuse.

Assisted Reproductive Technology (ART) Act

The ART Act was introduced in the Lok Sabha in September 2020 and has been referred to the Standing Committee for further consideration. Subsequently, together with the Surrogacy Act, this Act was passed in both houses at the winter session of parliament in December 2021. This law also entered into force in January 2022.

What is ART

ART is defined as any technique used to get positive pregnancy results by manipulating a sperm or egg cell outside the human body and transferring the embryo into the female reproductive system. These include sperm donation, in vitro fertilisation (IVF), in which the  sperm are fertilised in a laboratory, and surrogacy, in which the child is not biologically related to the surrogate.

Rules for ART clinics and banks

The National Registry of Banks and Clinics of India maintains a central database containing comprehensive information about ART clinics and banks. Clinics and banks like these can renew their registrations every five years for an additional five years. If the institution breaks the law, it can be taken away or suspended.

Clinics are not allowed to deliver a child of pre-determined sex and must test for genetic diseases before implanting an embryo into a woman’s body.

Conditions for sperm donation and ART services

Registered ART banks may screen, collect, and store sperm from men between the ages of 21 and 55. It can also store eggs from women between the ages of 23 and 35. According to the law, the donor must be married with at least one child of her own, aged at least three years. A woman can donate up to seven eggs only once in her lifetime. The bank cannot supply sperm from one donor to more than one couple.

Such ART procedures require written informed consent from both the couple and the donor. A couple requesting an ART procedure must provide the donor with insurance coverage in the event of loss, damage, or death of the donor.

As mentioned above, clinics and banks are not allowed to advertise or offer gender-selective ART. This offence is punishable with imprisonment ranging from 5 to 10 years and/or a fine ranging from Rs.10 to 25 lakhs.

A child born through the ART procedure will be considered the biological child of the couple in the eyes of the law and have all such rights. The donor does not retain any parental authority over the child.

Regulation of ART processes

A national and state board established under the Surrogacy Act may regulate ART services. These boards are responsible for advising the government on policy, reviewing and monitoring the enforcement of laws, and developing a code of conduct for ART clinics and banks.

Misdemeanours

Offences under this Act include abandonment or exploitation of children born through ART; sale, purchase, or trade-in embryos; exploitation of the couple or the donor in any form; and transferring the embryo to a man or animal. A fine of Rs 5 to 10 lakh can be imposed for the first time for such offences. Other offences are punishable by imprisonment for 8 to 12 years and a fine of Rs 10 to 20 million.

Important Judgements

  1. In the case of Baba Manji Yamada v. Union of India (2009), a child was born to an Indian surrogate mother for a Japanese couple who separated before the child’s birth. The biological father wanted to take the child with him to Japan, but there was no legal provision for such a case. The Supreme Court of India then intervened and gave the child to her grandmother. This case spurred the Government of India to enact a law regulating surrogacy.
  2. In the case of Jan Balaz v. Anand Municipality (2008), the Gujarat High Court held that the birth certificate of a child born through surrogacy will carry the name of the surrogate mother. The child was born to a surrogate mother of Indian nationality. However, the child’s father, who asserted the rights, was a German national. After the birth of the child, Germany refused his citizenship. The whole matter was more complicated as there was no precedent regarding a foster child’s citizenship prior to the case. The case grew exponentially as it progressed. In the present case, the identity of the two children had already been established as Indian nationals by birth and thus Indian nationals within the meaning of Section 3(1)(c)(ii) of the Citizenship Act.

Conclusion 

The proposed surrogacy law is a unique combination of social, moral, ethical, legal, and scientific issues and is an effective attempt to harmonise the conflicting interests involved in the surrogacy process in order to ensure the improvement of the child’s condition while protecting the interests of the surrogate mother and clients. Strong penalties under the proposed legislation will act as a deterrent to potential violators and ensure that all parties proceed fairly and proportionally. However, it is prudent to pass the Assisted Reproduction (ART) Bill 2020. Before the Surrogacy Regulation, Bill 2020 was passed as it would help create a regulatory mechanism for ART clinics as a whole and regulate processes such as surrogacy and abortion in a better way.

Frequently Asked Questions (FAQs) 

What is gestational surrogacy?

It is also known as host surrogacy, and was first carried out in 1986. The entire procedure begins with the creation of an embryo using IVF technology, which is then inserted into a surrogate mother’s womb

Which Act governs abortion cases?

Cases related to abortion are to be governed only by the Medical Termination of Pregnancy Act of 1971.

References 


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Corporate insolvency resolution process under IBC

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This article has been written by Mehboob Gaddi pursuing Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution and has been edited by Oishika Banerji (Team Lawsikho). 

This article has been published by Sneha Mahawar.​​

Introduction

The Insolvency and Bankruptcy Code, 2016 (IBC, 2016) was recommended on 31st May 2005, by Dr. JJ Irani Committee to the Government of India. Their key recommendations were time-bound proceedings, applicability and accessibilities, moratorium and suspension of the proceedings, setting up of operating agencies, the appointment of administrators and their duties, committee of creditors and liquidators, cross-border insolvency and so on. The recommendations were considered, with the Government taking up steps to regulate the existing bankruptcy laws and replace them with one uniform Code that would facilitate in an easy and time-bound manner. One of the prime significance that IBC holds and which will be a subject matter of discussion in this article as well is the corporate insolvency resolution process (CIRP) dealt with under Sections 7 and 10 of IBC, 2016. 

All you need to know about CIRP

It is ideal to note that the ambit of winding up was previously covered by the Companies Act, 1956 / the Companies Act, 2013. Following the enactment of the Insolvency Code in 2016, the new process that replaced the concept of winding up was termed as the Corporate Insolvency Resolution Process (CIRP). The process functions to resolve issues in relation to the defaulting companies within a reasonable period of time thereby maintaining the company as a whole. This insolvency resolution process has been widely covered under Chapter I of Part II of the Insolvency and Bankruptcy Code, 2016.

Who can initiate the CIRP 

It is necessary to understand that if any default is committed by a corporate debtor (person who has taken the loan or the amount from a creditor or bank), the CIRP process can be initiated by means of filing an application before the Adjudicating Authority in the provided manner. It is also ideal to note that CIRP can be initiated by a financial creditor as well and there is no bar on the same. Thus, CIRP may be initiated by either:

  1. Financial creditor (FC) under Section 7.
  2. An operational creditor (OC) under Section 9.
  3. A corporate applicant of a corporate debtor under Section 10 of the Code. 

Consequences of initiation of CIRP

There are generally two consequences that can follow the initiation of CIRP, namely:

  1. Revival of the corporate debtor, or
  2. Liquidation. 

It is noteworthy to mention that the underlying purpose of the Code of 2016 is to go with the first consequence that is a revival of corporate debtors. Only when the same is not in favour, liquidation is called for. Revival can further lead to a restructuring of the existing set-up or a new plan of ownership that needs to be implemented. 

Stages in the CIRP process

CIRP has a three-stage process:

Pre-admission Process(Sections 3 to 11)

A person who can apply to NCLT to initiate the CIRP process Under Section 7 as Financial Creditor “FCs”, in Section 9 as an Operational Creditor “OCs”, or in Section 10 as a Corporate Debtor “CDs”.

Post-Admission Process (Sections 12 to 32A)

After an application to NCLT, it is their discretion whether to accept or reject an application. The whole process of CIRP process should be completed within 180 Days from the date of admission an application extension is allowed for 90 days only one extension is allowed by NCLT However, CIRP should be completed within a period of a maximum of 330 days from the date the insolvency commencement date Otherwise, the Company would go into the Liquidation process as per Sections 33 to 54.

Liquidation Stage (Sections 33 to 42 and Sections 52 to 54)

If the resolution plan fails for a company, such a company would go into the liquidation process.

The trigger point for the initiation of the CIRP is when the default amount is more than one crore rupees (10,000,000), earlier it was just one lakh rupees (1,00,000). Financial creditors, operational creditors, or corporate debtors apply to recover their debts before the adjudicating authority i.e. NCLT (National Company Law Tribunal). 

NCLT within 14 days of receipt of an application passes an order to accept or In case reject the application by giving notice to the applicant to rectify the default within 7 days from receipt of notice from the NCLT. 

On acceptance of an application that date will be called the insolvency Commencement Date. By acceptance of an application as per Section 14 of IBC. The moratorium period will start with, the appointment of an Interim Resolution Professional by an Adjudicating Authority after that Public Announcement by an Interim Resolution Professional in Form A of IBBI.

Who are the main stakeholders in IBC

 There are Four Main Stakeholders:

  1. Interim Resolution Professionals (IRP)/ Resolution Professionals (RP).
  2. Committee of Creditors (COC).
  3. Resolution Applicant (RA).
  4. National Company Law Tribunal (NCLT).

One of the primary players who play a major role in CIRP is the Interim Resolution Professional (IRP), who constitutes a Committee of Creditors (COC) as per Section 21 of IBC. The COC appoints or regularises a Resolution Professional by conducting a meeting as per Section 24 of IBC after that the Resolution Professional should prepare an Information Memorandum as per Section 29 and Regulation 36.

‘Resolution applicant’ means a person who presents a resolution Plan to the Resolution Professional; however, a resolution applicant should fulfill the condition of Section 29A of IBC. Resolution Applicant submits a resolution plan with an affidavit that he is not disqualified under Section 29A.

The Committee of Creditors may approve a resolution plan by VOTING a minimum of 66% of the voting share of the Financial creditors. The Resolution Professional should submit a resolution to the National Company Law Tribunal. The resolution plan is approved by a COC, followed by which the National Company Law Tribunal gives the order to approve the plan should be binding on corporate debtors and their employee, members, creditors, guarantors, and other stakeholders involved in that plan. First-ever successful insolvency resolution scheme under IBC was Synergies-Dooray Automotive Ltd.

Conclusion

One of the major steps taken to ease doing business in India is the CIRP process. The IBC has imbibed some of the best international practices of an asset resolution mechanism. It provides an honourable exit mechanism for honest business failures and enables the release of credit locked into the stressed assets for better resource allocation. This market-driven, transparent resolution mechanism instill confidence in the financial system and attracts many new investors to invest in Indian businesses. A significant achievement of the IBC has been the change brought in the debtor-creditor relationship. Debtors are resolving stress early to avoid being pushed into insolvency.  

