Contracts have been essentially expressed in the traditional paper-pen-based format requiring the fulfilment of elements of Section 10 of the Indian Contract Act, 1872. However, with evolving unforeseen circumstances like the Covid-19 pandemic, and the increasing rate of technological development and advancement, globally, the concept of e-contracts i.e., electronic contracts has been coined. Its need was strongly felt during the pandemic in the year 2020 when businesses and companies were shut down and industries stagnant for a considerable period of time. Such circumstances gave rise to the implementation of e-contracts and e-signatures to cope with unfortunate situations and revive business functioning and growth overall. Electronic contracts and electronic signatures have reshaped the way of doing business, facilitated ease of doing business, and marked the beginning of a digitally equipped India. This article has been written with the intention of discussing the validity and enforceability of electronic contracts thereby also discussing the scope and future possibilities it brings along with itself.
What are electronic contracts
Electronic contracts have attracted large-scale use and became very popular in day-to-day business. Electronic contracts do not resemble traditional paper-based contracts but rather are conduits through the use of electronic communications. The UNCITRAL Model Law on Electronic Commerce states that a contract can be made by exchanging data messages, and when a data message is used in the formation of a contract, the validity of such a contract should not be denied.
Need and subsequent inclusion of e-contracts
The rapid transition from paper-based transactions to electronic mode was mainly due to factors like convenience, better efficiency, and less cost. However, such factors were overshadowed by the brutal reality of factors like lack of trust, identity and security issues, internet availability, and primarily, the absence of recognition of such contracts in other common and civil law countries as well.
A milestone achievement happened in the world of contracts with the enactment of ‘The United Nations Convention on Contracts for the International Sale of Goods (1980), bringing a drastic impact on the commercial business functioning. However, it failed to provide particular laws on e-contracts, which gave birth to UNCITRAL Model Law on e-commerce. They realised the growth of the e-sector and approached enacting a model law to recognize and legitimise such procedures of business doings.
The primary statutes governing e-contracts are covered by the provisions of the Indian Contract Act, 1872 and the Information Technology Act, 2000. The former lays down in Section 10, the essential requirements for a contract’s enforceability namely, basic principles of contract like offer and acceptance, free consent, capacity, and lawful consideration. These principles form the core structure of a valid contract and for an e-contract to hold ground, it needs to pass the litmus test laid under Section 4 read with Section 10A of the IT Act, 2000.
InTamil Nadu Organic v. State Bank of India (2019), the court of law recognized the validity of the e-auction sale procedure and the legal necessity of observing the obligations arising out of it. The court in the above case remarked on the need of promoting development in technology and appreciated its objective of facilitating transparency and efficiency in the conduct of business.
With the growing upgradation in technology, the manner of executing documents has also evolved. There was a need to resort to convenient and transparent ways of executing binding documents and thus, e-contracts and e-signatures gained immense momentum.
The legal character of the concept of e-signatures is expressed in Section 5 of the IT Act of 2000. An electronic signature enables one to provide individual identity. Identification, verification, and authentication are some of the prime worrying limitations of electronic transactions have been attempted to be overcome by legitimising safe procedures and concepts of e-contracts and e-signatures. The enforceability of electronic/digital signatures is treated as that of handwritten signatures in India.
Admissibility of e-contracts
E-contracts gained admissibility as evidence following the passage of the Indian Information Technology Act of 2000, and as a result, Section 65(b) of the Indian Evidence Act of 1872, allowed the presentation of an electronic record as evidence in a court of law. There are other provisions, such as Sections 3, 85, 88, and 90, that deal solely with the numerous presumptions relevant to the legal notion of electronic records.
Under the provision of the Indian Evidence Act, 1872, Section 3 read with Sections 65A and 65B, amended as of the year 2000, explicitly recognizes electronic records as admissible evidentiary documents produced for the inspection of the court. Consequentially in the year 2009, another required amendment in the Evidence Act, 1872 extrapolated the concepts of electronic signatures and certification into its paradigm. Sections 85A and 85B were also inserted in the year 2000, to raise a presumption of validity and legitimacy of the electronic record/signature and document/agreement until proven otherwise. Such laws strengthened digital laws and acceptance, thereby providing inclusivity to digital/electronic media in the justice system. Such inclusivity and acceptance were long-awaited and required to keep pace with the modern world of the growing use of technology.
Judicial decisions in relation to electronic contracts
A series of ratios upheld in various judgments by the Indian judiciary have been laid down hereunder. The ratio makes the point of view of the judiciary clear with regard to electronic contracts. Not only are these decisions relevant, taking into account our topic for discussion, but they can be said to be a notable precedent for a similar range of issues to arise in the coming future.
1. The Supreme Court of India while deciding the case of Arjun Panditrao Khotkar v. Kailash Kushanrao Gorantyal and Others (2020) had observed the elements and importance of Sections 65 A and 65B of the Indian Evidence Act, 1872 in ascertaining the validity of a document. It had stated that while it is easy to figure out uncertainty to be faced by courts while deciding the proof and enforceability of electronic contracts, such uncertainty will function as a catalyst in aiding complete development and effective use of such technology.
2. The Supreme Court’s view while deciding the case of Trimex International FZE Ltd. Dubai v. Vedanta Aluminium Ltd (2010) is notable for it stated that in the absence of signed agreement between the parties, it would be possible to infer standing of a valid agreement from various documents duly approved and signed by the parties in the form of exchange of emails, letter, telex, telegrams and other means of telecommunication. Thus, the Court clarified that even digital means of approval will be termed as valid forms of approval and will hold the same value as written forms of approval.
3. In the case of State of Punjab and Others v. Amritsar Beverages Ltd. and Others (2006), the Supreme Court of India had highlighted that Section 63 of the Act of 1872 includes in its ambit the procedure for furnishing electronic documents as evidence, as have been provided by Section 65B of the Act.
4. The Karnataka High Court’s opinion in the case of Sudarshan Cargo Pvt. Ltd. v. M/s. Techvac Engineering Pvt. Ltd (2013) is noteworthy for discussion in light of our present subject matter for it had upheld the validity of e-mail correspondence as a legitimate electronic record and piece of evidence towards a confession, as in the particular case. Thus the Court had clarified that communication made through email qualifies under Section 2(b) of the IT Act, 2000.
5. In a notable case of Rudder v. Microsoft Corporation (1999), the court of law had determined that the “click-wrap” agreement was enforceable, by ruling that scrolling across multiple pages was to be presumed to be the same as turning through multiple pages of a written contract in the paper. Thus, digital contracts were given a dignified position through this decades-old case.
Conclusion
The world has innovatively progressed and evolved commercially starting from the very first barter system trade, recognizing the need for token money, paper-based written contracts, and eventually adopting electronic agreements in its realm of growth. Receiving recognition towards electronic contracts can anticipate the future potential of the unimagined growth of technology, cyberspace, commerce, and trade. Thus what we discuss today, is our present and not the coming future, for the future is getting better than now and has more to explore.
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For the past few months, we are constantly witnessing a tussle between the judiciary and the centre on the matter of judicial appointments. While the centre advocates on becoming part of the collegium, the judiciary opines this as an intrusion into its area and terms the centre’s view as opposed to the doctrine of ‘Separation of Powers’ which is a part of the basic structure of the Indian Constitution. This article is an attempt to trace how judges’ appointments take place in India and other major countries of the world.
Judicial appointment in India
While almost all processes and procedures in the Indian polity are borrowed from different countries, the process of judges’ appointment is the result of judicial innovation and is not a borrowed one. In India, judges are appointed as per the collegium system, which is the result of the ‘Three Judges Case’ adjudicated by the Supreme Court. Until 1993, judges (of the Supreme Court and high courts) were appointed by the President of India after seeking consultation from the Chief Justice of India and two senior-most judges of the Supreme Court. Once the collegium system replaced this process, the President became only a nominal appointing authority. This collegium is entrusted with the work of appointment and transfer of judges in the higher judiciary of India. It is pertinent to mention here that our Constitution is silent on the present prevailing collegium system.
To understand what the Constitution says about the procedure of judges’ appointment, we need to refer to Article 124(2) which postulates that the Supreme Court judges shall be appointed by the head of the executive, that is, the President after consultation with such a number of Supreme Court and High Courts judges, as he may deem necessary. Article 124(2) also states that while the President is appointing a judge other than the Chief Justice of India, the Chief Justice shall be mandatorily consulted by the President.
Composition of collegium
The collegium is composed of the Chief Justice of India along with the four senior-most judges of the Supreme Court. This collegium makes recommendations to the President concerning the appointment of judges to the Supreme Court. The collegium, therefore, consists of a total of five judges. However, presently, this collegium has six members. This is so because it is mandatory to have the prospective Chief Justice in the collegium but none of the four judges in the collegium would be elevated as the Chief Justice. The recommendations by the collegium can be categorised into two types:
Firstly, when judges serving the high courts are to be appointed as Supreme Court judges, and
Secondly when there is a direct appointment of senior advocates as the judges in the Supreme Court.
The composition of the collegium changes when judges are to be appointed to the high courts. Instead of five, the collegium here consists of three judges, namely, the Chief Justice of India, and two senior-most judges of the Supreme Court. In high courts as well, a collegium system operates which sends its recommendations to the Supreme Court Collegium. The high court collegium is composed of the respective high court’s chief justice along with two senior-most judges of that high court.
This collegium sends recommendations about the appointment of judges in the high court to the state government, which further sends these recommendations to the centre along with its inputs. The names of recommended judges are given to the Intelligence Bureau (IB) to conduct extensive background checks. IB on completion of background checks forwards its reports to the Supreme Court Collegium (here collegium is of the Chief Justice of India plus two senior-most Supreme Court Judges). The Supreme Court collegium, after considering the report by IB, sends a list of recommended judges for appointment to the centre.
The centre on receiving recommendations can either accept the appointments or can send the recommendations back to the Supreme Court collegium for reconsideration. The collegium here has the power to again recommend names of those who were required to be considered by the centre. If a name is presented by the Supreme Court collegium to the centre, the centre has to accept the recommendations and thus make appointments. The same procedure is exercised when appointments for Supreme Court judges are to be made. In the case of the Supreme Court’s judges’ appointment, the first recommendation comes from the Supreme Court Collegium directly and here collegium is of the Chief Justice of India plus four senior-most Supreme Court judges.
Judges appointing Judges
It is ideal to note that the judicial appointment system that is followed in India currently can be idealised as “judges appointing judges”. The opinion of the Supreme Court of India majorly being minimal interference of the executive in the judicial appointment and judiciary not sharing the burden of the same with any other wing of the government, comes with exceptions as well. It is noteworthy to mention that while the Apex Court had struck down NJAC (National Judicial Appointment Commission), it had figured out certain flaws that are attached to the collegium system of India. The contentions that the system is a closed-door one with little or no transparency, have been frequent while talking about the collegium system.
While this view remains one side of the coin, the other side which has thought of implementing a pro-executive judicial model has to necessarily look into the factors that can cause harm to judicial independence (if any) which is inclusive of the independence of judges in their decision-making. The presence of Article 124 in the Indian Constitution, even before the introduction of the collegium system, as has been discussed previously, is a reflection of the legislators’ intention of including executive opinion in the process of judicial appointment. This system was underlined with the intention of ensuring checks and balances in the process of judicial appointment. One thing that cannot be forgotten is that the Constitution has not forgotten to incorporate provisions mandating judicial independence and reliance solely on the executive for the purpose of removing judges is also a cumbersome task.
Ideally, the doctrine of separation of power was introduced with the idea of keeping the organs of the government separate from each other but also contributing in the smooth functioning of each other. A perfect example of this uniquely designed model can be seen in the case of the United States. It is the President who is vested with the responsibility of appointing judges of the Federal Court, which ipso facto needs to be approved by the majority voting of the Senate.
Scenario of judicial appointment in the United Kingdom (UK)
There exists a Judicial Appointments Commission (JAC) in the UK consisting of a total of fifteen members which is tasked to shortlist persons who would hold judicial offices in various courts and tribunals. This commission works autonomously. In the United Kingdom, the appointment of judges follows a system of checks and balances, that is to say, a body that goes by the name of ‘Judicial Appointments Conduct and Ombudsman’ is constituted to deal with the complaints lodged against appointments made by the ‘Judicial Appointments Commission’.
This body also deals with complaints relating to wrongful conduct exhibited by judicial officers. The JAC is like the National Judicial Appointments Commission (NJAC) which was proposed in India through the 99th Constitution Amendment Act, of 2014 but was struck down by the Supreme Court of India in 2015. An illustration showcasing the system of judicial appointment in the UK have been provided hereunder:
Judicial appointment in the United States of America (USA)
In America, the President is bestowed with the power to nominate judges. The names of prospective nominees are put forth by the members of the Senate. The Senate is having a ‘Judicial Committee’ which undertakes confirmation hearings for every prospective nominee. A systematic assessment of qualifications to be possessed by the judicial nominees is provided to the ‘Senate Judicial Committee’ by a standing committee of the American Bar Association.
One peculiar feature of judicial appointments in the United States is that the federal courts’ judges occupy offices during good behaviour, unlike in India wherein judges of the Supreme Court hold office till the age of 65 years while the judges of the high courts hold office till the age of 62 years.
Another point of difference between Indian and United States judicial appointments is that, while in India collegium of judges is responsible for judicial appointments, in the United States the executive and legislature are responsible for judicial appointments.
Judicial appointment in other nations of the world
As we have got an idea about judicial appointments in India, USA and the UK, it is now necessary to have a look into the other nations so as to get an idea about how India stands at par with the world or instead provides an ideal example of judicial appointment to the world which the latter should take inspiration from.
Russia
There are two types of courts functioning in Russia, namely, the federal courts and the Court of the Objects of the Russian Federation. Just like in India, Russia has a system of collegium performing the functions of selection, appointment, and promotion of judges. The matter of the discipline of judges is also handled by such a collegium. The Collegium of Judges in Russia is constituted through a process of elections. The judicial community from amongst their representatives elect judges who would become part of the collegium. Here, the manner of composition of the collegium is distinguished from the way the collegium is formed in the Indian judiciary. Indian judiciary conducts no election to constitute a collegium body, rather the Chief Justice of India along with four senior-most Supreme Court judges make up the collegium body. Also, the list of prospective judges prepared by the collegium in Russia is forwarded to the President of Russia.
The Russian President can refuse to appoint the recommended candidate as the judge. The Russian President is at complete liberty to give an unreasoned order of refusal. Therefore, the Russian President is far more powerful than the collegium, unlike the Indian President, when it comes to the appointment of judges.
France
In France, the executive has a major role to play in judges’ appointments. Some even term judicial appointments process in France as a bureaucratic affair. A body, The High Council of the Judiciary’, consisting of twenty members from the judiciary itself appointed by the head of the state, that is the President, sends recommendations to the President concerning judicial appointments. ‘The High Council of Judiciary’ is presided over by the President of France and the Minister of Justice in France is its ex-officio Vice-President.
There exists a blend of judiciary and executive in France to give effect to the process of judges’ appointments. In India, the list of prospective judges comes from the collegium and then is forwarded to the executive. In India, while the Supreme Court is regarded as the ‘Guardian of the Constitution’, In France, a ‘Constitution Council’ exists which is bestowed with the review powers of parliamentary legislation. This body, in France, is termed as the ‘Guardian of the Constitution’.
Latin America
In the majority of Latin American countries, the President of country generally nominates judges to be appointed in courts. Once the nomination has been made, the concerned Senate then approves the nomination made by the President. The role of the executive and legislature in judges’ appointments, thus is quite significant. Such a process is followed in countries like Brazil, Argentina, etc. Judges themselves do not take part in their appointment and the executive has the entire say in their appointment. These countries differ in the judicial appointments process in India as Indian judicial appointments are made through a collegium system while in most Latin American countries the concept and process of the collegium are absent.
Germany
In Germany, the appointment of judges is made by the executive and legislature. A certain degree of participation is made by the judiciary too. This participation by the judiciary is made possible through two types of bodies namely, ‘Judicial Electoral Committees’ and ‘Advisory Bodies’. Germany’s judiciary is composed of ‘The Federal Constitutional Court’ and a total of five ‘Federal Courts’. Sixteen judges are appointed in the ‘Federal Constitutional Court’. Eight of these judges are elected by the upper chamber of Germany’s parliament. The appointment of the remaining eight judges is taken care of by the lower chamber of parliament. The Federal Minister of Justice in Germany prepares two lists of prospective judges. One list consists of judges from the federal courts while another list is composed of persons recommended by the political parties in the German parliament.
In the lower chamber, a parliamentary committee is formed with a total of twelve members. These members make decisions as to the appointment of judges. The appointment of judges is finalised with a majority vote of two-thirds. The judges of five federal courts are appointed by the ‘Federal Electoral Committee’. This committee is composed of thirty-two members.
Therefore, in Germany, judicial appointments are given effect by the executive and legislature. The role of the judiciary is only advisory in nature. The existing judges can opine on the personality traits and aptitude level of the candidates short-listed to be appointed as judges but the final say is of the executive. In India, the judicial collegium is not advisory but rather has much more overpowering value in comparison to the executive.
South Africa
In South Africa, the President nominates the judges after seeking consultation from the ‘Judicial Services Commission’. This commission is made up of 23 members. These members come from the community of judges, advocates, members of parliament, and legal professors, and certain eminent members are also nominated by the President as members of ‘The Judicial Services Commission’. This commission is somewhat similar to the ‘National Judicial Appointment Commission’ which was struck down in 2015 by the Indian Supreme Court. While in India, the executive has no power to oust any collegium member, in South Africa, the members of the Judicial Services Commission hold office during the pleasure of the parliament.
Italy
The Federal Constitutional Court is the highest judicial court in Italy. This court is composed of 15 judges. One-third of these 15 judges are appointed by Italy’s President, another one-third by the parliament, and the remaining judges are appointed by the ordinary and administrative courts. The parliament conducts a joint session for the appointment of judges. So, Italy’s judicial appointments have an active role of parliament and the executive, unlike India, where the executive plays a passive role in judicial appointments.
China
The highest court in China is the Supreme People’s Court wherein the judges’ appointment is by the National People’s Congress. In other lower courts like Local People’s Courts and Military Courts, appointments are made by a ‘Judicial Commission’ set up by the Chinese Government. To oversee the behaviour of judges and to either promote or remove them is the responsibility of the Standing Committee set up by the People’s Congress. So, in China, the judges’ appointment is the responsibility of the legislature and the judiciary has no role to play in it. The appointment of judges in China is a lopsided process wherein existing judges and other stakeholders have no role- neither binding nor advisory.
Conclusion
After analysing the processes of judicial appointments in almost all major countries, we can safely say that judicial appointments are effectuated with an active role of legislature and executive. There is no strict application of the principle of ‘separation of powers’ when it comes to judicial appointments. The only exception here is India wherein, though it is very difficult to find instances where separation of powers is strictly applied when it comes to the appointment of judges, the said principle is aptly placed. An attempt was made to bring the judicial appointments mechanism at par with other countries in the year 2014 when the parliament passed the Constitution (99th Amendment) Act, 2014 for the creation of the National Judicial Appointment Commission which would have been composed of the Chief Justice of India as chairperson, two senior-most judges of the Supreme Court, the law Minister of India and two eminent individuals. The two eminent individuals were to be chosen by a committee consisting of the Prime Minister, the Chief Justice of India and the leader of the opposition. However, this attempt was struck down by the Supreme Court as being unconstitutional.
The present regime constantly emphasises introducing the active role of the legislature in judicial appointments to ensure a system of checks and balances. Many experts opine that the present system of judicial appointments prevailing in India is based on the expression- “You scratch my back, I will scratch yours”. It would be pertinent to see how such a deadlock between the centre and judiciary is resolved.
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With the rise in international trade and investment, cross-border commercial disputes are also climbing the mountains. International arbitration has emerged as the preferred method of resolving such cross-border commercial disputes while maintaining business relationships (Arbitration and Conciliation (Amendment) Ordinance, 2020). As a result of open-ended economic policies, there has been an increase in cross-border transactions involving Indian parties. As a result, the number of international commercial disputes that are related to Indian parties is accelerating. The international community’s attention has been drawn to India’s international arbitration regime as a result of this. Developments in arbitration jurisprudence over the last decade reflect a completely renewed approach in accordance with international best practices. The Supreme Court of India and high courts have issued a number of pro-arbitration rulings that have significantly altered the Indian arbitration landscape. This article gels into the aspect of IBA Rules and guidelines regarding international arbitration, taking into account the growth and recognition international arbitration has received over a period of time.
Background of arbitration in India
From 2012 to 2022, the Supreme Court issued a number of landmark decisions, thereby declaring the arbitration law in India to be seat-centric. They also referred the non-signatory nations to be a part of an arbitration agreement in order to settle disputes by means of arbitration in terms of recognising emergency arbitrator orders, narrowing the scope of public policy objections in regard to domestic and foreign seated arbitration, and clarifying the different loopholes of dispute arbitrability.
The Indian legislature and executive have also taken steps to improve the ‘ease of doing business in India’ and to clearly reflect an arbitration-friendly policy. The Arbitration and Conciliation (Amendment) Act, 2015 became law on October 23, 2015. The 2015 Amendment Act was well received and improved the efficiency of arbitration in India significantly. Under the chairmanship of retired Justice B.N. Srikrishna, a High-Level Committee to Review the Institutionalization of Arbitration Mechanisms in India (“Committee”) was formed.
The Arbitration and Conciliation (Amendment) Act, 2019 was enacted on August 9, 2019, after the Committee’s recommendations. The Central Government notified Sections 1, 4-9, 11-13, and 15 of the 2019 Amendment Act on August 30, 2019.
The 2019 Amendment Act was passed with the goal of making India a hub of institutional arbitration for both domestic and international arbitrations. Certain provisions of the 2019 Amendment Act, however, were criticised, including the proposal to establish an Arbitration Council of India and the provision to limit the applicability of the 2015 Amendment Act.
Definitions in relation to arbitration that need discussion
‘Arbitral Tribunal’ refers to a single arbitrator or a panel of arbitrators;
‘Claimant’ refers to the Party or Parties who initiated the arbitration and any Party who becomes aligned with such Party or Parties through joinder or otherwise;
‘Document’ means any writing, communication, picture, drawing, programme, or data of any kind, whether recorded or maintained on paper or by electronic, audio, visual, or other means;
‘Evidentiary Hearing’ means any hearing at which the Arbitral Tribunal receives oral or other evidence, whether in person, by teleconference, videoconference, or other methods.
The IBA rules : an insight
It is ideal to note that the International Bar Association (“IBA”) has been contributing to publishing several rules and guidelines in regard to international arbitration that has been structured in a way that facilitates streamlining of the arbitral procedure which in turn facilitates usage of international arbitration as an alternative means of resolving dispute rest. It is necessary to remember that in principle, the IBA rules and guidelines are not to be considered legal provisions and therefore do not necessarily override any national laws in relation to arbitration or any arbitration rules that are chosen by the parties. They become binding only upon agreement by the parties.
Although these Rules have been vested with the trait of being of a non-binding nature, they have, nevertheless, become relevant and have thereby found divergent acceptance in international arbitral practice. These rules have been designed in such a way that they can assist participants ranging from the counsel of the parties to that of arbitral institutions, national courts and arbitrators, in terms of dealing with issues that sees the daylight in the context of international arbitration, such as,
Collection of evidence (Section A),
Arbitrators’ impartiality and independence (Section B),
Ethics of arbitrators (Section C),
Representation of parties (Section D) and
Drafting clause for facilitating arbitration (Section E).
The purpose of these IBA Rules on the Taking of Evidence in International Arbitration is to provide an efficient, economical, and fair process for taking evidence in international arbitrations, particularly those involving Parties from different legal traditions. They are intended to supplement the legal provisions as well as the institutional, ad hoc, or other rules that govern the arbitration proceedings.
Parties and Arbitral Tribunals may adopt, in whole or in part, the IBA Rules of Evidence to govern arbitration proceedings, or they may vary or use them as guidelines in developing their own procedures. The Rules are not intended to limit the inherent and advantageous flexibility of international arbitration, and Parties and Arbitral Tribunals should be aware of this and are free to tailor them to the specific circumstances of each arbitration.
The taking of evidence shall be conducted on the principles that each Party shall act in good faith and be entitled to know, reasonably in advance of any evidentiary hearing or any fact or merits determination, the evidence on which the other Parties rely.
An overview of guidelines that are laid down by the IBA rules
The 2014 IBA Guidelines on Conflicts of Interest in International Arbitration, as updated in August 2015, is considered to be a leading soft law instrument that facilitates providing guidance in terms of the obligations of the arbitrator’s alongside conflicts arising out of interest issues. The IBA Guidelines on Conflicts of Interest are applicable to both commercial and investment arbitration alongside legal and non-legal professionals who are serving as arbitrators. It is the Introduction to These Guidelines that further stipulates that they are said to be based upon statutes and case law in a cross-section of jurisdictions, and the judgment and practitioners’ experience that is involved in international arbitration.
It is noteworthy to mention that Part I of the 2014 IBA Guidelines on Conflicts of Interest is inclusive of “General Standards” in regards to impartiality, independence and disclosure, as well as “Explanatory Notes”, that have been made on those Standards.
Further, Part II of those Guidelines is vested with the responsibility of entitling Practical Application of the General Standards, which is further divided into three coloured lists, namely,
The Red List,
The Orange List, and
The Green List
The Green List accompanies Application Lists, which contain specific and non-exhaustive scenarios that are ipso facto supposed to take place in arbitration practice, with an aim to assist users for the purpose of determining whether the appointment of an arbitrator would stand in violation with the interest rules or not.
Arbitrators and party representatives are frequently unsure of the scope of their disclosure duties. The expansion of international commerce, particularly larger multinational groups and foreign legal firms, has resulted in a rise in the complexity of analysing disclosure and conflict of interest issues. Parties now have additional chances to use arbitrator challenges to postpone arbitrations or to deny the opposing party the arbitrator of their choice.
Any relationship disclosure, no matter how trivial or significant, may result in unnecessary or frivolous objections. At the same time, it is critical that more information be made available to the parties in order to safeguard awards from challenges based on purported failures to disclose and to promote a level playing field among parties.
A complicated set of decisions must be made by the parties, arbitrators, institutions and courts about the information that arbitrators should reveal and the standards that should be used for disclosure. Furthermore, when an objection or challenge is filed following a disclosure, institutions and courts must make tough decisions. There is a contradiction between the parties’ right to disclose circumstances that may call an arbitrator’s impartiality or independence in order to safeguard the parties’ right to a fair hearing, and the need to minimise unwarranted challenges against arbitrators in order to protect the parties’ ability to select arbitrators of their choice.
It is in the best interests of the international arbitration community for ill-founded challenges against arbitrators to be avoided, and for the legitimacy of the process to be unaffected by uncertainty and a lack of uniformity in the applicable standards for 2 disclosures, objections, and challenges. The 2004 Guidelines reflected the belief that the standards in use at the time lacked clarity and uniformity. The Guidelines, therefore, include some “General Standards and Explanatory Notes on the Standards.” Furthermore, the Guidelines list specific situations indicating whether they warrant disclosure or disqualification of an arbitrator in order to promote greater consistency and avoid unnecessary challenges, arbitrator withdrawals, and removals. These lists, labelled “Red,” “Orange,” and “Green” (the “Application Lists”),
The Guidelines reflect the IBA Arbitration Committee’s understanding of the best current international practice, and are firmly rooted in the principles expressed in the General Standards below.
The General Standards and Application Lists are based on statutes and case law from various jurisdictions, as well as the judgment and experience of international arbitration practitioners.
The Guidelines aim to strike a balance between the various interests of parties, representatives, arbitrators, and arbitration institutions, all of whom share responsibility for ensuring the integrity, reputation, and efficiency of international arbitration.
The Guidelines apply to international commercial and investment arbitration, regardless of whether the parties are represented by lawyers or non-lawyers, and regardless of whether non-legal professionals serve as arbitrators.
These Guidelines are not legal provisions and do not supersede any applicable national law or arbitral rules that the parties have chosen. However, as with the 2004 Guidelines and other sets of rules and guidelines issued by the IBA Arbitration Committee, it is hoped that the revised Guidelines will find widespread acceptance within the international arbitration community and that they will assist parties, practitioners, arbitrators, institutions, and other stakeholders. In dealing with these critical issues of impartiality and independence, courts must be impartial and independent.
The IBA Arbitration Committee is confident that the Guidelines will be applied with sound judgment and without undue formalist interpretation. The Application Lists cover a wide range of situations that commonly arise in practice, but they do not purport to be exhaustive and cannot be. Nonetheless, the IBA Arbitration Committee is confident that the Application Lists provide concrete guidance that is useful in applying the General Standards. The IBA Arbitration Committee will continue to study the Guidelines’ actual application in order to improve them.
The IBA published the Rules of Ethics for International Arbitrators in 1987.
These Guidelines supersede those Rules, which cover a broader range of topics. These Rules cover more topics than these Guidelines, and they continue to apply to subjects not covered by the Guidelines.
Conclusion
As we come to the end of this article, it is ideal, to sum up the several sets of rules and guidelines that are being adopted or have already been by the IBA in regard to international arbitration, although not appear to be per se binding, has become widely recognised and adopted by the international arbitration community at large as a means of expression of arbitration best practices. Thus, they are considered to be a guiding light for every international arbitration participant, including national courts.