References


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

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

https://t.me/lawyerscommunity

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Section 180 of Companies Act, 2013

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This article is written by Himanshu Verma, a graduate of the University of Petroleum and Energy Studies. In this article, the author has discussed Section 180 of the Companies Act, 2013, along with the restrictions and penalties imposed by the act on the board of directors as well as the role of the board of directors. 

It has been published by Rachit Garg.

Introduction

A company can exercise its power through a board of directors or shareholders under the Companies Act, 2013. The shareholder’s relationship with the board of directors functions as an alliance because the board of directors has some powers that can only be performed by them and some powers that can only be carried out with the consent of the shareholders, either via an ordinary resolution or a special resolution. Section 180 of the Companies Act, 2013, confines the restrictions on the power of the board of directors.

Role of Board of Directors under Companies Act, 2013

Under the Companies Act, 2013, the following significant responsibilities and roles are assigned to the board of directors:

Duty of care and diligence

In accordance with Section 166, the board of directors shall manage the affairs of the organisation with due care, skill, and diligence.

Making strategic decisions

The board of directors is responsible for the company’s strategic decisions, which include setting the company’s goals, developing its policies, and ensuring that it operates in a manner that is consistent with those goals. According to Section 177, businesses must set up an audit committee that will be in charge of monitoring the company’s internal controls, external audit procedures, and financial reporting procedures.

Management oversight

The board of directors is responsible for overseeing management and making sure that the business is run legally and efficiently. This includes monitoring the performance of the company’s executives. Companies are required by Section 178 to form a committee, which is in charge of choosing and recommending candidates for directorships as well as deciding how much to pay directors and senior executives.

Interest disclosure

The Board of Directors shall be responsible for the company’s compliance with all applicable laws and regulations, including those relating to corporate governance, financial reporting, and disclosure. Section 184 forbids directors from voting on any interests they may have in agreements made by the company and requires them to disclose any such interests.

Protecting the interests of shareholders

The board of directors is responsible for defending the interests of the company’s shareholders and ensuring that the business is run in a way that maximises shareholder value. The authority of the board of directors is subject to some limitations under Section 180, including the need for shareholder approval for certain kinds of transactions, like the sale of the company’s assets or a sizable amount of debt.

Senior executives’ appointment and supervision

The board of directors is responsible for choosing and supervising the company’s senior executives and other significant executives. Companies are not allowed to provide loans, guarantees, or securities to their directors, with some exceptions, according to Section 185.

Explanation of provisions under Section 180 of the Companies Act, 2013

Section 180 of the Act provides certain matters that require the shareholder’s approval via special resolution before the board could use such powers:

To sell, lease or dispose

If the company desires to sell, lease or otherwise dispose of the entire business or a substantial portion of the business, or if the company owns more than one business, all or substantially all of any such business, it must first get shareholder approval through a special resolution as per Section 180(1)(a).

Undertaking

In Section 180(a)(i) the term ‘undertaking” is defined, which means an undertaking in which the company’s investment exceeds 20% of its net worth as per the audited balance sheet of the previous financial year or an undertaking that generates 20% of the company’s total income during the previous financial year. 

Substantial the whole of the undertaking

Section 180(a)(ii) states that “substantial the whole of the undertaking” means 20% or more of the undertaking’s value as per the audited balance sheet of the preceding financial year.

Merger or amalgamation amount

If the company received any sort of payment through a merger or amalgamation and wishes to invest such an amount anywhere, the company must have shareholder approval via a special resolution. It should be noted here that the company does not need the shareholder’s approval to invest an amount in trust securities, according to Section 180(1)(b).

Banking company

As per Section 180(1)(c), if a company desires to borrow money and the amount borrowed, plus the amount to be borrowed, surpasses the company’s paid-up capital, free reserves and securities premium apart from temporary loans then in such cases, the company must have shareholder approval. It should be noted here that the securities premium was added under Section 180(1)(c) by Companies (Amendment) Act, 2017.

If a banking company accepts public deposits of money that are payable on demand and can be collected by cheque, draft, order or otherwise, then such transactions are not subject to shareholder approval as long as it is done in the ordinary course of business. As per Companies (Amendment) Act, 2020 housing finance companies registered under the National Housing Bank Act, 1987 are also exempt from Section 180.

According to Section 180(4), borrowings made by banking companies or housing finance companies in their ordinary course of business are exempt from the restrictions imposed under Section 180(1)(a).  This means that before borrowing money or offering securities or guarantees that exceed the total of their paid-up share capital, free reserves, and securities premium, banking companies and housing finance companies are exempt from the requirement to obtain prior approval from shareholders by way of a special resolution. It is significant to note that this exemption only applies to the aforementioned types of businesses and does not extend to any other businesses that are not involved in the banking, insurance, or housing finance industries. Other corporations are required to abide by the limitations imposed by Section 180(1)(a) and receive advance approval from shareholders via a special resolution. 

Repayment of debt

Under Section 180(1)(d), to remit or allow time for the repayment of any debt due by a director means that if the company waives or allows time for the reimbursement of any debt from the directors of the company, such a decision requires a special resolution approval.

Specified limit

Section 180(2), deals with the total amount up to which the board of directors can borrow funds, which is determined by each special resolution adopted by the company’s general meeting. This means that shareholders can limit the amount of money the company’s directors are permitted to borrow without consent from shareholders. If the board intends to borrow more than the agreed limit, it must seek shareholder approval by carrying out a special resolution. 

As per Section 180(5), no debt incurred by the company over the specified limit shall be valid or effective unless the creditor shows that the loan was made in good faith and with no prior knowledge that the director had exceeded the specified limit.

Purchaser’s claim

As per Section 180(3), in the event, the company passes a special resolution for the above transactions as mentioned under Section 180(1)(a), then the purchaser or other person buys or leases any property in good faith without knowing that the company has failed to comply with the law, then the purchaser’s claim against such person’s property is unaffected. 

Exceptions under Section 180 of Companies Act, 2013

Section 180 of the Companies Act 2013, makes certain exceptions to the general rule that the board of directors of a company must obtain prior shareholder approval before borrowing money, investing funds, or creating a charge or mortgage on the company’s assets. These exceptions are intended to give companies more flexibility in their business activities while also protecting shareholders’ interests.  The following are some exceptions to this general rule:

Ordinary course of business

In the ordinary course of business, the board of directors of a company can borrow money, invest funds or create a charge or mortgage on the company’s assets without the prior approval of the shareholders. The term “ordinary course of business” is not defined in the Companies Act of 2013 and its interpretation and application are determined by the specific circumstances and facts of each case. 

Example

PQR Ltd. is a manufacturing company that borrows money from banks regularly to meet its working capital needs. In this particular scenario, the company’s borrowing of money would be considered a transaction in the ordinary course of business, thus shareholder approval is not necessary.  

Transactions by wholly-owned subsidiaries

Transactions that are made in the ordinary course of business or with the prior approval of the board of directors of the holding company, such as wholly-owned subsidiaries, are exempt from the requirement to obtain the prior approval of the shareholders.

Example

XYZ Ltd., a wholly owned subsidiary of NMO Ltd. and is in the trading industry. XYZ borrows money from banks to cover its working capital needs. This is regarded as a business transaction, so shareholder consent is not needed.

Prior shareholder approval

The board of directors of a company may engage in particular transactions that are not in the ordinary course of business but are favourable for the company with the prior approval of the shareholder. Such transactions include the sale, lease or disposal of the company’s entire or substantial whole of the undertaking or where the investment exceeds the limit specified in Section 186 of the Act.

Example

UVW Ltd. is a real estate firm looking to sell its entire operation to a third party. In this case, UVW directors are exceeding the limits therefore, the company would need the approval of its shareholders before engaging in such a transaction.

Transactions in compliance with other provisions of the Companies Act, 2013

If the Board of Directors borrows, invests, or creates a charge or mortgage that does not exceed the aggregate of the company’s paid-up share capital and free reserves, then prior consent from shareholders is not required. However, if it exceeds such an aggregate, the shareholders must first approve it. It is important to note that temporary loans obtained from the company’s bankers in the ordinary course of business are not considered as borrowing, and this exemption is subject to compliance with other provisions of the Act, such as Section 179, which deals with the powers of the Board of Directors, and Section 186, which deals with a company’s loans and investments. As a result, when exercising their powers, the Board of Directors has to make sure that they adhere to all relevant provisions of the Act.

Example

RST Ltd. wishes to create a charge on its assets to secure a bank loan that does not exceed the aggregate of the company’s paid-up share capital and free reserves. In this case, the company can create a charge under Section 77 of the Companies Act 2013, and shareholder approval is not required.

Restrictions on the power of the board of directors under Section 180 of Companies Act, 2013

Borrowing limitations

The company’s articles of association include a reference to the borrowing cap. This cap cannot be exceeded by the board of directors without the shareholders’ approval. If the borrowing cap has already been reached, the board cannot borrow any more money without the shareholders’ approval.

Compliance with law

The board of directors must abide by all applicable laws and rules when exercising their authority under Section 180. Any non-compliance may lead to legal and financial repercussions.

Consent of shareholders

Without the approval of the shareholders, the board of directors cannot borrow money, impose an obligation or charge on the assets of the company, or issue securities. The shareholder’s approval must be obtained by passing a special resolution at a company general meeting.

Value of assets

If the value of the assets is less than the amount borrowed or to be borrowed, the board of directors cannot impose a charge on those assets. This prevents any negative effects on the company’s financial health and makes sure that the assets offered as collateral are enough to cover the borrowed amount. 

Penalties for violation of Section 180 of Companies Act, 2013

Imposition of fine

If an organisation or any individual violates Section 180 rules, they must pay a fine. According to Section 451 of the Act, if a company, any officer of the company contravenes any provision of the Act or the rules and regulations made thereunder for which no specific penalty is stipulated then such person shall be punishable with a fine or with imprisonment and if the violation is for the second time within three periods, then the fine imposed on directors will be twice and Section 450 of the Act states that if a company violates any provision of the Act or the rules made thereunder, the company and every officer of the company who is in default shall be punished with a fine, which may extend to Rs. 10,000 and if contravention is continuing then with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues.

Imprisonment of directors 

In addition to fines, directors found in breach of Section 180 may be punished for up to two years. The imprisonment can be placed alone along with a fine. According to Section 188, any director found guilty of violating Section 180 is punishable by a fine of not less than Rs. 25,00,000/-. It is important to note that Rs. 25,00,000 is only applicable to listed companies under Section 188(5)(i) earlier it was imprisonment and a fine up-to 5,00,000 but it was amended by Companies (Amendment) Act, 2020 and for other companies, it is 5,00,000 as per the Amendment Act, 2020. In addition, imprisonment is a severe penalty that is typically reserved for cases of willful and deliberate violations. Before imposing an imprisonment penalty, the courts will consider several factors, including the nature and extent of the violation, the level of involvement of the director, and the impact of the violation on the company and its stakeholders.