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This article is written by Gautam Badlani, a student at Chanakya National Law University, Patna. It provides an overview of the various provisions of Section 139 which deals with the qualifications, removal and functions of the auditors. The article also explains the procedure to be followed in the appointment of auditors and some landmark judgments. It also discusses the Rules under Companies (Audit and Auditors) Rules, 2014 which deal with the process of appointment and rotations of auditors.
It has been published by Rachit Garg.
Table of Contents
Introduction
In the past few decades, there has been a significant increase in corporate-based financial transactions. Several new companies have been established. As a result, significant economic resources lie at the disposal of large corporations. It has become essential to monitor and review the manner in which the corporations use their financial resources. Thus, the Companies Act, 2013 lays down comprehensive provisions relating to the appointment of auditors. Auditors are not merely appointed for the purpose of ensuring the arithmetic accuracy of the financial statements. They monitor and scrutinise the entire internal control system of the company. This article provides a detailed analysis of Section 139 which deals with the appointment of auditors.
Appointment of auditors
An auditor is to be appointed by the company at its first annual general meeting. The annual general meeting is held every year and all the shareholders of the company are invited to attend the meeting. The directors of the company present the report about the annual performance of the company before the shareholders.
The auditor so appointed may be a firm or an individual. The auditor so appointed will continue to hold post till the conclusion of the sixth annual general meeting. Thus, the tenure of the auditors appointed under Section 139(1) is five years. An individual auditor who has completed 5 years in office cannot be re-appointed. However, an audit firm may be re-appointed for another 5 years.
It is essential to obtain the written consent of the auditor before making the appointment. A notice of the appointment has to be forwarded to the Registrar of Companies. Rule 4 of the Companies (Audit and Auditors) Rules, 2014 provides that a written consent and certificate must be obtained from the auditor prior to his appointment. The certificate should contain the following particulars:
That the person or firm is not disqualified from being appointed as an auditor
A list of proceedings, if any, against the person or firm
The appointment is within the limits prescribed by the Act
Such notice must be communicated within 15 days of making the appointment. If no new auditor is appointed or re-appointed at the annual general meeting of the company, the existing auditor will continue to hold the post. The company will thereafter appoint an auditor at a subsequent meeting. This provision ensures that the office of the auditor does not fall vacant due to the failure of the company to appoint a new auditor.
The first auditor of any non-government company has to be appointed within 30 days of the registration of the company. If the Board of Directors fails to appoint the first auditor within the stipulated time, then the Board has to inform the members of the company about such failure. The members will then appoint the first auditors at an extraordinary general meeting within 90 days. The first auditor appointed at the extraordinary general meeting will continue in office till the conclusion of the annual general meeting.
Government company
In case of a company owned or controlled by the government, the auditor is to be appointed by the Comptroller and Auditor General of India (CAG). In case of a newly registered government company, the first auditor has to be appointed by the CAG within 60 days of the registration. If the CAG fails to fulfil his obligation, the Board of Directors will appoint the first auditor within the next 30 days. If the Board of Directors also fail to make the appointment, then they will inform the members of the company about such failure. The members will thereafter appoint the first auditors within the next 60 days at an extraordinary general meeting.
Re-appointment
Section 139(2) provides the eligibility for re-appointment of auditors. A company cannot re-appoint an individual as an auditor after the completion of the 5-year term. Such an individual will be ineligible for re-appointment for the next 5 years after the expiry of his term.
On the other hand, an audit firm can be re-appointed for another five year term. However, companies cannot re-appoint an audit firm more than once. An audit firm will be ineligible after the completion of two consecutive terms.
However, this provision is only applicable in case of a listed company.
An auditor can be reappointed only if :
He is not disqualified from being appointed as an auditor
He has not communicated any written unwillingness to the company in respect to his re-appointment
If a special resolution expressly barring the preceding author from appointment has not been passed at the meeting
Vacancy
Article 139(8) provides the procedure to be followed in case of a vacancy. Any casual vacancy arising in a company, other than a company where the auditors are appointed by the CAG, has to be intimated to the Board of Directors of the concerned company within 30 days. However, if such casual vacancy arises due to an auditor’s resignation, then such resignations will require the subsequent approval of the Board of Directors. The Board will approve the resignation at an annual general meeting which has to be held within 3 months of the submission of resignation by the auditor. The auditor resigning will continue to hold office till the conclusion of the annual general meeting.
The possible causes of a casual vacancy can be death of an auditor, disqualification of an auditor, etc.
The purpose behind these provisions is to avoid the possibility of the office of the auditor lying vacant. Sudden and unexplained resignations would have left the office of the auditor vacant till a new auditor is appointed by the Board at the next meeting. However, by virtue of Section 140, the resigning auditor continues till his resignation is approved. A new auditor can be appointed at the same general meeting in which the existing auditor resigns.
Punishment
An offence under Section 139 is punishable under Section 147(1). Any company which is in violation of the provisions of Section 139 may be punished with a fine of up to Rs 5 lakhs. The minimum fine that the courts or tribunals may impose on the company is Rs. 25,000.
Any officer of the company who acts in violation of Section 139 is punishable with a fine of up to Rs. 1 lakh. The minimum fine that the courts of tribunal may impose on a defaulting officer is Rs. 10,000.
Earlier, the Section provided that a defaulting officer may also be punished with up to 1 year of imprisonment. However, by virtue of the Companies (Amendment) Act, 2020, Section 147 was amended and now a defaulting officer can only be punished with a fine.
A probable reason for this amendment can be that most of the courts were compounding an offence under Section 139. The defaulting companies and officers were usually filing an application for composition of the offence before the courts and tribunals. In most cases, the defaulters were able to establish some valid bona fide reasons for the delay and hence the courts were granting the relief of composition. The legislature may have taken note of the fact that in certain cases, the officers may default in making the statutory appointments for bona fide reasons. Thus, they should not be made liable to imprisonment.
Appointment of auditors under the Companies (Audit and Auditors) Rules, 2014
Rules 3 to 6 of the Companies (Audit and Auditors) Rules, 2014, deal with the appointment and rotations of auditors.
Appointment procedure
Rule 3 provides that if the company is required to constitute an Audit Committee, the committee will be responsible for recommending the appointment of the auditors. In such a case, the committee recommends the name to the Board of Directors. The Board of Directors, if they agree with the committee’s recommendation, recommends the name at the annual general meeting of the company.
However, if the Board does not agree with the recommendation made by the committee, it will return the recommendation to the committee. The Board has to provide the reasons for its disagreement. The committee will then consider the reasons for disagreements forwarded by the Board. If it does not agree with the reasons given, it will again forward the same recommendation. In such a case of conflict, the recommendation given by the committee is put forth before the shareholders at the annual general meeting. At the same time, the Board presents its own recommendation before the shareholders. The shareholders will then appoint the auditor they consider fit.
Where no such committee is to be constituted, the Board of Directors will determine the criteria for the appointment of the auditors.
Consideration has to be given to the qualifications and experience of the potential auditors. The committee or the Board has to determine whether the qualifications and experience of the candidate is in sync with the size of the company. Any pending proceedings against the proposed auditor in relation to alleged misconduct must also be taken into consideration.
Once an auditor is appointed, the appointment has to be ratified by an ordinary resolution at every annual general meeting of the company. Such ratification is required up till the 6th annual general meeting. The tenure of the auditor ends at the 6th annual general meeting.
Scope of Section 139(2)
Section 139(2) provides that all listed companies and other prescribed companies cannot re-appoint an individual auditor. An audit firm can be reappointed for a second term but not beyond that. Rule 5 of the Companies (Audit and Auditors) Rules, 2014 provides what classes of companies are covered within the scope of Article 139(2).
Article 139(2) applies to:
All listed companies
Unlisted companies having paid up share capital of Rs. 10 crores or more
Private companies having paid up share capital of Rs. 20 crores or more
All companies which have borrowed from banks or financial institutions an amount of Rs. 50 crores or more
All companies which have accepted public deposits amounting to Rs. 50 crores or more.
Rotation
Rule 6 deals with the manner in which the auditors are to be rotated. The Audit Committee recommends the name of the auditor who will replace the outgoing auditor. In the absence of the Audit Committee, the Board itself considers the rotations of auditors. A retiring auditor is ineligible to be re-appointed as an auditor till he completed a break for a continuous period of 5 years.
It is possible that the partner of the audit firm, who certifies the financial statements of the company, may resign from the firm and join another firm. In such a case, the latter firm will also be ineligible to be appointed as an auditor for a period of 5 years.
Removal of an auditor before expiry of term
Rule 7 provides the procedure to be followed for the removal of the auditors. An application has to be made to the central government for the removal of the auditor. Such an application has to be made within 30 days of the Board passing a resolution for the removal of the auditor. The company must also pay the prescribed fees for making an application to the central government for the removal of the auditor.
Once the approval of the central government is obtained, the company must hold a general meeting within 60 days and pass a special resolution for the removal of the auditor.
Appointment of auditors under the Companies Act, 1956
Under the Companies Act, 1956, Section 224 dealt with the appointment of auditors. Under Section 224, every company was required to appoint an auditor at every annual general meeting. Thus, the tenure of an auditor was only 1 year. The auditor held the office till the conclusion of the subsequent annual general meeting.
The appointed auditor was required to inform the Registrar of his appointment within 30 days of the appointment. The Section also provided that an individual or firm can be an auditor only for a prescribed number of companies.
An auditor, under the 1956 Act, could be removed from office before the expiry of his term, only after obtaining the prior approval of the Central Government. However, the company may remove an auditor and replace him by a new auditor at the general meeting, if the notice of such appointment is given to the members of the company 14 days prior to the general meeting.
Section 224A provided that in case of certain companies, an auditor could be appointed or reappointed only after the passing of a special resolution at the annual general meeting of the company. These companies included companies where 25% or more of the subscribed share capital was held by
Central or state government
Public financial institution
Financial institution established by any State Act in which the government hold 51% or more subscribed share capital
Nationalised bank
Insurance Company
Section 619 of the 1956 Act provides that the auditor of a government company would be appointed by the CAG. Moreover, the CAG had the power to prescribe the procedure in which the accounts of a government company were to be audited. Moreover, the CAG could authorise a test audit of the company. Section 619B provided that Section 619 would cover such companies in which 51% or more of the subscribed share capital was held by:
A combination of central government and one or more government companies
One or more state governments and one or more government companies
A combination of central government with one or more state government and one or more government companies
Any combination of the central government and/or one or more state governments and/or one or more corporations owned or controlled by the central government.
Qualifications and remuneration
Section 141
Section 141 enunciates the qualifications and disqualifications of the auditors. Only a Chartered Accountant (CA) is authorised to be appointed as an auditor. Where an audit firm is appointed, only those partners of the firm who are CAs and the majority of partners practising in India will be qualified to sign the company’s financial statements.
The following persons are disqualified from being appointed as auditors:
An employee of the company is disqualified. Moreover, any person who is an employee or officer of the company’s employee is also disqualified from being appointed as an auditor. An employee of the company will not be able to provide a fair and independent view of the financial statements. Thus, the employees and officers are ineligible to be appointed as auditors.
A person who holds any interest in the company or any of its associated companies
A person who owes a debt to the company or has given any guarantee in respect of the company
A person or firm having direct business relations with the company
A person who is the relative of a director of the firm
Person convicted of fraud
Moreover, a body corporate is also ineligible from being appointed as an auditor. The reason for this may be that the members of a body corporate share limited liability. Thus, if the CAs form a body corporate and then act as auditors through the corporate, then they could not be made individually liable.
If a person who was working as an auditor incurs any disqualification, he will be removed from the office and such removal will give rise to a casual vacancy.
Section 142
Section 142 provides that the remuneration of the auditors will be determined by the members of the company at the general meeting. However, the remuneration of the first editor will be determined by the Board of Directors. It must be noted that the law does not specify the procedure for determining the remuneration of an auditor who is appointed to fill a casual vacancy. In such a case, the remuneration of such an auditor may be determined by the Board of Directors.
Audit Committee
Section 177 of the Act stipulates the setting up of an audit committee. Such a committee will be responsible for recommending the appointment and remuneration of auditors. Rule 3 of the Companies (Audit and Auditors) Rules, 2014 provides that the auditors have to be appointed in accordance with the recommendations of the Committee.
Article 139(10) provides that where the company is required to appoint an audit committee under Section 177, the recommendations of the committee must be taken into consideration before making the appointment.
The Audit Committee also reviews the report submitted by the company’s auditors. The auditors can also appear before the committee to defend their report. The committee supervises the use of funds by the company. The committee monitors the overall financial system of the company.
Removal of an auditor
It is possible that some differences may arise between the Board of Directors and the auditors of the company. In such a scenario, the Board of Directors may try to remove the auditors from office before the expiry of the tenure of the auditors. There may be several reasons due to which the Board or the members of the company may want to remove the auditors. For instance, the auditors may act negligently or the company may find that the performance of the auditors is not upto the mark.
The law has to ensure that there is no friction between the Board and the auditors. At the same time, the auditors must have the independence to discharge their duties efficiently. Thus, the Companies Act clearly lays down the procedure for the removal of an auditor.
As per Section 140, an auditor can be removed by the members of the company by passing a special resolution to this effect. The concerned auditor must be provided a fair opportunity of hearing before the members. Thus, the auditor must be given a chance to defend his performance. The principles of natural justice have to be observed even during the proceedings of the removal of the auditor. This also ensures that if the removal order is challenged before any court of law, the court will have a record of the statements made by the auditor in his defence. Prior approval of the Central Government is also required to remove an auditor from office.
Case Laws
CDK Global India Private Limited, In Re (2017)
Facts
In the case of CDK Global India Private Limited, In Re (2017), the applicants were a company incorporated in August 2014, its directors and the Company Secretary. However, they had failed to appoint the first auditor within 30 days of incorporation. No auditor was appointed at the extraordinary general meeting either. Thus, they violated the statutory time limit provided under Section 139 for the appointment of the first auditors.
Subsequently, the first auditors were appointed in August 2015. The applicants pleaded for the compounding of the offence. The Registrar had no objection to the plea of the company.
Judgment
The Court held that an offence under Section 139 is compoundable. If the company is able to establish bona fide reasons to justify the delay, then the Court may compound the offence. Thus, the Court compounded the offence and imposed a fine of Rs. 25000 on the company and a fine of Rs. 1000 on every defaulting member.
Graco India Private Limited, In Re (2017)
Facts
The petitioner company, in this case, was involved in the business of fluid handling equipment. It was incorporated in November, 2015. The company had defaulted in appointing the statutory auditors for 6 months.