Disqualification

An infraction of Section 180 may also result in the director’s disqualification from holding office in any company for a period of up to five years. The disqualification can have grave repercussions for the director’s professional reputation and career prospects. Section 164 of the Act contains the provision that allows directors to be disqualified for violating Section 180 of the Companies Act, 2013. Section 164 specifies the circumstances in which a person is ineligible for an appointment as a director of a company or must resign as a director.

One of the grounds for disqualification specified in Section 164(1)(d) is that a person shall not be eligible for an appointment as a director if they have been convicted of a fraud-related offence and five years have not elapsed since the date of such conviction. A breach of Section 180 can be considered a fraud offence under Section 447 of the Act. As a result, if a director is found guilty of infringing on Section 180 and is convicted of a fraud-related offence, they may be barred from serving as a director of any company for up to five years under Section 164 of the Act.

Director’s liability

If a company’s board of directors violated the provision of Section 180, the directors who are responsible for the violation will be held personally liable. The directors can be sued for breach of fiduciary duty and will be responsible for compensating the company or its shareholders. The provision holding directors personally liable for the violation of Section 180 of the Companies Act is not expressly stated in the Act. However, the director’s liability for breach of fiduciary duties is well established in company law principles and judicial precedents. Section 166  of the Companies Act 2013 requires directors to act in good faith and in the best interests of the company and its shareholders. They must also exercise due diligence, reasonable care and skill in carrying out their duties. Any breach of these duties may result in the directors being held personally liable for the company’s or its stakeholder’s losses or damages.

Case laws

Priyaranjani Fibres Ltd. v. D. Srinivasa Rao(2018)

Facts

In this given case, the director of Priyaranjani Fibres Ltd. agreed with an outsider to sell the shares of himself and other shareholders without the shareholders’ prior approval. The other shareholders filed a petition with the National Company Law Tribunal (NCLT) alleging the director’s oppression and mismanagement. The NCLT ruled that the director’s agreement was not binding on the shareholders because it was made without their prior approval. The director filed an appeal with the National Company Law Appellate Tribunal (NCLAT) against the NCLT’s decision. 

Issue

If the shareholders will be bound by an agreement a director of a company makes with a third party to sell shares of himself and other shareholders without their prior consent?

Judgement

The NCLAT ruled that the director’s agreement to sell shares of himself and other shareholders without the shareholder’s prior approval was not binding on the shareholders. The NCLAT observed that the director was obligated to act in the best interests of the company and its shareholders and could not enter into a share-sale agreement without the shareholder’s approval.

The NCLAT also ruled that the director had breached his fiduciary duty to the company and its shareholders by entering into the agreement without their prior approval, and that such an agreement would be unenforceable against the shareholders. The NCLAT dismissed the director’s appeal and upheld the NCLT’s decision.

Observation

The case of Priyaranjani Fibres Ltd. v. D. Srinivasa Rao is of significance because it emphasises the importance of obtaining shareholder approval before entering into an agreement to sell a company’s shares. A company’s directors have a fiduciary duty to the company and its shareholders and are expected to act in their best interests. Any action taken by a director that is not in the best interests of the company or its shareholders will almost certainly be scrutinised and could be declared invalid by the courts.

Nagarajan v. ICICI Bank Limited (2018)

Facts 

In this case,  V. Nagarajan, a guarantor of a loan made by ICICI Bank Limited (“the Bank”) to a company, had executed a guarantee deed in the bank’s favour. When the company defaulted on the loan, the bank invoked the guarantee clause and sought repayment from the guarantor. The bank filed a claim against the guarantor with the Debt Recovery Tribunal (“DRT”) and obtained a recovery certificate. The bank also notified the guarantor that it intended to sell the mortgaged property to recover the outstanding amount.

The guarantor filed a writ petition in the Madras High Court, challenging the property’s sale because the bank did not obtain the prior approval of the company’s shareholders, as required by Section 180 of the Companies Act, 2013. The High Court rejected the writ petition, ruling that Section 180 didn’t apply to the bank’s sale of the mortgaged property. The guarantor then appealed to the Supreme Court.

Issue 

Whether the sale of mortgaged property by a bank to recover the outstanding loan amount from the guarantor who executed a deed of guarantee in favour of the bank require prior approval of the company’s shareholders under Section 180 of the Companies Act, 2013?

Judgement

According to Section 180 of the Companies Act, 2013, the sale of mortgaged property by a bank to recover the outstanding loan amount from the guarantor, who had executed a deed of guarantee in favour of the bank, does not require the prior approval of the company’s shareholders. The court noted that the provisions of Section 180 apply to the sale of a company’s undertaking, which is distinct from the sale of mortgaged property to recover a debt from a guarantor. The court also stated that the bank’s right to sell the mortgaged property to recover the outstanding loan amount is a statutory right granted to the bank by the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

The Court ruled that a secured creditor’s right to sell the mortgaged property to recover the outstanding loan amount is not subject to Section 180 of the Companies Act of 2013. The court also pointed out that Section 180 applies only to the sale of a company’s undertaking, not to the sale of its assets. As a result, the court reversed the Madras High Court’s order and held that the bank did not need the prior approval of the company’s shareholders under Section 180 of the Companies Act, 2013 for the sale of the mortgaged property to recover the outstanding loan amount.

Observation

The Supreme Court’s decision clarifies that a bank’s sale of mortgaged property to recover an outstanding loan amount from a guarantor does not require the prior approval of the company’s shareholders under Section 180 of the Companies Act, 2013. The court ruled that a secured creditor’s right to sell a mortgaged property to recover the outstanding loan amount is a statutory right granted to the bank under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

Conclusion

The directors are the heart and soul of a successful company, and they hold the key to its success. A company can borrow money under Section 180 only after obtaining the approval of its shareholders via a special resolution passed at a general meeting. The company can then borrow up to the amount specified in the resolution. If the company desires to exceed this limit, yet another special resolution must be passed. The section also requires the company to disclose the purpose of its borrowings, the amount borrowed, and the terms and conditions of the borrowing in its financial statements. The company must also keep its shareholders up to date on the status of its borrowings on a regular basis. Furthermore, the section limits the board’s ability to provide security for loans or guarantees made on behalf of the company. For any such action, the board must first obtain shareholder approval via a special resolution. 

The Companies Act, 2013, along with other regulations, established rules to govern the actions of directors. The regulations mentioned in such acts are for the protection of creditors and shareholders. These rules ensure that the director’s personal interests do not come at the expense of the company’s or its stakeholder’s interests.

Frequently Asked Questions (FAQs) 

What is a special resolution?

A special resolution is one that is passed by the members of the company with the support of at least three-fourths, i.e., 75% of the shareholders.

Is section 180 of the act applicable to private companies?

No, section 180 of the act does not apply to private companies, as stated in the Companies (Amendment) Act, 2017.

Can a private limited company borrow money?

Yes, private limited companies can borrow money according to Section 179(3) of the Act by borrowing in the form of exempted deposits, issuing debentures as per Section 71 of the Act and through deposits under Section 73 of the Act.

What are temporary loans?

Temporary loans have no definition in the Companies Act, 2013. However, it is generally accepted as a short-term borrowing made by a company to meet immediate funding needs, which are expected to be repaid in a period of no more than one year. Bank overdrafts, cash credit, short-term loans, and commercial papers are all examples of temporary loans. 

References 


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Seeking remedy under RERA vs Consumer Protection Act, 2019

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home-buyers

This article has been written by Jaya Dhirwani pursuing Certificate Course in Real Estate Laws and has been edited by Oishika Banerji (Team Lawsikho). 

This article has been published by Sneha Mahawar.​​ 

Introduction

The real estate consumer has mainly two grievances, i.e. timely possession and fairly good quality of construction. The available remedies are Real Estate (Regulation and Development) Act, 2016 (RERA) and/or Consumer Protection Act, 2019 (CPA).  One more remedy available is under Insolvency and Bankruptcy Code, 2016 (IBC) where the buyers are considered to be ‘creditors’.  This article is going to talk about the pros and cons of the remedies available to a home buyer and also discuss which type of remedy will be appropriate in a given situation for the home buyer.

Overview of the Consumer Protection Act, 2019

The Act of 2019 was introduced with the purpose of safeguarding consumers against product marketing that proves to be hazardous to both life and property alongside providing the requisite information about the quality, potency, quantity, standard, purity, and price of goods that a consumer intending to purchase thereby restraining the scope of unfair trade practices.

CPA, 2019 has three distinct forums depending upon the pecuniary limits of consumer complaints. The NCDRC (available for disputes above Rs. 1 crore) is a general forum for all types of ‘goods’ and ‘services’.  The ‘services’ under CPA include banking, insurance, telephone, housing, medical, transport, etc. 

Advantages and limitations of CPA

There are district forums  (about 3-4) in each district available and easily accessible to the consumers under the CPA. There are time limits set for disposal of grievances by the consumer forums and the complaints can be lodged online. The remedy available is compensation and the orders of the forum are binding in nature on the builders/developers if they do not provide timely possession/standard quality.  Under the Act, ‘construction’ is defined as a service.

However, immovable property as such is not defined as ‘goods’ and the transactions of sale/purchase of properties, specific performance, and damages for non-performance are beyond the scope of this Act.  Further, the complaint has to be filed on the CPA portal along with all the documentary proofs which become difficult at times.  The pecuniary limitations of the forums is another disadvantage of this Act.  If the cost of the property exceeds Rs. one crore, one has to go to Delhi to file the complaint before the NCDRC.

Overview of Real Estate Regulatory Authority (RERA), 2016

The main aim of RERA is to provide relief to homebuyers(allottees)  from the malpractices of unfair builders, to bring accountability and transparency in real estate transactions.  RERA specifies the creation of a Real Estate Authority and Appellate Tribunal for each state for the speedy redressal of any grievance of allottees.

Advantages and limitations of RERA

As per the provisions of this Act, the builders are mandated to upload the status of their projects on the RERA website every quarter. The remedies under RERA in the event of delays in completion are either to leave the project or stay in the project and claim losses.  Due to mandatory status uploads of projects, there is more transparency and information is readily available on the RERA site.  There is also a provision for appeal to the higher authority\Adjudicating Officer under the Act.