Judgment
The Tribunal pointed out that no notice had been issued to the petitioners by the Registrar of Companies. The petitioners had themselves suo motu prayed for the composition of the offence. Even though there was a delay of 6 months in appointing the statutory auditors, the offence was made good when the auditors were appointed on August, 2016. The Court thus compounded the offence and imposed a penalty of Rs. 2.5 lakhs on the petitioner company and Rs. 50, 000/- on the other petitioners.
Pipara v. Tourism Corporation of Gujarat (2021)
Facts
Section 140 does not provide the procedure for the removal of an auditor who is appointed by the CAG under Section 139. In Pipara v. Tourism Corporation of Gujarat (2021), the issue before the High Court was whether the CAG can remove an auditor appointed by him under Section 139. The applicant had been appointed as a statutory auditor for the respondent firm. The appointment was done by the CAG.
The applicant was approached by the respondent for several works However, after some time, the respondent firm stopped responding to any calls or other communication from the applicant auditor. The applicant later discovered that he had been terminated by the respondent firm without any prior notice. The removal was done with the prior approval of the CAG.
Issues and Arguments
The petitioners contended that the removal of the applicant auditor without any prior notice was a violation of the principles of natural justice. The CAG could not act arbitrarily and remove the applicant auditor.
The respondent pleaded that since the removal of the auditor appointed by the CAG is not governed by Section 139, thus there is no obligation on the CAG to hear the side of the auditor before arriving at a decision. The respondents submitted that the applicant had not performed any audit work for the respondent company despite being appointed as an auditor. The auditor company had subsequently appointed another company who had commenced with the audit work. The argument of the respondents was that the CAG is only concerned with the fact that the subsequent auditor was undertaking the audit work.
Judgment
The Court held that while the CAG can remove the auditor, such removal will be guided by principles of natural justice. Thus, an opportunity of being heard has to be provided to the auditor.
The Court observed that even if the auditor is to be removed by the company, with the prior approval of the Central Government, and even if there is no role of the CAG in the removal process, also the principles of natural justice have to be observed. The auditor has to perform a statutory duty and thus he is entitled to a right to be heard before his removal from office.
Conclusion
Auditors play a vital role in maintaining transparency in the financial affairs of the company. They mention any irregularity in the financial dealings in their report and thus supervise the functions of the top management. Their report is presented to the members of the company in the general meeting. The report provides shareholders with a financial overview of the company.
The Companies Act, 2013 contains detailed provisions regarding the appointment of auditors. The Act also prescribed the qualifications, disqualifications, remuneration and functions of the auditors. Section 139 is an important provision which mandates the appointment of an auditor within 30 days of the registration of a company.
The procedure for the appointment of an auditor depends on the nature of the company. Section 139 makes a distinction between the procedure to be followed by a government company and a non-government company. Thus, the procedure will depend on the type of business.
Frequently Asked Questions
Which form is to be filled at the appointment of the first auditor?
E-form ADT-1 must be filled at the appointment of the first auditor. This form has to be filled within 15 days of the appointment.
Can the company appoint its director as an auditor?
The officers and employees of the company cannot be appointed as an auditor. Director, whether executive or not, will fall within the category of officer of the company. Thus, directors are not eligible to be appointed as auditors of the company.
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The concept of leasing as a mode of transfer has gained significant popularity in recent years. Leasing, also known as ‘renting,’ is a legal contract between two parties, where the owner of an asset grants the right to use it to the lessee for a specific period in exchange for periodic payments. This mode of transfer is widely used in various industries, including real estate, transportation, and technology.
Leasing has become an attractive alternative to traditional forms of transfer, such as purchasing or financing, due to its various benefits. For example, leasing allows businesses and individuals to acquire assets without committing to long-term investments or incurring high upfront costs. It also provides flexibility in terms of the duration of the lease and the type of assets that can be leased.
However, leasing is not without its drawbacks. There are several legal and financial considerations that need to be taken into account before entering into a lease agreement. This article will explore the concept of leasing as a mode of transfer and its various advantages and disadvantages. It will also discuss the legal and financial implications of leasing, as well as the factors that businesses and individuals should consider before entering into a lease agreement.
Definition of lease
A lease can be defined as a legal agreement that allows the party to the agreement to use land or a Building for a certain period of time in return for rent to be paid to the other party of the agreement.
Parties to the agreement are known as Lessor and Lessee.
Lessor: Transferor party in the agreement is known as LESSOR.
Lessee: Transferee party in the agreement is known as LESSEE.
Premium: This is the amount paid upfront as per the agreement.
In India, provisions related to the lease are governed under the Transfer of Property Act, 1882. The lease is defined under Sections 105 to 117 of the Act of 1882. The essentials of the lease as per the Act of 1882 are competent parties, right of possession, consideration, acceptance, time period, and right to enjoy the property.
Essentials of the lease under the Transfer of Property Act, 1882
The essentials of the lease have been discussed hereunder:
Parties to a lease agreement must be competent to enter in the same:
Competency of parties is an important factor of consideration whenever talking about any legal agreement for under the Indian Contract Act, 1872, Section 10 lays down competency as a prime essence of a contract. Competency is inclusive of the parties being major, of sound mind and not disqualified by any law in force. In the case of the lease agreement, absolute ownership of the leased property is another factor that is included under the ambit of competency.
Right of possession:
By executing a lease agreement, only the possession is transferred in relation to the concerned property and not the ownership. This is exactly how the lease is said to be different from the sale. Thus this is one of the essential requirements for the execution of a lease agreement between the lessor and the lessee.
Consideration:
Consideration is an important element of any kind of legal agreement, as is in the case of the lease agreement. In the case of a lease, consideration must be in the form of premium or rent. This is generally concerning the price that has already been paid or the price that has been promised to be paid in cases of demise. Both the premium and the rent can either be paid in instalments or can be paid in full.
Acceptance:
Acceptance is an essential ingredient of a lease for the lessee by means of the same giving the lease agreement a valid stamp. The lessee accepts the terms and conditions laid down in the agreement entered thereby validating the possession transfer from the lessor.
Time period:
It is necessary to note that a lease agreement always has a specific period of time for which it is fixed and valid. Following the passage of such a period, the lease agreement either has to be renewed or brought to an end.
Right to the enjoyment of the property:
Along with possession comes the right to the enjoyment of the leased property by the lessee as well. A lessee has the right to enjoy the property for the time period that is either decided by him and the lessor mutually or that which has been expressly provided in the lease agreement.
Execution of lease under the Transfer of Property Act, 1882
Leases for the immovable property for a month to monthly basis can be executed either by oral agreements or in writing but a lease for more than twelve months or more can only be created by registered deed.
In the case of Chemical Sale Agencies v. Naraini Newar (2005), the nature of the lease has been stated as if the lease agreement is neither a registered document nor an oral agreement along with the delivery of possession, it cannot create lessor and lessee relationship. Both parties to the agreement must be well aware of and adhere to their rights and responsibilities/liabilities.
Rights of lessor
The lessor (transferor) of the property has the right to the monthly recurring payment of the rent as was pre-decided in the lease agreement.
If any damage is caused to the property at the behest of the lessee, then the lessor has the right to recover that amount of damages from the lessee.
If the lessee breaches any of the conditions of the lease agreement, then the lessor has the right to take back the possession of the property leased.
The lessor has the right to take back possession of the property once the period mentioned in the lease agreement completes.
Liabilities of lessor
The lessor is bound to disclose to the lessee any material defect in the property related to its intended use, of which the lessor and lessee is not aware, and which the lessee could not in ordinary course discover.
The lessor is bound to put the lessee in possession of the property at the request of the latter.
The lessor is bound to let the lessee enjoy the property uninterrupted if the latter pays rent and performs the contracts binding on the latter.
Rights of lessee
If the lessor neglects to make the repairs within a reasonable time after bringing the fact to notice by the lessee which he was bound to do, then the lessee may make the same by himself and deduct the expense of such repairs with interest from the rent.
If the lessor neglects to pay any payment which he was bound to make against the property, if not made by him is recoverable from the lessee or against the property, the lessee may make such payments and deduct it with interest from rent.
The lessee may remove all things which he has attached to the earth, after the termination of the lease provided, he leaves the property in the state as was received by him.
If any material part of the property gets partially or completely damaged by fire, tempest or flood, or by war or violent acts of a mob, or other irresistible force making it inefficient to the purpose for which it was leased. Then at the option of the lessee lease stands voidable but, if any damage happens to the property because of the actions of the lessee then he shall not get the benefit of this right.
In the case of a lease of uncertain duration lessee and his legal representatives have the right to the profits of the crops sown by them as well as a right to free entry and exit to and from the property.
Lessee has the right to transfer either absolutely or by way of mortgage or by subletting, the whole or any part of his interest in the property. Lessee shall not be treated as independent from the conditions of the lease, for the purpose of this transfer.
Liabilities of lessee
The lessee is bound to disclose to the lessor the nature and extent of interest which he is bound to take and of which the lessor is unaware and which increases the value of the leased property.
The lessee is bound to make timely payment of premium or rent to the lessor or his agent.
The lessee is bound to maintain and return the property in the condition it was received by the lessee on the commencement of the lease.
Lessee is bound to inform the lessor of any proceedings to recover the whole or any part of the property, or of any encroachment or interference to the right of the lessor when it comes to his notice.
Lessee is bound to use the property and its products as an owner during the duration of the lease but he must not by himself or allow any other person to use them for a purpose other than stipulated in the lease. This clause was also discussed in the case of Dashrath Baburao Sangale v. Kashinath Bhaskar Datta (1993).
Lessee must not construct any permanent structure on the leased property without the consent of the lessor.
Lessee is bound to return the possession of the property to the lessor on the termination of the lease.
Termination of lease
On the expiration of the time period specified under the lease.
On the happening of such event on which the termination of the lease depends.
On the happening of such an event on which the interest of the lessor in the property terminates or his power to dispose of the same extends only to the happening of any event.
In case the interests of the lessee and the lessor in the whole of the property are vested upon the one person at the same time. The interests of the lessor and the lessee are transferred or vested upon the same person at the same time.
By express surrender by the lessee or by mutual agreement between the lessee and the lessor.
Implied surrender.
By forfeiture:
On the occasion of a breach of any of the conditions of the lease agreement by the lessee.
On the occasion when the lessee transfers the title of the property or renounces his character to the third person.
On the occasion of the lessee being declared insolvent and the lease provides that on the happening of this event, lease stands terminated.
On expiration notice to quit given by the lessor to the lessee, the lease stands terminated.
A notice to quit is a written statement issued by the lessor to the lessee if the lessor wants to terminate the lease agreement. Any lease can be forfeited on acceptance of notice to quit.
If the lessee remains in the possession of the property after the determination of the lease granted to the lessee and the lessor accepts rent from the lessee or otherwise assents to his continuing in possession, then the lease in absence of any agreement to contrary stands renewed from year to year.
Conclusion
In conclusion, a lease is a valuable mode of transfer that offers many benefits to both landlords and tenants. It provides landlords with a reliable source of income, while tenants can enjoy a degree of flexibility and affordability that might not be possible with other forms of property ownership. However, it is important for both parties to approach the lease agreement with care and attention to detail, to ensure that their rights and obligations are clearly defined and understood. By doing so, they can establish a productive and positive relationship that will benefit them both in the long term. Overall, a lease can be a smart and effective way to transfer property, and it is well worth considering for anyone who is looking to rent or lease property.
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This article is written by Dhruv Bhardwaj, a student of Amity Law School Delhi; and Kishita Gupta, an advocate who graduated from the Unitedworld School of Law, Karnavati University in Gandhinagar. In this article, they will cover the concept of the Corporate Veil under the Companies Act, 2013, the need for introducing this concept and the circumstances under which the Corporate Veil can be lifted. The article covers the concept in leading nations of the world not just the Indian scenario.
It has been published by Rachit Garg.
Table of Contents
Introduction
Once a business is incorporated according to the provisions laid out in the Companies Act of 2013, it becomes a separate legal entity. An incorporated company, unlike a partnership firm, which has no identity of its own, has a separate legal identity of its own which is independent of its shareholders and its members. This article will go over what this differentiation means, why this demarcation was brought about and how can the members be made personally liable for using the company as a vehicle for undesirable purposes.
What is Corporate Veil
A company is composed of its members and is managed by its Board of Directors and its employees. When the company is incorporated, it is accorded the status of being a separate legal entity which demarcates the status of the company and the members or shareholders that it is composed of. This concept of differentiation is called a Corporate Veil which is also referred to as the ‘Veil of Incorporation’.
Meaning of Lifting of Corporate Veil
The advantages of incorporation of a company like perpetual succession, transferable shares, capacity to sue, flexibility, limited liability and lastly the company being accorded the status of a separate legal entity are by no means inconsiderable, under no circumstance can these advantages be overlooked and, as compared with them, the disadvantages are, indeed very few.
Yet some of them, which are immensely complicated deserve to be pointed out. The corporate veil protects the members and the shareholders from the ill-effects of the acts done in the name of the company. Let’s say a director of a company defaults in the name of the company, the liability will be incurred by the company and not a member of the company who had defaulted. If the company incurs any debts or contravenes any laws, the concept of Corporate Veil implies that the members of the company should not be held liable for these errors.
Basics of Limited Liability
Organizations exist to a limited extent to shield the individual resources of investors or shareholders from individual obligation for the obligations or activities of a company. Almost opposite to a sole proprietorship in which the proprietor could be considered in charge of the considerable number of obligations of the organization, a company customarily constrained the individual risk of the investors. This is why Limited Liability as a concept is so popular.
Puncturing the Veil of Incorporation commonly works best with smaller privately held companies in which the organization has few investors, restricted resources, and acknowledgement of the separateness of the partnership from its investors.
Germany
German corporate law built up various speculations in the mid-1920s for lifting the corporate veil based on “control” by a parent company over a subsidiary. Today, investors can be held subject on account of an obstruction devastating the partnership. The company is qualified for at least impartial assets.
Rolf Serick elaborated on the phrase “durchgriffshaftung” in great detail, and numerous observers emphasised its importance. The independent entity of a firm should be ignored in some situations, as the courts had already agreed. This does not nullify the legal entity itself, even if the veil is breached. Durchgriffshaftung refers to situations not governed by statutory or other legal norms in which an entity’s existence is disregarded and the owner is held personally accountable for the company’s debts.
In general, only if bankruptcy proceedings are started will owners be held personally accountable for the company’s debts. Hence, durchgriffshaftung is typically seen as a shareholder’s complementary and ultimate liability. From the perspective of a creditor, a shareholder’s personal obligation arising from penetrating the veil is irrelevant until the debtor company experiences financial difficulty. The facts indicating a shareholder’s obligation often don’t surface until such circumstances exist.
The corporate veil in UK company law is pierced every once in a while. After a progression of endeavours by the Court of Appeal during the late 1960s and mid-1970s to set up a straight-jacketed formula for lifting the veil, the House of Lords reasserted a universal methodology. As indicated by a 1990 case at the Court of Appeal, Adams v Cape Industries plc, the main genuine “veil piercing” may happen when a company is set up for false purposes, or where it is set up to avoid a statutory obligation.
Tort Victims and Employees
Tort victims and representatives, who did not contract with an organization or have very inconsistent and limited dealing power, have been held to be exempted from the standards of limited liability in Chandler v Cape plc. In this leading case law, the petitioner was a representative of Cape plc’s entirely claimed subsidiary, which had gone insolvent. He effectively acquired a case of tort against Cape plc for causing him an asbestos sickness, asbestosis. Arden LJ in the Court of Appeal held that if the parent had meddled in the activities of the subsidiary in any capacity, for example, over exchanging issues, then it would be connected with obligation regarding wellbeing and security issues. Arden LJ underscored that piercing the corporate veil was a bit much in this case. The limitations on lifting the veil, found in legally binding cases had no effect.
“Single Economic Unit” Theory
It is a proverbial standard of English company law that a company is an element isolated and unmistakable from its individuals, who are at risk just to the degree that they have added to the company’s capital: Salomon v Salomon. The impact of this standard is that the individual backups inside a combination will be treated as independent elements and the parent cannot be made obligated for the auxiliaries’ obligations on insolvency. This standard particularly applies in Scotland.
While on the face of it, it may look like there are a lot of scenarios for “lifting” or “piercing” the veil, judicial dicta is of the view that the standard in Salomon is liable to special cases are slender on the ground. Lord Denning MR sketched out the hypothesis of the “single economic unit” – wherein the court analyzed the overall business task as an economic unit, instead of a strict legal form -in DHN Food Distributors v Tower Hamlets.
The “single economic unit” hypothesis was in like manner dismissed by the CA in Adams v Cape Industries, where Slade LJ held that cases, where the standard in Salomon had been circumvented, were just occasions where they didn’t have a clue what to do. The view communicated at first case by HHJ Southwell QC in Creasey v Breachwood that English law “unquestionably” perceived the rule that the corporate veil could be lifted was depicted as a sin by Hobhouse LJ in Ord v Bellhaven, and these questions were shared by Moritt V-C in Trustor v Smallbone, the corporate veil cannot be lifted only because equity requires it. In spite of the dismissal of the “equity of the case” test, it is observed from judicial thinking in veil piercing cases that the courts utilize “fair circumspection” guided by general standards, for example, mala fides to test whether the corporate structure has been utilized as a simple device.
Perfect Obligation
In the landmark case of Tan v Lim, where an organization was utilized as a “façade” (per Russell J.) or in common layman terms, to defraud or to swindle the lenders of the respondent and Gilford Motor Co Ltd v Horne, where an order was conceded against a merchant setting up a business which was simply a vehicle enabling him to evade a pledge in limitation. The common element in these two cases was the element of defrauding the other person via the vehicle of the company. The company in fact was set up for absolutely no other purpose collateral to it. The main purpose was to defraud. Also, in Gencor v Dalby, a suggestive remark was provided that the corporate veil was being lifted where the organization was having an image exactly similar to that of the litigant. In reality however, as Lord Cooke (1997) has noted extrajudicially, it is a result of the different characters of the organization concerned and not regardless of it that value interceded in these cases. They are not occurrences of the corporate veil being pierced but rather include the utilization of different standards of law.
Reverse Piercing
There have been cases in which it is to the benefit of the shareholder to have the corporate structure overlooked. Courts have been hesitant to consent to this. The often referred to case Macaura v Northern Assurance Co Ltdis an example of that. Mr Macaura was the sole proprietor of an organization he had set up to develop timber. The trees were devastated by flame yet the back up plan wouldn’t pay since the strategy was with Macaura (not the organization) and he was not the proprietor of the trees. The House of Lords maintained that refusal was dependent on the different lawful character of the organization.
Criminal Law
In English criminal law, there have been cases in which the courts have been set up to pierce the veil of incorporation. For instance, in seizure procedures under the Proceeds of Crime Act 2002 monies gotten by an organization can, contingent on the specific facts of the case as found by the court, be viewed as having been ‘acquired’ by a person (who is for the most part, yet not generally, a chief of the organization). As a result, those monies may turn into a component in the person’s ‘advantage’ acquired from a criminal lead (and consequently subject to seizure from him). The position with respect to ‘piercing the veil’ in English criminal law was given in the Court of Appeal judgment on account of R v Seager in which the court said:
There was no significant contradiction between directions on the lawful standards by reference to which a court is qualified for “pierce” or “rip” or “evacuate” the “corporate veil”. It is “hornbook” law that an appropriately framed and enrolled organization is a different legitimate element from the individuals who are its shareholders and it has rights and liabilities that are independent of its shareholders. A court can “pierce” the carapace of the corporate element and see what lies behind it just in specific conditions. It can’t do as such basically on the grounds that it thinks of it as may be simply to do as such. Every one of these conditions includes inappropriateness and deceitfulness. The court will at that point be qualified for search for the legitimate substance, not just simply the structure. With regards to criminal cases, the courts have recognized at any rate three circumstances when the corporate veil can be pierced. First, if an offender endeavours to shield behind a corporate façade, or veil to shroud his crime and his advantages from it. Secondly, where the transaction or business structures comprise a “gadget”, “shroud” or “hoax”, for example, an endeavour to mask the genuine idea of the transaction or structure to delude outsiders or the courts.
United States
In the United States, corporate veil piercing is the most contested issue in corporate law. Although courts are hesitant to hold a functioning shareholder at risk for activities that are legitimately the obligation of the organization, regardless of whether the partnership has a solitary shareholder, they will regularly do as such if the enterprise was particularly rebellious with corporate customs, to forestall misrepresentation, or to accomplish value in specific instances of undercapitalization.
To put it plainly, there is no strait-jacketed formula that exists here and the decision entirely depends on customary law points of reference. In the United States, various hypotheses, most significant “modify the sense of self” or “instrumentality rule”, endeavored to make a piercing standard. Generally, they rest upon three essential pillars—namely:
Unity of Interest and Ownership: This is a situation in which the different personalities of the shareholder and organization stop to exist.
Conduct which is Wrongful in Nature: In case the corporation takes steps which are deemed to be wrongful in nature.
Proximate Cause: If the company indulges in wrongful conduct, there must be some foreseeable ramifications that might be arising out of it, so the party which is actually seeking the piercing of the corporate veil must have suffered some harm arising out of the wrongful conduct of the corporation.
Despite all these guidelines laid out, the speculations neglected to explain a genuine methodology which courts could legitimately apply to their cases. Accordingly, courts battled with the confirmation of every circumstance and rather examine every given factor. This is known as “totality of circumstances”.
Another apparent question here is to decide the jurisdiction of a corporation if the business of the corporate entity is not limited to just one state. All enterprises have one place of business where they were initially set up and incorporated, (their “home” state) to which they are incorporated as a “household” company, and in the event that they work in different states, they would apply for power to work together in those different states as a “remote” organization. In deciding if the corporate veil might be pierced, the courts are required to utilize the laws of the company’s home state and not the numerous other states that they might be doing business in.
This issue, at first sight, may not look like a big thing to worry about but sometimes it can be huge; for instance, Californian law is progressively liberal in enabling a corporate veil to be pierced, the standards that the Californian Corporate Law has set in terms of scenarios under which the Veil can be pierced are quite many in number and even if an organisation simply encroaches wrongdoing, the Courts might order for the Piercing of the Veil, while the laws of neighbouring Nevada are quite strict when it comes to piercing the veil. The law in Nevada may allow the veil to be pierced only under exceptional circumstances and thus it makes doing such things increasingly troublesome.
Therefore, the owner(s) of an organization working in California would be liable to various potential for the company’s veil to be pierced if the enterprise was to be sued, contingent upon whether the partnership was a California residential partnership or a Nevada remote organization working in California.
By and large, the offended party needs to demonstrate that the incorporation was only a formality and there was nothing more to it and that the enterprise dismissed corporate customs and conventions, for example, using the voting method to approve the daily decisions of the corporate entity. This is regularly the situation when an enterprise confronting lawful obligation moves its benefits and business to another company with a similar administration and shareholders. It likewise occurs with single individual enterprises that are overseen in a random way. All things considered, the veil can be pierced in both common cases and where administrative procedures are taken against a shell enterprise.
Factors for courts to consider
Variables that a court may think about when deciding whether or not to pierce the Corporate Veil include the things that are laid out below:
Non-appearance/Absence or mistake of corporate records;
In case the members of the corporation are misrepresented or concealed;
Inability to look at corporate conventions regarding conduct and documentation;
Mixing of advantages enjoyed by the enterprise and the shareholder;
Control of assets or liabilities to concentrate them;
Non-working corporate officials as well as chiefs;
Noteworthy undercapitalization of the business (capitalization necessities fluctuate depending on the industry, area, and specific conditions of the corporation which may vary from one company to the other);
Directing of corporate assets by the predominant shareholder(s);
Treatment by a person of the advantages of partnership as his/her own;
Was the enterprise being utilized as a “façade” for predominant shareholder(s) individual dealings like we have already seen in the article that some companies are set up only to defraud other persons or corporations and their incorporation serves absolutely no other purpose.
It is essential to take note that not all these elements should be met altogether for the court to pierce the corporate veil. Even if the corporation indulges in a few of the aforementioned bulleted provisions, it is well under the radar for getting its veil pierced. Further, a few courts may locate that one factor is so convincing in a specific case that it will discover the shareholders at risk. For instance, numerous enormous organizations don’t pay profits, with no recommendation of corporate inappropriateness, however, especially for a partnership firm which is small the inability to pay profits may propose monetary impropriety.
Internal revenue service
Lately, the Internal Revenue Service (IRS) in the United States has utilized corporate veil-piercing contentions and rationale as a method for recovering salary, domain, or blessing tax revenue, especially from business entities which are incorporated for the sole reason of bequest arranging purposes. Various U.S. Tax Court cases including Family Limited Partnerships (FLPs) show the IRS’s utilization of veil-piercing arguments. Since proprietors of U.S. business substances made for resource security and home purposes frequently neglect to keep up legitimate corporate consistency, the IRS has accomplished various prominent court triumphs and victories.
Reverse piercing
Inverted veil piercing is the point at which the obligation of a shareholder is credited to the organization. All through the United States, the general guideline is that turn-around veil piercing isn’t allowed. However, the California Court of Appeals has permitted inverted veil piercing against a limited liability company (LLC) in view of the distinction in cures accessible to lenders with regards to joining resources of an account holders’ LLC when contrasted with connecting resources of an enterprise.
Whether fundamental rights can be claimed by the corporations
The two key issues at stake in the two significant Supreme Court cases involving the doctrine of the lifting of the corporate veil were whether corporations can assert their claim to fundamental rights and whether the corporate veil might be pierced in order to do so.
State Trading Corporation v. The Commercial Tax Officer (1963)
In this case, the State Trading Corporation, a government entity registered under the Indian Companies Act, requested relief from the States of Andhra Pradesh and Bihar by issuing a writ of certiorari or other appropriate writ or direction for quashing the order of the commercial tax officers of the states in question, assessing the corporation to sales tax and also for quashing. The respondents submitted a few preliminary objections questioning the maintainability of the petitions under Article 32 of the Indian Constitution when the Attorney General filed the case for the petitioners.
Two of those initial concerns were:
Whether the State Trade Company, a business licenced to operate under The Companies Act of 1956, qualified as a citizen under Article 19 and qualified to request the observance of fundamental rights, and
Whether the State Trading Corporation was, despite the formality of incorporation under the Companies Act, in fact, a department and an organ of the Government of India, with the entirety of its capital contributed by the government, and whether it could assert that it had the authority to enforce fundamental rights under Part III of the Constitution against the state as defined in Article 12 of that Constitution.
Tata Engineering and Locomotive Company Ltd. v. State of Bihar (1965)
In the Tata Engineering and Locomotive Company Ltd. case (1965), the petitioners were a company that had been registered under the Indian Companies Act, 1913, and that was engaged in the manufacturing of, among other things, diesel truck and bus chassis, as well as their spare parts and accessories, in Jamshedpur, Bihar. The business offers these items to dealers, state transportation agencies, and other companies operating in different states. Bombay served as the petitioners’ registered office. The petitioners have entered into dealership arrangements with various people to promote their trade around the nation.
In order to conduct business in various regions of India, the petitioners used the appropriate sections of the dealership agreements to sell their products to the dealers. As a result, the petitioners sell their automobiles to consumers, state transportation agencies, and dealers. The petitioners, in this case, argued that because their purchases were made in the course of interstate commerce, they were exempt from paying sales tax.
On the other side, the sales tax officer argued that because the transactions had taken place within the boundaries of the State of Bihar and were, therefore, intra-state sales, they were subject to assessment under the Bihar Sales Tax Act, 1956. The petitioners had been warned by the sales tax officer that if they failed to pay the sales tax, he would take the appropriate legal action. The majority of the company’s stockholders were and still are Indian nationals. In this case, the petitioners also cited Article 32.
Concluding remarks for both cases
Hence, the 1965 case involved a privately owned firm, but the 1963 case included a government-owned one. Nonetheless, both of the companies were registered under the Indian Companies Act. In both instances, the court refused to pierce the corporate veil and acknowledged that the shareholders were the ones who had filed the Article 32 motion. This is due to the fact that it would actually imply that what businesses cannot accomplish directly, they may accomplish indirectly by depending on the notion of lifting the veil.
The Supreme Court declined to pierce the veil in the aforementioned cases not because it was thought to be against judicial principles but rather because, in their Lordships’ opinion, the veil could not be lifted in order to grant companies fundamental rights. Then, may it have been lifted in another way? No, not always. Nothing could have been a more practical, wise, and sinful way to raise the curtain if it had ever been lifted in order to provide companies with fundamental rights.
Whether fundamental rights can be claimed by the corporations
The two key issues at stake in the two significant Supreme Court cases involving the doctrine of the lifting of the corporate veil were whether corporations can assert their claim to fundamental rights and whether the corporate veil might be pierced in order to do so.
State Trading Corporation v. The Commercial Tax Officer (1963)
In this case, the State Trading Corporation, a government entity registered under the Indian Companies Act, requested relief from the States of Andhra Pradesh and Bihar by issuing a writ of certiorari or other appropriate writ or direction for quashing the order of the commercial tax officers of the states in question, assessing the corporation to sales tax and also for quashing. The respondents submitted a few preliminary objections questioning the maintainability of the petitions under Article 32 of the Indian Constitution when the Attorney General filed the case for the petitioners.
Two of those initial concerns were:
Whether the State Trade Company, a business licenced to operate under The Companies Act of 1956, qualified as a citizen under Article 19 and qualified to request the observance of fundamental rights, and
Whether the State Trading Corporation was, despite the formality of incorporation under the Companies Act, in fact, a department and an organ of the Government of India, with the entirety of its capital contributed by the government, and whether it could assert that it had the authority to enforce fundamental rights under Part III of the Constitution against the state as defined in Article 12 of that Constitution.