One of the main drawbacks of RERA in recent times is that although the Central Act has provisions for imprisonment and fines, the States usually prefer a clause for compounding of offences to avoid imprisonment at the State level. Also, RERA does not have a retrospective effect and hence projects before 2016 do not come under the purview of this Act.

Right choice of remedy

The landmark judgments by the courts in the administration of the CP Act AND RERA, over the years are as under:

  1. In the case of Experion Developers vs. Sushma Ashok Shiroor (Civil Appeal No. 6044 of 2019), the Apex court held on 7.4.2022 that the Appeal of the Developer against the orders of the NCDRC is dismissed.  It was further held power to direct refund of the amounts paid by the Respondent to compensate for the deficiency in not delivering the possession of the flat as per the terms of the agreement is within the jurisdiction of the consumer courts.  The consumer can also ask for possession and compensation.
  2. In the case of Veena Khanna vs. Ansal Properties & Industries Ltd., (NCDRC, 2007, CPJ 185)  National Commission overturned a State Commission order observing that a refund of money with interest at the bank rate does not imply that the complainant has been adequately compensated for the builder’s delay in completing the flat.  Due to delays in construction, it is practically impossible for a consumer to purchase a flat at market price.  The Commission observed that adequate compensation should have been provided so that the complainant could purchase a new flat of the same size at the current market rate.  The payment of interest alone is insufficient compensation.
  3. The constitutional validity of RERA was challenged in the case of Neelkamal Realtors Suburban Private Ltd. Vs. Union of India and Others  (WP 2737 of 2017).  In this case, it was held by the court that all the provisions of RERA are constitutionally valid.
  4. The issues raised in the Appeal filed by Ms. Newtech Promoters and Developers Private Limited vs. UPState RERA and Others (2021) were as follows

a) Whether RERA has a retrospective effect?

b) Whether RERA has powers under Section 81 to delegate the function of hearing?

c) Preconditions of pre-deposit under Section 43(5) are void? 

The SC held on 11.11.2021 that RERA has no retrospective effect.  Further, it can delegate the functions of hearing under the Act.  Also, the precondition for the builders/developers to deposit 30% of the amount with RERA before filing their appeals is valid.

  1. In the case of Pioneer Urban Land Infrastructure Limited vs. Union of India and Others, the issue of declaring home buyers as financial creditors under the Insolvency and Bankruptcy Code, 2016 was challenged.  It was held by the Apex court on 19.8.2019 that this was valid and there were concurrent remedies provided to the home buyers under the Consumer Protection Act, 1986, RERA 2016 and IBC 2016.  One remedy does not prohibit the use of alternatives.
  2. The matter of non-registration of complaints by MahaRERA for unregistered building projects was raised by Mohd. Zain Khan in WP(L)908 of 2018.  It was held on 31.7.2018 that non-registered projects are also covered under RERA.  Following this judgment, MahaRERA modified its software to register complainants against non-registered projects in the state as per the procedure set out in the Act.

Conclusion

The concurrent remedies under CPA and RERA have increased the scope of remedies available to consumers.  Both Acts have benefits as well as some drawbacks.  The selection of the most effective remedy in the particular complaint is highly dependent on the facts of the case and the remedy that is most suitable to the aggrieved party.  Under the CPA, compensation as well as the choice to take possession or leave the project is available.  Under RERA also this is possible but RERA goes a step ahead and ensures that the quality of the structure provided is maintained by the builder/developer free of cost.  Also, the compulsory registration of builders and status uploads of their projects every quarter provide much-needed transparency in the real estate sector.  Further, the faith of the home buyers/consumers on the builders is getting consolidated over a period of time. Although the RERA complaints have come down post-COVID period, no such recession is found in complaints filed under CPA, 1986. Recently counselling set up for homebuyers/developers has been established by MahRERA.  The Supreme Court is trying to handle the deviations/variations in the implementation of RERA in various states by trying to implement and advocate a Model Builder-Buyer Agreement across all states to bring about more transparency in real estate deals at the ground level. 


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Section 279 IPC punishment

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Section 120A

This‌ ‌article‌ ‌has‌ ‌been‌ ‌written‌ ‌by‌ ‌‌Srejan Gupta Reza ‌ from Jagran Lakecity University, School of Law, Bhopal, Madhya Pradesh. The article explains Section 279 of the Indian Penal Code, 1860, and sheds light on the nuances surrounding this Section.

It has been published by Rachit Garg.

Introduction 

Rash driving refers to an act of driving a vehicle in a reckless and irresponsible manner that endangers human life or is likely to cause injury to any other person. The act of rash driving includes the acts of speeding, racing, overtaking, ignoring traffic signals, driving while intoxicated, etc. In recent times, the act of rash driving has become one of the major problems for the road users. This has been caused due to various reasons such as the increasing number of vehicles, distractions while driving, pressure to meet deadlines, lack of road safety education, impaired driving, etc. Rash driving can have severe causes for both the drivers as well as other people on the road.

The provision under Section 279 of the Indian Penal Code (IPC), 1860, is in place to protect the safety of the public and to prevent accidents that can result in injury and death. The fundamental objective of this provision is to deter individuals from driving and riding recklessly on public roads and to ensure road safety for the public. The provision aims to promote responsible driving habits and to prevent individuals from endangering themselves and others on the road. 

Which crime is defined under Section 279 IPC 

Section 279 of the Indian Penal Code, 1860, is titled “Rash driving or riding on a public way”. Under this Section, the act of rash or negligent driving in a public way endangering human life or likely to cause injuries to persons has been made an offence. The Section provides that any person who is driving or riding any motor vehicle on a public road or other public ways in a rash or negligent manner so as to endanger human life or cause any kind of hurt or injury to any other person shall be liable to punishment. 

Illustration

For example- a person named “Z” is driving a car on a busy road in a reckless manner without regard to the safety of the other road users. He is speeding and veering in and out of lanes and is overtaking other vehicles in an unsafe manner. While doing this, he causes a collision with another car and injures the driver and the passengers of the other car.

In the aforementioned scenario, “Z” has inter alia committed the offence of rash driving under Section 279 and he’s liable for the appropriate punishment under the provision.

Essentials of crime under Section 279 IPC

A brief reading of the provision under Section 279 explicates that there are three essential ingredients that need to be fulfilled in order to establish a crime of rash driving or riding on a public way. The prosecution, in order to establish an offence under this Section, must prove that:

  1. The accused drove any vehicle on road or on any public way,
  2. The vehicle was driven in a rash or negligent manner,
  3. There was an endangerment to human life or harm to any other person.

Public way 

The term public way is not defined anywhere in the Code, but generally, the term refers to any road, street, highway or pathways that are intended for the use of the general public.

Rash or negligent

In the context of the provision under Section 279 of IPC, the terms rash and negligent refer to the degree of carelessness or recklessness of a person while driving a vehicle. The terms rash and negligent are distinguishable in the sense that “rash” refers to a person’s disregard to safety while driving, whereas the term “negligent” suggests a person’s failure to take reasonable care while driving. The question as to whether a person was negligent or rash while driving depends upon the facts and circumstances of the case. For example, the act of driving at high speeds or overtaking recklessly can be considered as rash driving, whereas negligence includes things such as failure to obey the traffic rules, driving while being distracted, etc.

Endangerment of human life

In order to ascertain that an offence under Section 279 was committed, it is necessary to demonstrate that the accused was driving the vehicle in such a manner so as to endanger the life of a human being or would cause any other harm to another person. When a person is driving on the wrong side of the road at the time of a collision, he must satisfy the court that he was not rash or negligent in driving on that side.

In the Balakrishnan Nair v. P. Vijayan (2020) case, it was noted that a person who drives a vehicle on a public road is accountable not only for their actions but also for the consequences. The speed at which a vehicle is driven is not always a reliable indicator of whether someone was driving recklessly or negligently. Driving at a slow speed would still qualify as “rash or negligent driving” under Section 279 of IPC if the vehicle was driven in a reckless manner. That is why the legislature, in its wisdom, has used the words ‘manner so rash or negligent as to endanger human life’. To apply this law, three matters must be considered: (a) the way in which the vehicle was driven; (b) whether it was driven recklessly or negligently and; (c) if such negligent or reckless driving endangers human life. If all three criteria are met, the penalties stated in Section 279 of IPC will be imposed.

Punishment under Section 279 IPC

Scope of the punishment

Any person who is found guilty of the offence under Section 279 is held to be liable to a sentence of imprisonment, which may extend to a term of six months, a fine, which may extend to one thousand rupees, or both. The type of imprisonment under Section 279 can be simple or rigorous, subject to the facts and circumstances of the case.

Section 279 of the Indian Penal Code (IPC) deals with the offence of rash driving or riding on a public way. According to this section, the minimum punishment for committing such an offence is a fine that is less than one thousand rupees, or imprisonment that is less than six months. However, the exact amount and duration of the punishment are at the discretion of the presiding judge or magistrate, depending on the specific circumstances of the case.

On the other hand, the maximum punishment that can be imposed for the offence under Section 279 of the IPC is six months of imprisonment along with a fine of one thousand rupees. This means that if the accused is found guilty of reckless driving or riding, they can face imprisonment for up to six months and be required to pay a fine of up to one thousand rupees. It is important to note that the severity of the punishment will depend on various factors, such as the nature and extent of the harm caused, the degree of recklessness involved, and any previous convictions of the accused.

Overall, the provisions under Section 279 of the IPC aim to deter individuals from driving or riding in a reckless manner on public roads, and ensure that those who endanger the lives of others are held accountable for their actions.

A case where the convict was sentenced to rigorous imprisonment is the case of Subhash Chand v. State of Punjab (2019), where the Appellant was driving a truck at a high speed and in a negligent manner on the wrong side of a busy road, resulting in an accident that led to the death of an un-numbered Hero Moped driver. The Trial Court found that he was responsible for the accident and that there was no doubt about his identity as the driver of the offending vehicle as he surrendered at his own command. As a result, the accused was convicted of offences under Section 279 and Section 304A of the IPC and sentenced to six months of rigorous imprisonment and a fine of Rs. 1000 with a default stipulation for the offence.

Rules regarding bail under Section 279

The offence under Section 279 is a bailable offence. It means that if a person is arrested under this Section, he can apply for bail before the investigation officer or before the magistrate.

Bail serves as a crucial tool to balance the right to liberty of an accused with the need to ensure their presence during legal proceedings. As per the provisions of Section 436 of the Code of Criminal Procedure (CrPC), an accused in a bailable offence has an unequivocal right to be released on bail. As soon as the accused person expresses their willingness to furnish bail, it becomes the duty of the police officer or the court before whom the bail is offered to release them on reasonable bail terms.

It shall be noted that the discretion in deciding the reasonability of the terms of the bail lies with the concerned officer or the court. In certain situations, the officer or the court may discharge the accused on execution of a bail-bond, as provided under Section 436 of the CrPC, instead of accepting bail. This approach is taken to ensure that the accused is not held in custody for a prolonged period, which could be detrimental to their fundamental right to liberty.

However, it should be understood that while bail is a right in bailable offences, it is not an absolute right. In the event that the accused breaches the conditions of the bail or bail bond, they can be remanded to custody. This provision is in place to ensure that the accused does not misuse their freedom and continues to cooperate with the legal process.

How to defend against a charge under Section 279 of IPC

The consequences of being accused of a crime can be extremely severe and far-reaching. Not only can the accused face the possibility of being incarcerated or having to pay substantial fines, but they may also experience significant social ramifications that can impact their reputation and personal and professional lives. Criminal charges can lead to stigmatisation and social isolation that can cause immense emotional distress and trauma.

Moreover, the legal proceedings that follow a criminal arrest can be lengthy, complex, and emotionally draining. Navigating the legal system without proper guidance can be overwhelming, particularly when dealing with the potential consequences of a criminal conviction. Therefore, it is critical to seek the advice of a seasoned criminal lawyer when faced with criminal charges.

An experienced criminal lawyer can provide valuable legal counsel and educate the accused about their rights throughout the legal process. They can also help the accused understand the charges against them, potential penalties, and legal strategies for securing the best possible outcome for their case.

Hiring a criminal lawyer can also alleviate the stress and burden of navigating the legal system alone. Lawyers are well-versed in the law and can assist in filing paperwork, negotiating plea deals, and presenting a compelling defence in court.

Important case laws on Section 279 IPC 

Recent judgements

Prathap Kumar G v. State of Karnataka & Ors (2022)

In this case, the complainant’s mother was walking her pet dog when it was hit by a Fortuner SUV, resulting in its death. The dog was taken to a veterinary clinic, where it was declared dead. The Karnataka High Court reviewed the case and concluded that the definition under Section 279 of IPC, which covers acts likely to cause injury or harm to a person, does not extend to pets. Therefore, the injury or death of a pet would not be covered under this definition. The decision indicates that while the law seeks to protect human lives and prevent harm, it does not explicitly cover harm caused to animals. 

Thangasamy v. The State of Tamil Nadu (2019)

In this case, the Appellant was found guilty of rash and negligent driving, which resulted in the deaths of four individuals and injuries to three others. Despite the severity of the offences, the trial court imposed a relatively lenient sentence of only four months imprisonment for each count of offence under Section 304A of the IPC. Additionally, the Appellant was fined Rs. 100 for each count of offence under Section 337 of the IPC and Rs. 200 for the offence under Section 279 of the IPC. The punishment awarded in this case was rather on the light side, given the gravity of the offences committed. This decision highlights the need for courts to impose appropriate punishments that are commensurate with the harm caused by the actions of the accused.

Popular Judgements

Dalbir Singh v. State of Haryana (2000)

In this case, the Supreme Court, while determining the quantum of sentence for the offence of causing death by rash or negligent driving of automobiles, stressed the importance of deterrence. In this regard, the Court made the observation that professional drivers should constantly remind themselves of the potential consequences of any moment of laxity or inattentiveness while operating a vehicle.  It is imperative that they do not take any chances and assume that their reckless driving will not result in an accident or that any resulting accident will not lead to the loss of human life. Furthermore, drivers should not assume that even if a death occurs, they will not be convicted of the offence or that they will receive a lenient sentence. Overall, the Court’s observation highlights the need for professional drivers to exercise the utmost caution and responsibility while driving to prevent any harm or damage to themselves or others.

Manish Jalan v. State of Karnataka (2008)

In this case, the person who was accused of reckless and negligent driving was found not to have been under the influence of alcohol or any other substance that would impair their ability to drive. The conviction of the appellant under sections 279 and 304A, IPC, was maintained, however, the substantive sentence of imprisonment was reduced to the period already undergone and the imposition of a fine was also affirmed. The Supreme Court opined that the ends of justice would be met if the sentence of imprisonment was reduced to the period already undergone. The defendant was convicted under Section 279 and 304A of the IPC, but the Court decided to reduce their sentence to the time already served and upheld the imposition of a fine. In order to ensure that justice was served, the Court also ordered the appellant to pay an amount of Rs. 1,00,000 to the mother of the deceased as compensation. 

State of Himachal Pradesh v. Amar Nath (2001)

In this case, due to the rash and negligent driving of the truck by the respondent, he hit the taxi, which was being driven by the complainant. The respondent was held guilty of having committed offences under sections 279 and 337 of the IPC. Accordingly, he was sentenced to pay a fine of Rs. 5,000/- under Section 279 and to undergo simple imprisonment for one month in the event of default in the payment of fine. He was also sentenced to pay a fine of Rs. 5,000/- under Section 337 and, in default of payment, to undergo simple imprisonment for one month. 

Puttuswamy v. State of Karnataka (2008)

In this case, the Appellant caused the death of a seven-year-old girl on account of his rash and negligent driving of his tractor. The Supreme Court upheld the appellants’ conviction under Section 279 and Section 304A IPC, despite the agreement made by the parties involved. Additionally, the Court increased the amount of the fine from Rs. 2,000 to Rs. 20,000, which the appellant must pay to the parents of the deceased. The appellant’s sentence was reduced to the period that they had already served, provided that they paid the fine. 

This decision indicates that the court takes violations and accidents resulting in loss of life very seriously and seeks to hold responsible parties accountable for their actions.

Conclusion 

In conclusion, the provision under Section 279 provides for a requisite punishment for the persons who engage in the act of rash and reckless driving, thereby putting the lives of innocent people at risk. The provision under Section 279 was implemented by the Indian Government with the intent to ensure that the roads in the country are safe to operate on and commute on. It is the responsibility of the people to drive cautiously, or else they will have to face punishment under the law. If a person driving a vehicle causes an accident due to his rashness, he is charged under Section 279 as well as other provisions under Section 337 and Section 338. He can be charged under Section 304A if his act causes the death of a person. 

Frequently Asked Questions (FAQs) 

What is the maximum punishment under Section 279 of IPC?

The maximum punishment under Section 279 is six months’ imprisonment, a fine of Rs. 1000, or both.

What is the nature of the offence under Section 279 of IPC?

The offence under this Section is a cognizable offence, which means that the police authorities have the power to arrest the accused without a warrant. The offence is also bailable, non-compoundable and can be tried by any magistrate.

Does the offence under Section 279 come under a petty offence?

The offence under Section 279 is a cognizable offence and is punishable by imprisonment, a fine, or both. Therefore, it is not a petty offence.

Which court has the jurisdiction to try a case under Section 279 of IPC?

The cases that fall within the ambit of Section 279 of the IPC can be tried in the court of any magistrate.

Whether an arrest is made with or without warrant under Section 279 of IPC? 

The offence under Section 279 IPC is a cognizable offence; therefore, a police officer can arrest without a warrant from the court. 

Whether a court can convict a person under Section 279 and 337 IPC for the commission of the same act of offence and accordingly pass the sentence under both sections?

The offence being the outcome of the same act, the accused shall be punished for one offence at the same time, but it shall be considered that when the sentence prescribed under Section 279 is more severe than the one prescribed under Section 337, the accused shall be punished under Section 279 only. 

References 


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All about quantitative criminology

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This article has been written by Nitika Malik, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution and has been edited by Oishika Banerji (Team Lawsikho).

It has been published by Rachit Garg.

Introduction

The study of both crime and the criminal justice system is the emphasis of criminology. Criminality, delinquency, and victimisation are the main topics of criminological research. The criminal justice system as a whole, particularly the elements of the police, courts, and corrections, is another crucial area of concentration. There are many ways to study criminology because there are so many different topics that are examined. The fact that there is no one, ideal method for analysing crime and the criminal justice system in all of its varied manifestations must be emphasised. According to this discussion, the approach employed should be the one that is most appropriate for the subject under investigation.

What do you mean by quantitative criminology

Quantitative criminology is the systematic study of phenomena by collecting quantifiable data and employing statistical, mathematical, or computer methods. Quantitative criminology gathers data from present and potential clients by employing sample techniques and distributing online surveys, polls, questionnaires, and other types of data collection. The results of these data collection techniques can then be statistically represented. By completely understanding these figures, you can predict the future of a good or service and make the appropriate adjustments.

The statistical methods used to gather quantitative data from the study endeavour are frequently used in quantitative outcome research in the social sciences. Researchers and statisticians use mathematical frameworks and notions related to the quantity being studied in this method of study. The traits of quantitative research templates include being thorough, unbiased, and occasionally exploratory. Results from this study methodology are precise, statistically sound, and objective.  

In its broadest sense, criminology is the study of criminal behaviour. According to this perspective, Cesare Beccaria’s 1764 research on torture and the death penalty is one of the earliest examples of criminology. Beccaria made substantial contributions to philosophy that have a big impact on criminology. One of the earliest modern research initiatives, Suicide, which used quantitative approaches in the field of criminology, was inspired by the renowned sociologist Émile Durkheim. For the first time, quantitative data, including suicide rates for diverse groups, was presented in this book, which was published in 1897. It has never been done previously to apply quantitative approaches in criminology study.

By examining the enormous influx of immigrants to the city around 1915, scientists at the University of Chicago discovered this phenomenon for the first time in the United States. So, it provided a perfect environment for empirical research examining the criminal propensity theory. For this study, they gathered data and statistics from previously reported convictions, the immediate environment, and interpersonal contacts. British criminology served as a foundation for many social scientists’ theories on criminal behaviour in the United States. Karl Marx, Cesare Lombroso, Jeremy Bentham, and Émile Durkheim were early criminologists. In the late nineteenth century, sociology’s theories were absorbed into the study of criminology, which had a broader scope.

Criminology : an idea

The study of crime, criminals, criminal behaviour, and corrections is a more current and complete definition of criminology. Compared to a term from the late 1800s, this one has gained more traction in the dictionary. Criminology has been practised in a largely consistent manner as a science over time. It’s unlikely that the theories and methodologies employed in criminology research have altered all that much. In criminology, quantitative methodology is still often employed, and data gathering and analysis methods are still very much in use now as they were when the field originally came into being.