Tata Engineering and Locomotive Company Ltd. v. State of Bihar (1965)
In the Tata Engineering and Locomotive Company Ltd. case (1965), the petitioners were a company that had been registered under the Indian Companies Act, 1913, and that was engaged in the manufacturing of, among other things, diesel truck and bus chassis, as well as their spare parts and accessories, in Jamshedpur, Bihar. The business offers these items to dealers, state transportation agencies, and other companies operating in different states. Bombay served as the petitioners’ registered office. The petitioners have entered into dealership arrangements with various people to promote their trade around the nation.
In order to conduct business in various regions of India, the petitioners used the appropriate sections of the dealership agreements to sell their products to the dealers. As a result, the petitioners sell their automobiles to consumers, state transportation agencies, and dealers. The petitioners, in this case, argued that because their purchases were made in the course of interstate commerce, they were exempt from paying sales tax.
On the other side, the sales tax officer argued that because the transactions had taken place within the boundaries of the State of Bihar and were, therefore, intra-state sales, they were subject to assessment under the Bihar Sales Tax Act, 1956. The petitioners had been warned by the sales tax officer that if they failed to pay the sales tax, he would take the appropriate legal action. The majority of the company’s stockholders were and still are Indian nationals. In this case, the petitioners also cited Article 32.
Concluding remarks for both cases
Hence, the 1965 case involved a privately owned firm, but the 1963 case included a government-owned one. Nonetheless, both of the companies were registered under the Indian Companies Act. In both instances, the court refused to pierce the corporate veil and acknowledged that the shareholders were the ones who had filed the Article 32 motion. This is due to the fact that it would actually imply that what businesses cannot accomplish directly, they may accomplish indirectly by depending on the notion of lifting the veil.
The Supreme Court declined to pierce the veil in the aforementioned cases not because it was thought to be against judicial principles but rather because, in their Lordships’ opinion, the veil could not be lifted in order to grant companies fundamental rights. Then, may it have been lifted in another way? No, not always. Nothing could have been a more practical, wise, and sinful way to raise the curtain if it had ever been lifted in order to provide companies with fundamental rights.
Development of the Concept of “Lifting of Corporate Veil”
Once a company is incorporated, it becomes a separate legal identity. An incorporated company, unlike a partnership firm which has no identity of its own, has a separate legal identity of its own which is independent of its shareholders and its members.
The companies can thus own properties in their names, become signatories to contracts etc. According to Section 34(2) of the Companies Act, 2013, upon the issue of the certificate of incorporation, the subscribers to the memorandum and other persons, who may from time to time be the members of the company, shall be a body corporate capable of exercising all the functions of an incorporated company having perpetual succession. Thus the company becomes a body corporate which is capable of immediately functioning as an incorporated individual.
The central focal point of Incorporation which overshadows all others is a distinct legal entity of the Corporate organisation.
Solomon v Solomon
What the milestone case Solomon v Solomon lays down is that “in inquiries of property and limitations of acts done and rights procured or liabilities accepted along these lines… the characters of the common people who are the organization’s employees is to be disregarded”.
Lee v Lee’s Air Farming Ltd
In Lee v Lee’s Air Farming Ltd., Lee fused an organization which he was overseeing executive. In that limit he named himself as a pilot/head of the organization. While on the matter of the organization he was lost in a flying mishap. His widow asked for remuneration under the Workmen’s Compensation Act. At times, the court dismisses the status of an organization as a different lawful entity if the individuals from the organization attempt to exploit this status. The aims of the people behind the cover are totally uncovered. They are made to obligate for utilizing the organization as a vehicle for unfortunate purposes.
The King v. Portus Ex Parte Federated Clerk Union of Australia
In this case, Latham CJ while choosing whether or not workers of a company which was incorporated in the name of the Federal Government were not employed by the Federal Government decided that the company possesses a distinct identity from that of its shareholders. The shareholders are not at risk to banks for the obligations of the company. The shareholders don’t claim the property of the company.
“It is neither fundamental nor alluring to count the classes of situations where lifting the veil is admissible, since that must essentially rely upon the significant statutory or different arrangements, an outcome which is tried to be achieved, the poor conduct, the element of public interest, the impact on parties who may be affected by the decision, and so forth.”
This was reiterated in this particular case.
Circumstances under which the Corporate Veil can be Lifted
There are two circumstances under which the Corporate Veil can be lifted. They are:
This particular section characterizes the distinctive individual engaged in a wrongdoing or a conduct which is held to be wrong in practice, to be held at risk in regard to offenses as ‘official who is in default’. This section gives a rundown of officials who will be at risk to discipline or punishment under the articulation ‘official who is in default’ which includes within itself, an overseeing executive or an entire time chief.
Reduction of membership beneath statutory limit: This section lays down that if the individual count from an organization is found to be under seven on account of a public organization and under two on account of a private organization (given in Section 12) and the organization keeps on carrying on the business for over half a year, while the number is so diminished, each individual who knows this reality and is an individual from the organization is severally at risk for the obligations of the organization contracted during that time.
In this case, the respondent documented a suit against a private limited company and its directors because he had to recover his dues. The directors opposed the suit on the ground that at no time did the company carried on business with individual count which was to go below the statutory minimum and in this manner, the directors couldn’t be made severely at risk for the obligation being referred to. It was held that it was for the respondent being dominus litus, to choose the people himself who he wanted to sue.
Misdescription of name: Under sub-section (4) of this section, an official of an organization who signs any bill of trade, hundi, promissory note, check wherein the name of the organization isn’t referenced in the way that it should be according to statutory rules, such official can be held liable on the personal level to the holder of the bill of trade, hundi and so forth except if it is properly paid by the organization. Such case was seen on account of Hendon v. Adelman.
Power of inspector to explore affairs of another company in the same gathering : It gives that in the event that it is important for the completion of the task of an inspector instructed to research the affairs of the company for the supposed wrong-doing, or a strategy which is to defraud its individuals, he may examine into the affairs of another related company in a similar group.
Subject to the provision of Section 278, this section provides that no individual can be a director of in excess of 15 companies at any given moment. Section 279 furnishes for a discipline with fine which may reach out to Rs. 50,000 in regard of every one of those companies after the initial twenty.
This Section emphasises and offers weightage to the existing proposal of the Company Law Committee: “It is important to see that the general notice which a director is bound to provide for the company of his interest for a specific company or firm under the stipulation to sub-section (1) of Section 91 which is ought to be given at a gathering of the directors or find a way to verify that it is raised and read at the following gathering of the Board after it is given. The section not only applies to public companies but also applies to private companies. Inability to consent and act in consonance to the necessities of this Section will cause termination the Director and will likewise expose him to punishment under sub-section (4).
Section 307 & 308 of the Companies Act, 2013
Section 307 applies to each director and each regarded director. The register of the shareholders should contain in it, not just the name but also how much shareholding, the description of shareholding and the nature and extent of the right of the shareholder over the shares or debentures.
The object of this section is to restrict a director and anybody associated with him, holding any business which provides compensation if the company supports it.
Pretentious Conduct: If over the span of the winding up of the company, it gives the idea that any business of the company has been continued with goal to defraud the creditors of the company or some other individual or for any deceitful reason, the people who were intentionally aware of this and still agreed to the carrying on of the business, in the way previously mentioned, will be liable on a personal level without incurring the liabilities of the company, and will be liable in a manner as the court may direct.
In Popular Bank Ltd, it was held that Section 542 seems to leave the Court with attentiveness to make an assertion of risk, in connection to ‘all or any of the obligations or liabilities of the company’.
Judicial interpretations and pronouncements
Instances are not few in which the courts have resisted the temptation to break through the Corporate Veil. But the theory cannot be pushed to unnatural limits. Circumstances must occur which compel the court to identify a company with its members. A company cannot, for example, be convicted of conspiring with its sole director. Other than statutory arrangements for lifting the corporate veil, courts additionally do lift the corporate veil to see the genuine situation. A few situations where the courts lifted the veil are laid down below as per the following case laws:
In this leading case law, the U.S. Supreme Court held that where a company is solely set up to defeat the statutory norms, justify the wrongdoings of the people of the company who use this corporate entity as a vehicle for the wrongdoing, where defrauding isn’t a collateral purpose of the company but the main purpose, the law will not see the company as a separate legal entity but will see it as an association of the members that it is made up of.
Early examples where the English and Indian Courts neglected the guidelines built up by the landmark Salomon’s ruling are:
In a great deal of cases, it ends up being important to check the character of an organization, to check whether it is a companion or a foe of the country the business is set up in. A milestone managing in this field was spread out in Daimler Co Ltd v Continental Tire and Rubber Co Ltd. The facts of the case are referenced below:
An organization was set up in England and it was set up to sell tires which were thus made by a German organization in Germany. Most of the control in the British organization was held by the German organization. The holders of the rest of the shares with the exception of one, and every one of the chiefs were German, dwelling in Germany. In this way the genuine control of the English organization was in German hands. During the First World War, the English organization started an activity to recover an exchange obligation. What’s more, the inquiry was whether the organization had turned into an adversary organization and should, accordingly, be banned from keeping up the activity.
The House of Lords laid out that an organization consolidated in the United Kingdom is a lawful entity. It’s anything but a characteristic individual with brain or inner voice. It can nor be anyone’s companion nor foe yet it might accept a foe character when people in ‘true’ control of its issues are inhabitants in any adversary nation or, any place the occupants are, are acting under the control of the foes. Just in case the activity had been permitted, the organization would have been utilized as a means by which the motivation behind offering cash to the foe would be practiced.
That would be incredibly against open arrangement. But in case there was no such fear, the courts may decline to tear open the Corporate Veil.
People’s Pleasure Park Co v. Rohleder
In People’s Pleasure Park Co v Rohleder, certain terrains were moved by one individual to another interminably ordering the transferee from offering the said property to hued people. He moved the property to an organization made only out of Negroes.
An activity was started for dissolution of this movement on the ground that every one of the individuals from the organization being Negroes, the property had, in break of the confinement, go to the hands of the hued people. The court rejected the contention and held that the individuals exclusively or all in all are not the partnership, which “has a particular presence separate from that of its investors.
Dinshaw Maneckjee Petit, Re.
The court has the ability to slight and infer the corporate substance in case that it is utilized for tax avoidance purposes or to go around expense commitment. An unmistakable and appropriate description of this situation is given in Dinshaw Maneckjee Petit, Re. The assessee was an affluent man getting a charge out of tremendous profit and intrigue pay. He shaped four privately owned businesses and concurred with each to hold a square of speculation as an operator for it. Pay was credited in the records of the organization yet the organization gave back the sum to him as an imagined advance.
Further, he isolated his pay into four sections in an attempt to lessen his assessment obligation. It was held that the organization was shaped by the assessee absolutely and basically as a method for maintaining a strategic distance from super-charge and the organization was just the assessee himself. It did no business however was made essentially as a legitimate substance to apparently get the profits and interests and to hand them over to the assessee as imagined credits.
Government Companies
An organization may some time be viewed as an operator or trustee of its individuals or of another organization and may, accordingly, be esteemed to have lost its distinction for its head. In India, this inquiry has regularly emerged regarding Governmental organizations. Countless privately owned businesses for business purposes have been enrolled under the Companies Act with the president and a couple of different officials as the investors.
The undeniable preferred position of framing an administration organization is that it gives the exercises of the State “a tad bit of the opportunity which was appreciated by private partnerships and the legislature got away from the standards which hampered activity when it was finished by an administration division rather than an administration enterprise. At the end of the day, it gave the administration portion of the robes of the person”.
So as to guarantee this opportunity, the Supreme Court has repeated in various cases that an administration organization isn’t an office or an augmentation of the state. It’s anything but a specialist of the State. As need be, its representatives are not government workers and right writs can’t issue against it. In one of the cases, the court commented:
“The organization being a non-statutory body and one consolidated under the Companies Act there was neither a statutory nor an open obligation forced on it by a resolution in regard of which requirement could be looked for by methods for the writ of Mandamus”.
The Madhya Pradesh High Court regarded a Government company to be a separate entity for the purpose of enabling a Development Authority to subject it to development tax. The assets of a Government company were held to be not exempt from payment of non-agricultural assessment under an AP legislation. The exemption enjoyed by the Central Government property from State taxation was not allowed to be claimed by a Government company.
Gilford Motor Co v Horne.
The corporate entity is wholly incapable of being strained to an illegal or fraudulent purpose. The courts will refuse to uphold the separate existence of the company where the sole reason of it being formed is to defeat law or to avoid legal obligations. Some companies are just set up simply to defraud their customers or to act in a way which is against the statutory guidelines. This was clearly illustrated in the landmark ruling Gilford Motor Co v Horne. The case of the facts are laid out below:
The litigant was selected as an overseeing chief of the company of the plaintiff depending on the prerequisite condition that he will not, whenever he will hold the workplace of an organisation in which he will oversee the executive work subsequently, open a business similar to the one which he was presently leaving or give the clients of the previous. His work was resolved under an understanding that is mentioned above. In the blink of an eye thereafter he started a business in the name of his wife the role of which was exactly what he had been prohibited to do according to the aforementioned contract. The new business was definitely a competing business and it was soliciting the customers of its previous business which was clearly a provision that was going against what he had agreed to before he left the job in the previous company.It was held that the organization was clearly based on conflicting terms that the defendant had agreed upon.
The respondent organization was an insignificant channel utilized by Horne to empower him, for his very own advantage, to acquire the upside of the clients of the offended party organization, and that the litigant organization should be limited just as Horne.
Where an individual obtain cash from an organization and put it in offers of three distinct organizations in all of which he and his children were the main individuals, the loaning organization was allowed to join the advantages of such organizations as they were made uniquely to dupe the loaning organization.
In this case, the court would not propel the leading group of film censors to enlist a film as an English film, which was in truth created by a ground-breaking American film organization for the sake of an organization enrolled in England so as to dodge certain specialized troubles. The English organization was made with an apparent capital of just a mere 100 pounds, comprising of 100 shares of which 90 were held by the American president of the organization. The Court held that the real producer of the movie was the American organization and that it would be a sham to hold that the American organization and American president were simply operators of the English organization for delivering the film.
In this case, the merchant of a real estate property tried to dodge the particular execution of a contract for the clearance of the land by passing on the land to a company which he shaped for the reason and along these lines, he attempted to abstain from finishing the property deal of his home to the offended party. Russel J. depicting the company as a “devise and a hoax, a veil which he holds before his face and endeavors to stay away from acknowledgment by the eye of equity” and requested both the litigant and his company explicitly to fulfil the obligations of the contract to the offended party.
In this case, it was expressed that a company is likewise not permitted to file a case in the name of fundamental rights by calling itself a collection of individuals who possess the fundamental rights. When a company is framed, its business is the matter of an incorporated body therefore shaped and not of the people that it is composed of and the privileges of such body must be made a decision on that balance and can’t be made a decision on the supposition that they are the rights owing to the matter of the individual that are a part of the organisation.
In this case, the High Court of Delhi allowed to the offended party organization a stay order which restrained the company of the defendant from alienating the properties that they owned on the ground that the defendant had borrowed money fraudulently from the plaintiff companies and the defendant had purchased properties in the name of the defendant companies. The court in this case did not award protection under the piercing of the corporate veil.
Although the names of the petitioners of the case were not expressly mentioned, they were still held to be the parties to the proceedings. Also the managing directors couldn’t be said to be complete outsiders to the company petition although they in their individual limit might not be parties to such proceedings but in their official capacities, they are certainly capable of representing the company in such matters.
Approach of the Indian Courts in the 21st Century
Subhra Mukherjee v. Bharat Coking Coal Ltd.
In this situation, Hoax or façade is being talked about. A private coal company sold its real estate to the spouses of executives before nationalization of the company. Truth be told,archives were tweaked and back-dated to corroborate that the deal of the selling of the real estate to the wives of the directors was before nationalization of the company. Where such exchange is claimed to be a hoax and deceitful, the Court was supported in piercing the veil of incorporation to discover the genuine idea of the exchange as to realize who were the genuine parties to the deal and whether it was real and in good faith or whether it was between the married couples behind the façade of the different entity of the company.
This case is about a Subsidiary Holding Company. The court, to consider an objection of mistreatment held that the corporate veil can be lifted in the instances of not simply of a holding company, but also its subsidiary when both are belonging to the parent organisation.
The idea of a corporate entity was advanced and endorsed to empower the trade,commerce and business scene and not to cheat the general population. In case where the court finds out that the corporate entity was not properly made use of, was set up only for illegal purposes, the court has every right to pierce the Veil and therefore see who actually was behind the Veil using the company as a vehicle for undesirable purposes.
Defendant no. 1 was a private limited company. Defendant no. 2 and 3 were the directors of that company. Defendant no. 4 was the husband of Defendant-3 and the sibling of Defendant -2. On the basis of alleged representation of Defendant-4 that Defendant-1 company was welcoming momentary deposits at great interest rates, the offended party deposited a sum of Rs. 15 lakhs in the company for a time of six months. At the point when the company neglected to pay the sum, the offended party sued it for the said sum alongside interest. Defendant-2 and Defendant-3 denied their risk on the grounds that they couldn’t have been made personally liable under any circumstance as the sum was deposited in the name of the company and not in the name of the directors of the company.
D-4 denied the risk on the ground that it had nothing to do with him as he was neither a director of the company nor a shareholder of the company so he had absolutely no role whatsoever in the case. It was held that Defendant-3 being a housewife had little task to carry out and hence couldn’t be made at risk. The offended party was looked to be put under the cloak of a corporate entity of Defendant-1 and, in this way, the corporate veil was lifted contemplating that Defendant-1 was just a family setting of the rest of the defendants. Defendant-2 was maintaining the business for the sake of the company. So Defendant-1 and Defendant-2 were both liable on a personal level.
This is an instance of ‘default in payment of the provident fund of the employee’’- Certain sum was expected and payable to the provident fund office by the sister concern of the company of the plaintiff, a demand was made by the defendant from the company of the petitioner on the ground that both the companies had two directors in common. It was held that the dispute raised by the respondent that the Court should lift the corporate veil and affix the obligation on the applicant was with no benefits and was unjustifiable. Both the companies were distinct legal entities under the provisions of the Companies Act and there was no arrangement under the Provident Fund Act that a risk of one organization can be secured on the other organization even by lifting the corporate veil, which is why this exercise would have been considered futile.
Richter Holdings Ltd., a Cypriot company and West Globe Limited, a Mauritian company bought all shares of Finsider International Co. Ltd. (FICL), a U.K. company from Early Guard Ltd. another U.K. company. FICL held 51% shares of Sesa Goa Ltd. (SGL), an Indian company. The Tax Department issued a show cause notice to Petitioner claiming that the Petitioner had by implication obtained 51% in Sesa Goa Ltd and was, subsequently, obligated to deduct tax at source before making installment to Early Guard Limited.
The Income Tax Department battled that according to Section 195 of the Act, the Petitioner is at risk to deduct tax at source in regard of installment made for the buy of the capital resource. The High Court of Karnataka held that the Petitioner should answer to the show-cause notice issued by the Tax department and urge every one of their disputes before it. The High Court additionally stressed that the reality of finding authority (Tax Department) may lift the corporate veil to investigate the genuine idea of the exchange to find out the fundamental actualities.
The angle that merits more noteworthy consideration is that the Karnataka High Court shows a distinct fascination for lifting the corporate veil. This has various ramifications. Initially, the Richter Holding Case broadens significantly further the extent of the standards laid out in the Vodafone Case. For instance, in the Vodafone case, the Bombay High Court did not consider lifting the corporate veil to force taxation if there should arise an occurrence of transfers made by indirect measures.
Secondly, it isn’t obvious from the judgment itself whether the tax experts propelled the contention with respect to lifting the corporate veil. For the most part, courts concede to the sacredness of the corporate structure as a different legitimate personality and are moderate to lift the corporate veil, as proven by Adams v. Cape Industries , except if one of the built-up grounds exist.
Balwant Rai Saluja v. Air India Ltd. (2014)
A three-judge Supreme Court bench recently addressed a number of significant issues regarding whether, if ever, it is permissible to lift the corporate veil in its decision in Balwant Rai Saluja v. Air India Ltd. (2014). It is significant to take into account Lord Sumption’s recent ruling in the UK case of Prest v. Petrodel Resources Ltd. (2013) in this context. The Indian Supreme Court’s acknowledgement that the corporate veil should rarely be lifted is commendable, even though it does not support exactly the same standards as did Lord Sumption.
The Supreme Court properly notes that the six criteria outlined by Munby J. inBen Hashem v. Ali Shayif (2008)have come to dominate the law on the issue, which was also approved by Lord Sumption in the Prest case. This is good news because it indicates that the Supreme Court is indirectly challenging the far broader justifications for lifting the veil in the past.
Using the “piercing the veil” doctrine, a court may overlook a company’s distinct legal identity and hold those who have actual control over it accountable. However, this principle has been and should be used sparingly, that is, only in situations where it is obvious that the firm was merely a camouflage or sham that the people in control of the said corporation purposefully formed in order to avoid liability.
The veil must be lifted sparingly by the courts, and the current facts would not be a suitable instance in which to do so. Therefore, only having ownership or control is insufficient to lift the veil of incorporation. It must be proven that Air India’s interference and improper behaviour deprived the appellants-workers in this case of their legal rights.
Whether arbitral tribunals have the power to lift the corporate veil
The issue of the arbitrator’s authority to lift the corporate veil has been addressed in a number of cases during the past few years by the Supreme Court, the High Courts of Bombay and Delhi, and other courts. In the absence of a ruling by the full or constitutional bench of the Supreme Court, the case law has been contradictory in how it has addressed the issue.
According to chronological order, the case of Indowind Energy Ltd. v. Wescare (I) Ltd. (2010) was the first to have briefly addressed the issue. The Court, in this case, recognised that Indowind, which was not a party to the arbitration agreement but was being forced to arbitrate by Wescare, did not act in a way that indicated its assent to engaging in the arbitration. The existence of a legitimate arbitration agreement between Subuthi and Wescare was not regarded as important. In this instance, the Court observed that the requirements for lifting the corporate veil had not been satisfied. It was emphasised that non-signatories could not be bound by an arbitration agreement, despite the fact that the ability of an arbitrator to lift the corporate veil was not addressed.
The judgement inPurple Medical Solutions (P) Ltd. v. MIV Therapeutics Inc. (2015) was the next case to explore how lifting the corporate veil intersects with the Company Act and the Arbitration Act. Neither one of the two respondents in the current case was a signatory to the arbitration agreement with the petitioner, but the petitioner nonetheless requested the appointment of an arbitrator on their behalf. The second respondent sought to be charged due to the fact that the first respondent simply served as the second’s corporate guise and carried out all transactions on the second’s behalf. The second respondent’s corporate veil was lifted by a single Supreme Court judge, who also chose an arbitrator on its behalf. It’s crucial to remember that the court lifted the corporate veil in this case and then appointed the arbitrator after doing the same. While this case clarifies the law about whether a court can remove the corporation’s veil during an arbitration procedure, it says nothing about an arbitrator’s ability to do the same.
By far, the most significant case addressing the issue at hand is Sudhir Gopi v. Indira Gandhi National Open University (2017), and it merits a more thorough study. The judgement begins by stating that an arbitral tribunal is a creation of consent and that the parties’ agreement limits its jurisdiction. This restricted jurisdiction does not give it the authority to arbitrate on behalf of someone who hasn’t given their consent. With this limited justification, the Court came to the conclusion that the arbitral tribunal lacked the authority to lift the corporate veil. According to the ruling, the court may bind non-signatories to an agreement under specific conditions. It references the Chloro Controls ruling as it cites the two scenarios, implied consent and contempt for corporate personality, that were previously explored. This is done with the goal of highlighting the fact that courts have the authority to bind non-signatories when certain requirements are met. The case cites ONGC v. Jindal Drilling & Industries Ltd. (2015) as support for the finding that the arbitral tribunal’s authority is limited and that only a court, not an arbitral tribunal, has the authority to lift the corporate veil. Other cases include Great Pacific Navigation (Holdings) Corp. Ltd. v. M.V. Tongli Yantai (2011)and Balmer Lawrie v. Balmer Lawrie Workers’ Union (1985). The Court then went on to draw comparisons between the facts of this case and several other cases on related issues before restating that the Arbitral Tribunal would not have the authority to lift the corporate veil.
A different Delhi High Court single-judge bench, however, reached a different conclusion and upheld the Sudhir Gopi decision as per incuriam. The High Court upheld relief in GMR Energy Ltd. v. Doosan Power Systems India (P) Ltd. (2017) by rejecting the argument that the Arbitral Tribunal has the authority to lift the corporate veil. It took note of the types of conflicts that were determined to be unresolvable by arbitration in A. Ayyasamy v. A. Paramasivam (2016) and pointed out that uncovering the corporate veil did not fit under any of the listed categories. The Court concluded its observation on this specific matter by noting that the Arbitral Tribunal and the court can both decide on the matter of alter ego.
In a recent judgement by the Delhi High Court, Delhi Airport Metro Express Private Limited v. Delhi Metro Rail Corporation Ltd. (2021), the Delhi Metro Rail Corporation’s corporate veil was recently broken or lifted by the Hon’ble High Court in an intriguing ruling. The Union Ministry of Housing and Urban Affairs and the Government of the National Capital Territory of Delhi (Union Government and GNCTD, respectively) were found to be the two major shareholders in DMRC, and the Court determined that they are each responsible for paying off DMRC’s debt as a result of an arbitral award that was made against it. The DMRC needed to be able to discharge its liabilities that had developed after it received an arbitral decision, so the Hon’ble High Court of Delhi was petitioned to weigh in on whether the corporate veil-piercing theory needed to be used. The Hon’ble High Court of Delhi also decided whether relief might be requested in an execution procedure against a party who wasn’t a party to the original award or decree. The High Court then gave its opinion on the relevant situation, defending the necessity of applying the corporate veil principle in the absence of any allegations of deception, façade, or evasion of taxes or any other duties. According to the Court, the notion of piercing the corporate veil was not only appropriate in the aforementioned situations but could also be used when equity and the ends of justice were called for.
However, in the absence of a ruling by a full or constitutional bench of the Supreme Court, the legal position of the proposition is still up for debate. It is essential that the government take the initiative and publish guidelines or rules that make it clear that arbitrators have the required authority to decide on matters of company law.
Conclusion
It ought to be noticed that the rule of Salomon v. A. Salomon and Co. Ltd. is as yet the standard and the occasions of piercing the veil are the exemptions to this standard. The rule that a company has it’s very own different legitimate character of its own finds a significant spot in the Constitution of India too. Article 21 of the Constitution of India, says that: No individual will be denied of his life and individual freedom with the exception of as per the procedure set up by law.
Under Article 21 a company likewise has the option to live and individual freedom as an individual. This was set down on account of Chiranjitlal Chaudhary v. Association of India where the Supreme Court held that fundamental rights ensured by the constitution are accessible not simply to singular natives but rather to corporate bodies also.
Along these lines, an organization can possess and sell properties, sue or be sued, or carry out a criminal offense in light of the fact that the partnership is comprised of and kept running by individuals, going about as operators of the company. It is under the ‘seal of the company’ that the individuals or shareholders submit misrepresentation.
It is conspicuously clear that incorporation of the company does not cut off personal liability at all times and in all circumstances. The sanctity of a separate corporate entity is upheld only in so far as the entity is consonant with the underlying policies which give it life.
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Commercial development is the most emerging field in the area of real estate development and in order to bring clarity to the stakeholders the government has brought this development work under the purview of RERA (Real Estate Regulatory Authority). RERA came into operation as per the Real Estate (Regulation and Development) Act 2016, the intention of which was to safeguard the interest of home purchasers and to some extent the developers/builder and in addition to boosting investment in the real estate sector thereby helping in the development of the nation. Alongside the general idea of commercial development, it is ideal to note the duties that are vested on commercial landlords which is why this article has been written and is advisable to be read.
All you need to know about commercial landlords
The definition of ‘promoter’ as been provided under Section 2 (zk) of the Real Estate (Regulation and Development) Act, 2016 (RERA), is wide and covers all types of promoters including, developer, builders, PA holders, colonisers, contractors, land owner, said to be involved in a real estate project. It is necessary to note that the term landlord signifies any individual who being under a contractual relationship is receiving or is eligible to receive, a rental fee in respect of any of his properties that has been let by him for either residential or commercial use, either for himself or on behalf of someone else, who would thereafter be receiving the rent if the premise was to be leased. Some of the common questions that arise in relation to commercial landlords therefore are explained hereunder.
Is a landowner considered to be a promoter
The answer is in affirmative since the word “causes to be constructed “in the definition of the ‘promoter’ considers the landowner within its definition. The landowner is the person involved in project construction, who may give his rights to a developer through granting development rights, GPA etc. Hence land owners and builders are jointly accountable to the allottees in the overall project development.
Does RERA compel landowners to disclose their information in their application for issuance of a RERA registration
The answer is affirmative. In the application for registration, applicants must provide information about the landowners of the real estate project and their respective interests in the project, and the landowners must submit an affidavit (Joint Affidavit – JD).) for joint development of project work. For example, the RERA of the state of Karnataka has approved the inclusion and acceptance of all landowners in the registration application through circulars and other notifications (RERA of the State of Karnataka – Cr.No/KT RERA/3/2019 on 31 October 2019).