Comparatively, qualitative approaches rely on an individual’s subjective interpretation of the facts, whereas quantitative methods use the numerical findings of quantitative research as the basis for their analysis. Due to the probability of bias in qualitative research, quantitative methodologies are used in the study of criminology. Many situations, though, cannot be quantitatively explored. Personal judgements and discussions are significantly influenced by emotion as opposed to scientific study. But the difficulty of quantitative research supports its application.

Social scientists now quantify crime using a range of variables. We must first define crime in order to begin tracking it. A clear definition of a crime is provided by Wilson and Herrnstein: “any act committed in violation of a law that forbids it and prescribes punishment for its commission.” We can begin measuring crime if we have a clear understanding of what it is.

Methods for obtaining quantitative information on crime

The four most common methods for obtaining quantitative information on crime are direct observation, victimisation reports, surveys of offenders, and the use of previously gathered information.

It is not via observation that the extent of crime is best determined. The idea that not all crimes are adequately recorded is supported by the fact that police learn about crimes either by observing them or by having them reported to them. Think about shoplifting as an example. It happens often that shoplifting is not reported to the police or other authorities. Crimes like theft and drug trafficking won’t be adequately considered as a result.

Asking someone if they have ever been a victim of criminal activity is a useful technique to acquire information. This type of research typically employs a survey. Finding information that hasn’t been reported to the authorities, finding about crimes that police have already looked into but haven’t documented, and providing details on the perpetrators, their victims, and their offences are all things that surveying can be valuable for. The NCVS, or National Crime Victimisation Study, is a noteworthy illustration of this. Because it provides more details on particular victims, perpetrators, and episodes, the NCVS is a better tool for analysing the impact of individual variables in studies of crime victimisation.

Although these are for the perpetrators rather than the victims, surveys of criminals are used. It’s customary to conduct surveys to determine how many offences a person has committed. Candidates for this type of research include prostitution, crimes concerning public safety and delinquency, and rarely discussed crimes like stealing. The information gathered from these surveys is crucial, despite the fact that conducting surveys has significant downsides, such as the potential for dishonest or inflated responses from respondents.

 Benefits of the method 

Given how challenging it is to measure crime, it is generally desirable to use a variety of approaches to obtain the most accurate data. The benefits of this tactic include:

1. Reproduction – The study can be repeated thanks to clearly specified data gathering methods and concrete descriptions of abstract notions.

2. Direct comparability of results – The study can be repeated in many cultural settings, at various times, and with various populations. Statistics can be used to compare the outcomes.

3. Numerous samples – Using dependable and consistent methods, quantitative data analysis can be utilised to handle and analyse data from huge samples.

4. Validating theories – You must properly analyse and describe your study variables, predictions, data collection techniques, and testing procedures utilising outlined and established protocol for testing hypotheses before drawing any conclusions.

 Disadvantage of the method

The disadvantages of this tactic include:

1. Flawlessness – Using precise and constrained operational definitions may result in the insufficient representation of complex ideas. For instance, the notion of mood might be articulated more fully in qualitative research than in quantitative research, which might only use a single number to represent the concept.

2. Concentrate on one thing – If you employ predetermined variables and measurement techniques, you risk missing other important observations.

3. The structure is biassed – Standardised procedures can nevertheless fail to prevent structured biases from harming quantitative research. Faulty results may be the result of biases including missing data, inaccurate measurements, or poor sample techniques.

4. A context-free environment – Quantitative research typically takes place in artificial settings, such laboratories, or ignores cultural and historical contexts that can affect the data collection and interpretation.

Crime statistics are at the centre of both social science research in general and quantitative criminology in particular. To understand, characterise, and explain crime and criminality, many sources of crime data have been proposed in recent years, but few of these sources have actually been tested using a significant sample of crimes and various multivariate techniques. A thorough examination and comparison of different sources of crime data is crucial if present analytical methods are to be used effectively and if new, more powerful approaches are to be created.

Different methods of criminology

The methods which are generally used by criminologists include the following:

  1. Survey method,
  2. Case study method, and
  3. Statistical method in studying criminal behaviour. 
  4. Occasionally, experimental methods are also used.

Survey method 

In this method, facts are collected by means of framing questions for a larger number of people who are placed under scientific controls. There are majorly three tools which are put to use in the survey method of criminology, namely, the questionnaire, schedule and interview guide. It is ideal to note that a survey can be either a qualitative or a quantitative method or can also be mixed of both. 

Case study method 

The case study method is a method by means of which social phenomenon is studied with the help of intensive and detailed analysis of an individual case. Cases may range from a juvenile delinquent to that of youth criminals, an institution, etc. This method opens room for a detailed analysis of several minute details that are generally overlooked in other methods. This is where the case study method can be said to be surpassed by the quantitative methodology.

Statistical method

The statistical method is another method of criminology that makes room for simplifying complex data into smaller measurement units. This helps the researcher in completing the research work at a speedier rate so that the purpose is achieved to reduce a complex mass of data to simple units of measurement.

Experimental method

The experimental method is another type of method used in criminology that is generally carried out by physical scientists and is therefore not a preferable way of usage in cases of social sciences as it is difficult to achieve control.

Conclusion 

The most recent scientific and technical advancements are now being integrated with criminology. Our journey into the future is only beginning, and how effectively our laws can adapt to reflect the times will determine how far we can go. Criminologists should work with our legislators to draft new legislation because they are prepared for the future and adaptable enough to deal with shifting conditions. It is anticipated that a number of recent breakthroughs would prepare Indian criminology for the future. By cutting-edge innovations, the study of criminology can evolve and develop into a philosophy that can support the country’s equitable framework on all fronts.

Sources

1. https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&ved=2ahUKEwiq-9nt-LD9AhXXSmwGHZwlAQYQFnoECAsQAQ&url=https%3A%2F%2Fwww.ijlmh.com%2Fpaper%2Fquantitative-criminology-the-subject-and-the-differences-from-other-branches%2F&usg=AOvVaw2ZgvHClPyKK18lAmxojlH6

2. https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&ved=2ahUKEwiq-9nt-LD9AhXXSmwGHZwlAQYQFnoECCwQAQ&url=https%3A%2F%2Fcore.ac.uk%2Fdownload%2Fpdf%2F56371122.pdf&usg=AOvVaw3cf3kXDZga1lvEPT4LGdny

3. https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&ved=2ahUKEwiq-9nt-LD9AhXXSmwGHZwlAQYQFnoECCoQAQ&url=https%3A%2F%2Fchilot.files.wordpress.com%2F2011%2F06%2Fcriminology.pdf&usg=AOvVaw0hIJfr5gtjIHqjWryUjN3L

4. https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&ved=2ahUKEwiq-9nt-LD9AhXXSmwGHZwlAQYQFnoECCsQAQ&url=https%3A%2F%2Fwww.sijufor.org%2Fuploads%2F1%2F2%2F0%2F5%2F120589378%2Fcriminology._the_key_concepts.pdf&usg=AOvVaw3LDl9gVpqNKG2Scw87NPnU


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Smart contracts

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This article has been written by Rik Mukherji pursuing Diploma in Corporate Litigation and has been edited by Oishika Banerji (Team Lawsikho). 

This article has been published by Sneha Mahawar.​​ 

Introduction 

A smart contract is considered to be a self-executing program that is underlined with the principle of automation consisting of actions that are required in an agreement or contract. Once the process is completed, the transaction becomes trackable and irreversible. Smart contracts allow transactions and agreements that are trusted and are to be carried out among disparate or parties who are anonymous, that are not being governed by any ruling authority or a legal regime and the enforcement of such contracts is not a necessity. Smart contracts are governed by blockchain technology which in itself is a foundation for the newly introduced Bitcoin, a type of cryptocurrency, which has evolved as a significant virtual currency. Transaction of such currencies from one person to another is a solid example of a smart contract. This article gives a detailed insight about the newly introduced contract which is no more the future but is our present. 

Rise of legal technology in the legal field

Legal tech refers to software and technology used by firms to be more efficient. It is a powerful research tool that permits quicker and more accurate legal services to clients. An example of legal research is artificial intelligence, which is used to scan, proof documents, and assist with legal research. It allows the lawyer to focus on a specific area of law and more complex issues. It also helps smaller firms compete with new and improved client service. Many law students are familiar with Westlaw and LexisNexis, which use legal technology by digitalising cases and natural language reviewing. These are productive and time-efficient for legal research. 

Legal tech is progressively becoming more popular because of its utility. As more lawyers are transitioning to a work-from-home environment, reliance on technology to connect with others is increasing more than ever. In March 2020, Singapore’s government allocated $11 million towards legal tech and focused on developing smart contracts and statutes. 

Legal tech is booming, and recent investing demonstrates its importance in the global environment. Legal technology had already existed, but the benefits are seen more clearly in the current situation, as lawyers have to use technology they were hesitant to trust beforehand. Legal tech might stick around once the restrictions are lifted. One of the valuable tools for a lawyer in the post-pandemic period are smart contracts, which in itself is a product of legal technology.

An insight to smart contracts

The US National Institute of Standards & Technology describes ‘smart contract’ as a contract that is coded and data deployed using cryptographically signed transactions on the blockchain network. Smart Contracts are computer code that helps individuals exchange anything of value without the assistance of a third party. They are not legal contracts as legal contracts are traditional natural language, a legally binding agreement with specific terms expressed and implemented in machine-readable code. Smart contracts can also be regarded as a secured stored procedure. The execution and codified effects like the transfer of value between parties are strictly enforced and cannot be manipulated, after a transaction with a specific contract, details are stored in a blockchain or distributed ledger.

Illustration of how an intelligent contract works

An individual withdraws ₹10,000 from his bank account at an ATM. The machine reads the card and asks the individual to select the desired amount for withdrawal. Once the amount is chosen, the ATM gives out the money. This transaction occurs without the requirement of a bank teller and allows the individual to obtain money transparently and securely. The transaction includes the compiled code for the smart contract as well as a specific receiver address. The transaction must then be included in a block added to the blockchain, at which point the smart contract’s code will establish the initial state of the smart contract. Byzantine fault-tolerant algorithms secure the smart contract in a decentralised way from attempts to meddle with it. Once a smart contract is installed, it cannot be updated.

Objective of smart contracts 

The objective of smart contracts is to reduce the need for trusted intermediates, arbitrations and enforcement costs. Vending machines are the oldest piece of technology equivalent to intelligent contract implementation. The intelligent contract often operates through a blockchain known as ‘Ethereum’. This identifies the fulfillment of contractual obligations, which then triggers the transfer of assets at decided terms, and then registers them.

Nick Szabo was the first to use the term ‘smart contract’ (1990) and referred to it as a set of promises, restricted in digital form, including practices within which the parties perform on their promises.

Legal status of smart contracts

Some legal academics argue that smart contracts are not legal contracts but rather means of performing commitments deriving from other agreements. However, since the launch of the Ethereum blockchain, the term ‘smart contract’; has been applied explicitly toward the notion of general-purpose calculation that takes place on a blockchain or distributed ledger. Put simply, smart contracts are said to be enforceable as long as they abide by the basic rules of contractual agreements. The rules include the presence of an offer, an acceptance of that offer and consideration. 

Landmark decisions relating to the implementation of smart contracts

  1. In 2017, Belarus became the first-ever country to legalise intelligent contracts by implementing the development of the digital economy.
  2. In 2018, a US Senate report stated that while intelligent contracts might be a new concept altogether, the fundamental contract law that serves as the bedrock of smart contracts, remains unchanged. In addition, several US states such as Arizona, Nevada, Tennessee and Wyoming have passed legislation on smart contracts.
  3. In April 2020, Iowa’s House of Representatives passed a bill legally recognising intelligent contracts in the state.
  4. In April 2021, the UK Jurisdiction Taskforce (UKJT) issued the Digital Dispute Resolution Rules to help rapidly resolve blockchain and crypto legal disputes.
  5. In 2015, UBS Group AG (a Swiss Multinational investment bank) experimented with smart bonds, that use the Bitcoin blockchain. As a result, payment streams could hypothetically be fully automated, creating a self-paying tool.

Advantages of using smart contracts

  1. These contracts can be used in any industry. E.g., Real estate and healthcare.
  2. They are cost-effective as no intermediaries are required in the process.
  3. They are much faster and more precise than traditional contracts.

Disadvantages of using smart contracts

  1. There is a high dependency on programmers to do all the work.
  2. Could fall vulnerable to bugs, security holes, and problematic constructs.
  3. They are difficult to adjust and almost impossible to rescind (as typically done in court).
  4. They are not very well-regulated
  5. It requires much maintenance in terms of the engineering expertise necessary to get them working.

Future of smart contracts

It is necessary to understand that the concept of ‘smart contracts’ is not a future probability but a present happening. In the coming years and decades, all we can experience is a complete transition from traditional to that of smart contracts with regulation that is currently lacking, also coming into place. Smart contracts, whilst very effective, are not the go-to option for contract execution. Once they become more automated, and less human intervention is necessary, they will probably become a lot more widespread. Many wonder whether smart contracts could put lawyers out of business, though this is unlikely the case since lawyers would then focus on more complex areas of work, and smart contracts will then reduce their workload.

Currently, the idea that the average consumer assumes about smart contracts is that these are contracts that are completely regulated by the usage of blockchain transactions, such as the dealings involved in cases of digital assets like non-fungible tokens (NFTs) and cryptocurrency, as we have talked about previously as well. Another idea that can be added to this is that smart contracts serve a role wherever automation is possible.  

Conclusion 

As we come to the end of the discussion about smart contracts, it is ideal to mention that the concept is relatively young. Because of the same, there is a pool of things that are left to be explored when it comes to smart contracts. As we can see in the coming times, accumulation of the readily available information about the same will help us carry out more efficient digital transactions thereby completely going paperless. As the field of smart contracts takes heights, assistance in terms of governance and regulation becomes easier thereby making laymen understand the concept better so that they can put the same into effective usage. With the growth in this concept, there will also be an acceleration of the associated challenges and risks in regard to data protection and privacy that evolves. Addressing such challenges with sui generis means leading us to a better future. It is intended that the industry would reduce the potential security risks of smart contracts and create best practises with the help of combined programming and legal expertise.


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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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Theories of punishment

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Punishment

This article has been written by Sucheta Pravin Kudale pursuing Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution and has been edited by Oishika Banerji (Team Lawsikho). 

This article has been published by Sneha Mahawar.​​ 

Introduction

Punishment is the most prominent feature of criminal law. Every society has its own way of social control for which it frames certain laws and also mentions the deterrents attached to them. Punishment is the consequence of an unpleasant act that the wrongdoer commits. Simply put, the fundamental aim of punishment is to give relief to the aggrieved party and to maintain law and order in society. Punishment can also be termed as the imposition of some form of deprivation by withholding rights that a person is legally entitled to. This article aims to bring to its readers a simple explanation of the theories of punishment that helps the criminal justice system function from time to time. 

Objects of punishment

  1. To protect society from mischievous elements by deterring potential offenders.
  2. To prevent actual offenders from committing further offences.
  3. To eradicate evils and reform criminals and turn them into law-abiding citizens.
  4. To administrate justice partly by inflicting pain to deter criminals and others from indulging in crime and partly by reforming criminals.
  5. To maintain rules and regulations for a crime-free country.

An insight of theories of punishment

Theories of punishment generally contain policies regarding the handling of crimes and criminals. The theory of punishment deals with the principles on the basis of which punishment is to be given to the offender, with the object of safeguarding a society deprived of law and order. There are four types of theories of punishment.

  1. Deterrent theory.
  2. Retributive theory.
  3. Preventive theory.
  4. Reformative theory.

Deterrent theory of punishment

The founder of this theory is Jeremy Benrhem, and this theory is based on the principle of hedonism which says that a man would be deterred from committing a crime if the punishment applied was swift, certain, and severe. 

This theory focuses on deterring offenders from criminality or repeating the same crime in the future. This theory is a lesson to members of society who experience the consequences of that crime. It creates fear of punishment in like-minded people. 

There should be a nexus between the crime committed and the punishment inflicted for that. While deciding on the punishment, the following should be taken into consideration;

1) The seriousness of the crime – Punishment should be given according to the seriousness of the crime committed, for e.g one can’t award a death sentence for pickpocketing.

2) The gravity of crime – The consequences of the punishment inflicted have to be taken into consideration alongside taking into account the victim’s satisfaction concerning the same. For e.g, if Mr.X is murdered by Mr.Y then if Mr.Y is giving one-time compensation of Rs.5 lakhs to X’s family, is it sufficient if he is the only bread earner of the family?

3) Impact on the general public – It is most important to consider what will be the effect of that punishment in the minds of the general public. Are they taking lessons from that? For example, traffic police are collecting fines for not wearing helmets, but do people follow this rule? Are they really serious about fines and rules?

In the case of the State of H.P.v. Nirmala Devi (2017), the court of law had opined that if the crime done is heinous and serious against society then the deterrent theory becomes more relevant, for those guilty will be punished to deter other prospective offenders.

Criticism of deterrence theory

  1. Though this theory intends to deter people from committing crimes or repeating the same crime, it has failed to serve its purpose. It has proved ineffective in checking crimes and the fact that excessive harshness of punishment tends to defeat its purpose by arousing the public’s sympathy towards those who are subjected to such punishment.
  2. Punishment loses its essence once the criminal is punished. For example, in the Delhi gang rape case, familiarly known as the Nirbhaya case, all 4 accused were hanged for their heinous crime but the offence of rape continues to happen. Thus the question as to whether the deterrent theory of punishment serves its purpose remains arising in people’s minds. 
  3. It does not give a chance to reform the accused.

Retributive theory of punishment 

This theory is based on the famous saying that a ‘Tit for Tat’, ‘ Eye for Eye’ or’ Teeth for Teeth’. The main motive of this theory is to inflict a similar amount of pain endured by the aggrieved party because of the offender’s activity. Put simply, it can be said that every punishment is retributive to a certain extent for the purpose of punishment itself is to restore peace and harmony in society. This theory is harsher than other theories.

Owing to humanitarian grounds, this theory of punishment is not much on the favourable side for it causes harm to the accused in a greater way. Therefore, the most important thing to consider while awarding punishment is the balance between the aggravating and the mitigating factors involved in the offence committed.

Criticism of the retributive theory 

As per the development of society, this type of punishment was banned due to the following criticism.

  1. It is difficult to determine the proportion of pain or revenge in this type of punishment, meaning to what and to what extent the pain should be returned.
  2. The entire natural justice principle will collapse if everyone takes revenge on each other according to their hate and the injury caused.

Preventive theory of punishment 

Unlike other theories, this theory aims to prevent crime rather than take revenge. This theory is also called the disablement theory. Put simply, we can understand the nature of this theory with a simple example: when we were in school, our teachers used to make the mischievous students stand out of the classroom, for disturbing the whole class. This punishment by the teacher prevents other students from disturbing the class due to fear of punishment. In the same way, this theory talks about eliminating the accused from society to prevent the repetition of his crime again. By preventing those criminals, society protects itself against anti-social order in general. Prevention of these criminals can be done by giving them death punishment or life imprisonment. Separation of these criminals from society prevents other prospective offenders from committing crimes.

In the case of Sunil Batra v. Delhi Administration (1978), the court of law observed that if the prisoner is violent or dangerous, solitary confinement is necessary to prevent and segregate these offenders from society, thereby abiding by the retributive theory of punishment. 

Criticism surrounding the retributive theory of punishment 

While the retributive theory promotes the dissertation of the offender, the same has severe consequences and difficulties inflicted upon the accused. It is ideal to note that the concept of morality being subjective by its very nature makes it difficult to deliver punishments for crimes committed. Therefore, the immorality of crimes needs to be comparable. 

Reformative theory of punishment 

The name of this theory itself implies what its nature has to say. This theory helps to reform criminals, thereby transforming them into law-abiding citizens. Nobody is indeed a criminal by birth, crimes sometimes happen accidentally or situationally. In this case, the offender should get another chance to rectify his mistake. For this, there is the facility of correctional homes, juvenile homes, training schools, and reformatories. The main object of this theory is the rehabilitation of inmates.

It was the case of Dharambir v. State of Uttar Pradesh (1979), which became the initiation of the concept of open jails in India which generally helps in reforming young offenders. Further, the Supreme Court of India, while deciding the case of Musa Khan v. State of Maharashtra (1976), had observed that the reformative system prevented juveniles from becoming hardened criminals.

Criticism surrounding the reformative theory of punishment

  1. This theory only works for juvenile and first-time offenders and not for hardened criminals who have committed multiple crimes. 
  2. The reformative theory of punishment is sometimes considered not justifiable for the aggrieved party subjected to prejudice by the offender. 

Conclusion

The main purpose behind inflicting punishment on the offender, accused of an offence, is to restore law and order in society. In this process of awarding punishment, both the interest of the aggrieved party as well as the accused needs to be taken into consideration. One must not forget that awarding punishment should be directly proportional to the gravity of the crime caused by the offender. Keeping the same in mind, alongside the need to curb crime from happening at a rampant rate in society, punishment needs to be awarded. When it comes to the theories discussed in this article, they serve as a jurisprudential value for the criminal justice system to frame punishments according to the crime committed. These theories have been significant in helping the legislators and the judiciary frame and interpret provisions of punishment, respectively, for a better tomorrow. 


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Methods of recording joint venture transactions

0
Joint Venture

This article has been written by Kanishk Bansal, pursuing a Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) and has been edited by Oishika Banerji (Team Lawsikho). 

It has been published by Rachit Garg.

Introduction

Joint ventures are a popular business arrangement where two or more entities come together to undertake a specific project or activity. Each party in these ventures contribute resources, like money, expertise, time and share profit according to the profit-sharing ratio. To properly and effectively track these financial transactions, it is crucial to have a basic understanding and knowledge about the methods of recording joint venture transactions. This article provides a comprehensive guide to different recording methods of joint venture transactions.

All you need to know about joint ventures

A joint venture is a business arrangement where two or more entities agree to come together, pooling their resources, expertise to form a completely new venture to accomplish a specific task. The parties to joint ventures are called co-ventures. For example:

A (co-venture -1) + B(co-venture-2) = C (new entity)

Joint ventures may be for a long period of time or for a limited period based on the goal they have to achieve. The profit or loss amount is shared among the co-ventures on the agreed profit-sharing ratio. Although it is correct to state that the purpose of a joint venture revolves typically around research or production, it is not wrong to say that joint ventures can also be formed for a perpetual purpose. It is ideal to note that joint ventures can combine large and small companies, thereby taking several projects and deals.

Methods of recording a joint venture transaction

The different methods of recording a joint venture transaction have been explained hereunder.

Method-1: Joint venture when a separate set of books is maintained

In this type of method, generally three accounts are maintained. These accounts are:

  • Joint bank account
  • Joint venture account
  • Co-venture account

A. Joint bank account:

This is the primary step which is taken by the co-ventures. These accounts can only be opened jointly. All the capital raised by the co-ventures is deposited in this bank account. Any of the expenses which need to be done in relation to the business, money will be used from this bank account. All the payments or collections which are collected from the business are deposited to this joint bank account.

B. Joint venture account:

As joint venture accounting is done in a very limited accounting method, any of the expenses which are made with relation to a business, only one account will be made and used i.e., a joint venture account. This account tells whether the venture was successful in making a profit or not. Or in simpler words, it is used to measure the profit or loss generated by the venture. When the credit side is excess or greater than the debit side of the account, then there is a profit or when the debit side is excess or greater than the credit side then there is a loss.

C. Co-venture account:

This is the personal account of the co-ventures. This helps to maintain the record of the contribution made by the co-ventures towards the venture. All the expenses made by the co-venture directly in relation to the venture is also recorded in this account. At last, the profit or loss, made by the venture would be credited to this co-venture account, based on the ratio of capital contributed or profit-sharing ratio.

This account is followed under the principle of:

  • Debit the receiver
  • Credit the giver

Journal entries when separate books are maintained:

a)  When the co-ventures contribute the capital, this contribution will be deposited to the joint bank account.

Entry- joint bank account (Dr.)

         To co-venture account

b)    When asset purchased/ labour fees/ any other expenses:

Entry- Joint Venture account (Dr.)

          To Joint Bank

c)   When any material supplied or expenses made directly by the co-venture in relation to a business then:

Entry- Joint Venture account (Dr.)

          To Co- Venture account

d)    When sale is made:

Entry- Joint Bank account (Dr.)

          To Joint Venture account

e)     When any of the assets. Material is taken by any of the co-venturer then:

Entry- Co-venture account (Dr.)

          To Joint Venture account

f)     When credit side is excess then the debit side:

Entry- Joint Venture (Dr.)

          To Co-venture account

Above would be reversed if the debit side is excess then the credit side or loss.

g)    Final settlement of account (at the time of closing the business)

Entry- Co-venture account (Dr.)

          To Joint Bank

The above would be reversed when any of the co-venture have more capital compared to the capital invested by that co-venture. This can happen when he/she has taken some of the asset, money in the middle of the business for any personal use.

Method-2: When no separate sets of books are maintained

This method is followed when there are not such large transactions and where the transactions in joint ventures are limited.

This type of method contains two situations. These are following:

§  In the books of each co-venture.

Illustration: Suppose there are two parties in a joint venture, A and B. Now on mutual decision, both of them have decided that each of them will maintain the accounts. In this case A will maintain his account as well as B, and the same goes with B too.

§  In the books of any co-venture.

Illustrations: Suppose there are two parties in a joint venture, A and B. Now A is given the duty to maintain the accounts, here A will maintain his accounts as well as of B, but B will not maintain any account.

Note: Accounting entry in both the situations will be the same.

Here two accounts are maintained. These are as follows:

§  Joint venture account: All the expenses related to a venture, for that only one account will be made, that is joint venture account. During the time of profit or loss sharing, the owner’s share of profit or loss will be transferred to a profit & loss account, whereas the other’s co-venture share of profit or loss will be transferred to his/her personal account i.e., co-venture account.

§  Co-venture account: This is the personal account of the co-venture. This helps to maintain the record of the contribution made by the co-ventures towards the venture, as this account would be directly debited from for any of the resources, goods which are purchased for the venture. At the end this account will be credited with the profit or loss amount depending on the profit-sharing ratio decided by the co-ventures mutually.

Journal entry when no separate books are maintained:

a. When joint venture incurs expenses:

Entry: Joint venture account (Dr.)

  •  To bank/cash (in case of self-payment).
  • To other co-venture accounts

b. When co-venture contributes cash, material, or assets:

Entry: Joint venture account (Dr.)

  • To purchase accounts (in case of self-payment).
  • To an asset account (in case of self-payment).
  • To other co-venture accounts.

c. When the Joint venture earns revenue:

Entry: Cash/Bank (Dr.)

           Other co-venture accounts (Dr.)

            To Joint venture account

d. When the material taken/asset taken:

Entry: Purchase account (Dr.)  (In case of self)

  •  Asset account (Dr.) (In case of self).
  • Share/Debenture account (Dr.) (In case of self).
  • Other co-venture accounts (Dr.).
  • To Joint venture account.
  • For net Profit in Joint Venture account:

Entry: Joint Venture account (Dr.)

  • To Profit/Loss account (in case of self).
  • To co-venture account

f.  For net Loss in Joint Venture

Entry: Profit/Loss account (Dr.)  (in case of self)

  • Other co-venture (Dr.).
  • To Joint Venture account.

g. When payment received from the other co-venture.

Entry: Cash/Bank account (Dr.)

  • To other co-venture accounts

h. When any payment is made to another co-venture.

Entry: Other Co-venture (Dr.)

  • To Cash/Bank account

Method-3: Memorandum method

As this method doesn’t include the double entry system, as followed in previous methods, that is why it is called the memorandum method. This method is generally adopted when the joint venture is for a very short period or of a temporary nature. It won’t be suitable for large and complex joint ventures, where transactions are of complex nature.

In this type of method, each co-venture will record or maintain only those transactions to which he/she was personally involved or directly affected by it. He/she will not record the transaction of any other co-venture. For instance, there are two parties in joint venture, A and B. Then A will maintain an account in this format- joint venture with B (Name of other co-venture) Account. This account will be debited with the number of expenses required for the venture’s functioning. Now the question arises as there is no joint venture account, how to find out the Profit or Loss of the joint venture?

Hence for this Memorandum joint venture is prepared. In order to prepare this account, each co-venture sends the records of the personal maintained account to the other co-venture. Now on the basis of this account and his own account, a memorandum joint venture account is prepared. At the end of a joint venture, the profit or loss is calculated and shared according to the profit sharing ratio among the co-ventures.

Journal entry under memorandum method

For instance, there are two parties in a joint venture, A and B. Here we will do a journal entry on the basis of A.

a) On purchase of Goods by A:

Entry: Joint venture with B account (Dr.)

            To Cash/Bank account

b) When goods are supplied by A.

Entry: Joint Venture with B account (Dr.)

            To Purchase account

c) When unsold goods are taken by A:

Entry: Purchase account (Dr.)

            To Joint Venture with B account

d) When A makes the payment:

Entry: Joint Venture with B account (Dr.)

            To Cash account

e) On sale of goods by A:

Entry: Cash account (Dr.)

            To Joint Venture with B account

f) On receiving payment when goods are sold by A:

Entry: Cash/Bank account (Dr.)

            To the customer’s account.

g) Any commission received by A:

Entry: Joint venture with B account (Dr.)

            To commission account

h) On recording the share at Profit:

Entry: Joint venture with B account (Dr.)

            To Profit & Loss account

i)  On recording the share at a loss:

Entry: Profit & Loss account (Dr.)

                To Joint Venture with B account

Comparative analysis

When Separate sets of Books are maintainedWhen no separate sets of books are maintainedMemorandum Method
This method is adopted when the joint venture transactions are big and complex.When there are no such large and complex joint venture transactions.When there are limited transactions and no complex joint venture is there.
Here common funds are included in joint bank.Here there is no joint bank account, hence no common fund is contributed,There is also no joint bank, hence no common fund contributed.
Three accounts are made.·   Joint venture account·   Co-venture account·   Joint Bank accountTwo accounts are made·   Joint venture account·   Co-venture accountTwo accounts are made.·   Personal account·   Joint venture memorandum method.

Conclusion

In conclusion, it is ideal to state that there are three methods of recording a joint venture transaction. The method chosen for recording a joint venture transaction will depend upon the complexity of the joint venture. Careful consideration must be given while selecting the most accurate financial accounting method.

 References

  1. https://www.yourarticlelibrary.com/accounting/joint-venture-account/accounting-methods-in-joint-venture-transaction-3-methods/51106.
  2. https://commerceiets.com/methods-of-recording-transactions-in-joint-venture/.
  3. https://www.vedantu.com/commerce/joint-venture-accounting-with-separate-books.
  4. https://www.owlgen.in/discuss-the-various-methods-of-recording-joint-venture-transactions/.

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

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

https://t.me/lawyerscommunity

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