Important criteria under the RERA for landowners and developers in joint development agreements
The RERA Act, 2016 does not differentiate between lessors and developers and therefore, the following must be taken note of:
Landlords and developers have the same responsibilities and obligations with respect to the appropriation of design work.
The roles and responsibilities between landlord and developer are defined in the contract they enter in. Therefore, when drafting a project, be sure to include all relevant items, namely, RERA registration, updated status quarterly audit, annual audit compliance status, responsible for advertising and other compliance.
Drawing of funds from the RERA-approved bank account (scheduled Bank) and proportionate allocation of funds so withdrawn in between developer and landowner based on percentage completion of the project, is a requirement.
General duties of landlords that must be abided by
It is a general saying that the landlord must grant the tenant possession of the property following the execution of the agreement they had entered into. This vested duty of the landlord is said to be violated when a third party has principal title to the property at the time the tenant is seeking entitlement of his possession in the landowner’s property and if the title is asserted, the tenant will be deprived of his right to possessing the said property. The general duties of the landlords have been stated hereunder:
It is the duty of the landlord to make the required repairs to the leased property such as maintenance of hot water systems, sinks, baths and other sanitary ware so as to avoid the tenant from facing additional issues in relation to the same.
It is the necessary duty of the landlord to periodically keep in check the safe application of gas and electrical appliances which otherwise has a risk of failure and causing danger.
The duty of the landlord towards the fire safety of furniture that is provided under the tenancy agreement is inevitable.
It is the duty of the landlord to make sure that the leased property is fit for habitation.
It is also the duty of the landlord to carry out repairs in the rented premise whenever required.
It is necessary to note that owners of commercial property who lease their premises or spaces to tenants are often made to undergo anxieties about circumstances in which the renters can claim ownership of the concerned property. Before we delve more into the same, it is noteworthy to mention that legally and on paper, whenever a commercial property is leased, a tenant is always viewed as a tenant without any legal provisions that make room for him to claim property ownership. To ensure the application of the same it is the duty of the commercial landlords to follow the following:
Commercial landlords’ must mandatorily ensure that the lease agreements entered into must be registered and stamped along with proper durations inclusive in it.
Every lease agreement entered by commercial landlords must have clauses for renewal along with the entire chain of renewals, and
Commercial lease agreements must have a clause for vacating the premises upon expiry as well.
If the documents appear to be legally sound, there lies no fear for commercial landlords in terms of leasing.
Laws governing tenants in commercial properties
Back in 2008, a bench of Justices B N Agrawal and G S Singhvi of the Supreme Court of India, while deciding on the case of Satyawati Sharma (Dead) By Lrs vs Union Of India & Another had ruled that tenants in commercial properties have legal obligation to vacate the same if and when directed by landowners. While deciding on Section 14 (1) (e) of the Delhi Rent Control Act of 1958, the bench had opined that the same stands in violation of Article 14 of the Indian Constitution, thereby mentioning that there shall be no discrimination between commercial and residential properties. Therefore, landlords can easily evict tenants if they require the premises for their self-occupation. As per the decision, there existed no distinction between commercial and residential properties in New Delhi till 1947, therefore the 1995 Act also did not differentiate between these two categories in case of eviction of tenants.
It is clear from this decision that there lies no legal provisions where tenants can become legal owners of commercial properties. What the landlord in return should ensure in commercial cases is a written and registered agreement, paying stamp duty and renewing the same upon expiry, for the purpose of commercial leasing. A commercial landlord must never let a tenant occupy commercial space without a legal contract. Further, it is the duty of commercial landlords to keep records of payment of rent, utility bills and maintenance charges in order to prove that the tenant is not the owner of the leased space, in cases of contingent dispute.
Conclusion
As we come to the end of this article, it is ideal to state that the worries surrounding commercial landlords can be erased if due care on the part of the landlord is taken. In order to avoid hefty amounts to be paid as fine in the future, spending of a few thousand rupees on the maintenance of records of the premise is a necessity and therefore should be done by all commercial landowners.
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.
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This article has been written by Rishbha Rishu, 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.
Table of Contents
Introduction
The term ‘evidence’ has been derived from the Latin word, ‘Evident’ or ‘Evidere’, which means to show clearly, to discover, to ascertain or to prove. The Indian Evidence Act,1872 deals with circumstantial facts, figures, data, communication, etc which are used to be placed in court before the judge so that justice can be delivered effectively. Planted evidence is the type of evidence that has been changed, or established at a scene, to make it appear as related to the accused party. For example, samples of blood or saliva can be planted at crime scenes, leading to the innocent being wrongly convicted and the guilty to be acquitted. Ideally, planted evidence is not admissible in many courts. There are many such aspects that are related to this type of evidence which we can know by means of this article.
Planted evidence
According to Prof. Melissa Hilpert, “planted evidence is an item or information which has been moved, or planted at a scene, to seem related to the accused party, is not admissible in many courts, including U.S. criminal courts.” Planting evidence is considered to be a serious offence which includes a criminal sentence of 6 months in Los Angeles and $1,000 as fine. There are many factors which act as the root cause of planted evidence. Some of these are:
a. Misidentification by eye witness
b. Jealousy / grudge etc.
c. Police misconduct
d. False confession- under threat/ violence/ pressure/ kidnapping etc.
e. Poor defence lawyer
f. Prosecutor misconduct
g. Political factors
h. Misrepresentation /fraudulent forensic report
i. Economic condition
j. Drunkenness
According to a survey, planted evidence cases are now increasing on a daily basis as in the United States, around 75% of DNA exoneration cases are the consequence of such evidence. This has led to distrust towards law and order in society, decline of humanity alongside decline of trust and faith. In India, planted evidence cases have been increasing day by day. Another survey has revealed that in 30% of cases, the conviction of an individual has been decided on the grounds that they are either socially of a lower status or not economically sound or orphan, disabled, etc, so that the convicted individual takes the false blame out of fear of living. A typical example of prejudicing personal liberty by means of planted evidence is a case in the United States, where it was the misconduct of the police official that resulted in the death of two teenagers. The police official was involved in planting evidence of drugs and weapons, thereby killing the teenagers by shooting them down. The prosecutor was successful in defending the teenagers, thereby availing justice for their death, as the court of law was ignorant of the planted evidence. But, whether misrepresentation and fraudulent forensic reports can make room for attaining justice in a deceitful manner, remains open.
When do people plant evidence
It is necessary to note that a criminal may plant evidence on you in either of the mentioned cases:
If you happened to be at the place of crime.
If they are well-versed with the fact that even after they wrongly frame you, they can easily get away with the same.
They may even presume the fact that you are willing to take the fall of their wrongdoings.
It is necessary for you to fight back quickly, as people generally plant evidence right after they have committed the offence to get rid of the same. For example, if an individual has stolen a property they might try to hide the same at your place, if abiding by the afore-mentioned grounds, thus blaming you for the same. Things may also be in such a way that they ask for keeping something on your premises without letting you know the source, thereby making you fall in trouble subsequently. It is essential for you to not allow such advantages to be taken and if suspicion arises, the same should be reported by you.
How can an attorney help you if the police file charges against you
Put simply, if the investigating officer comes across any evidence that is in relation to you from your premises or belongings, you will be charged for the offence he is investigating. It is always advisable to attend questions of police officials with the aid of the attorney, as manipulation will then have a lesser influence on you. Miscommunication and excess of communication to the police officials can turn things soar for you as the primary goal of the officials is to complete the investigation of the case. It is the role of a criminal defence attorney to prevent the police officer from resting the burden of the crime on you without even being associated with it. They also ensure to guide you in answering questions presented by authorities without letting you get incriminated. This guidance can extend to preparing a statement for both the prosecution and the investigators.
What if an individual convicted of planted evidence have to go through trial
If you have to undergo a trial with regard to a crime you have not committed but have been accused of, the need for a criminal defence attorney stands indispensable. It is always advisable to not confuse a defence attorney with a public defender, for while the role of the former is clear to us, the latter generally fail to provide individual cases to each case approaching him owing to overburden. The general purpose as to why you need an attorney is because your fundamental rights need to be protected even during the trial. Further, the attorney helps you face questions that are directed more towards you in cases of planted evidence, by the prosecution. Hence, the need for presenting a strong defence to prove your innocence in a planted evidence case requires an attorney.
Judicial insight of planted evidence
As we have known the basics of planted evidence, it is now required to know about the judiciary’s take on planted evidence, both domestically and internationally.
Dhapu Devi v. State of Rajasthan (2013)
In this case a false and fabricated report was submitted before the Rajasthan High Court, which was re-analysed by the prosecutor and original forensic report was obtained by detail analysing by the authorities involved. Thus, recognition of planted evidence, impliedly, was denied by the court of law thereby safeguarding the personal liberty of the accused.
Bhima-Koregaon prosecution case (2022)
The Bhima-Koregaon violence dates back to January 2018 and since then it has been over 45-months that the investigation remains ongoing. It is ideal to note that independent forensic experts involved in this case, have raised concerns over evidence being planted in the present case and interestingly, the same has not been taken into account by the courts of law in India. This is why the case requires a mention under our discussed head. It is ideal to note that the stringent criminal process that India remains home to, clearly restricts the right of the accused individuals to present new material before the court of law. This ipso facto remains one of the prime grounds that makes room for planted evidence to deny justice to the falsely framed accuse.
In India, cognizance is the least stern test, which is followed by summoning, charge, and it is only after charge, a trial is said to begin. It is in trial where a case needs to be proved beyond reasonable doubt. At cognizance and summoning, the opportunity to be heard is not given to the accused. A lot of evidence that is related to this ongoing case is digital, and therefore the scope for fabrication is always at an accelerating rate. It has been claimed by the accused as well that malicious software has played a role in fabrication of evidence, thereby planting them against the accused.
Lynette White murder case (1988)
Lynette White was murdered in 1988 and three men were convicted wrongly on the basis of planted evidence. After 2002, with the help of advanced science, DNA test was reconducted and the uncle of the youth whose DNA was matched earlier had confessed of his crime of planting evidence earlier thereby making himself subject to life imprisonment in 2003.
Conclusion
As we come to the end of this article, we can say that planted evidence has disrupted the justice delivery system in society. It is difficult to trust the police officers or prosecutors along with near and dear ones who can backfire us. The accused should try to appoint a lawyer who is professionally qualified and has not been involved in misconduct, only then can justice can be provided to the plant convict.
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Under Section 10 of the Indian Contract Act, 1872, one of the essentials of a valid contract is ‘lawful consideration’. Now, someone can have a confusion about what actually constitutes a consideration?
Section 2(d) of the Act of 1872 talks about ‘consideration’ as follows:- “When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise”.
In simple words, the term ‘consideration’ can be understood as ‘a favour granted in return for something’. In legal terminology, consideration is termed as ‘Quid-Pro-Quo’ which means when two parties exchange something with each other in order to form a valid contract.
Let’s take an example. Rohan offers his house to Rohit for 20 Lakhs rupees and Rohit accepts his offer & agrees to pay Rohan an amount of Rs 20 Lakhs. So, in this agreement between Rohan & Rohit, the consideration for Rohit is that house and for Rohan, the consideration is Rs 20 Lakhs. But what if a stranger to a contract moves consideration on behalf of a party to a contract? Will that consideration be considered valid? Today I am going to discuss a very landmark case in which the same question was raised: Whether a consideration could be moved from/furnished by a third person on behalf of a party to a contract? The rule of consideration under the law of contract was emphasised by the Madras High Court in the landmark judgement of Chinnaya vs. Ramayya (1876). This article aims to discuss the same in detail.
Privity of consideration under the Indian Contract Act, 1872
The case of Chinnaya vs. Ramayya (1876) deals with the concept of privity of consideration, an idea about which is necessary to gather prior to detailed analysis of the case in hand. It is necessary to understand that under the contract law, privity of contract is a necessity. The concept can be understood as an elementary principle of English law that signifies the application of rights and duties of the parties to a contract, to themselves only. This is also a concept that serves as the distinction between the law of contract and the law of property. In contrast to the concept of privity of contract, stands the concept of privity of consideration, which is not a requirement for a valid contract.
The definition of consideration that has been provided, under Section 2(d) of the Indian Contract Act, 1872, makes room for consideration in a contract to flow from a third party. It states that “when, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise”. In simpler terms, in order for a contract to be in existence, the necessity that the consideration for the contract must arise from the parties to such a contract, does not arise. It was the Delhi High Court that had observed in the case of Paam Antibiotics Ltd. v. Sudesh Madhok (2011) that in India, while privity of contract stands mandatory for creating a legal relationship, necessity of privity of consideration is a choice as consideration may flow to a contracting party from any third party, provided the same is done at the instance of the other contracting party.
Facts of the case
There was an old lady who had some property in her name. In her final days, she decided to transfer her whole property to her daughter Venkata Ramayya Garu (respondent in the case) by means of ‘Gift Deed’ on the condition that Ramayya would pay an amount of Rs 653 every year to that old lady’s sister VenkataChinnaya Rau (appellant in the case). The old lady called her daughter to her house and told her daughter about her last wish. The daughter (Ramayya) accepted that condition and agreed to pay her aunt (Chinnaya) the said annuity amount. Ramayya & Chinnaya entered into a formal contract. But after the death of that old lady & getting the possession of her property, her daughter (Ramayya) refused to pay her aunt Chinnaya the said annuity amount. Chinnaya thereafter approached the Court to get that contract enforced.
Issues raised in the case
Whether a stranger to consideration in a contract can sue and recover a subsequent amount?
Arguments submitted by the parties
In the Court, Ramayya (respondent) contended that she is not liable to pay any annuity amount to her aunt Chinnaya (appellant) even if there is a contract between them because she (respondent) didn’t get anything as consideration from her aunt (appellant) and according to Section 10 of the Indian Contract Act, 1872, there must be valid consideration in a contract.
The appellant, then, contended that her sister (the old lady) gifted her whole property as consideration to the respondent. After that, the respondent submitted the argument that the gifted property cannot be considered as a valid consideration because that gifted property was not the appellant’s property and the appellant was totally stranger to that gifted property. Therefore, the contract between both of them (the appellant & the respondent) was not valid at all because there was no valid consideration from the appellant.
Judgement in the case
In this case, it was decided by the Court that for a consideration to be valid one, it doesn’t necessarily need to come from a party to the contract. By citing the words ‘promisee or any other person’ as given under Section 2(d) of the Indian Contract Act, 1872, Innes J. held that a third party can move the consideration on behalf of a person who is totally strange to that consideration. Therefore, the appellant who is totally strange to that gifted property and the same was not gifted by her to the respondent, even then it would be considered as a valid consideration because that property was gifted as consideration by that old lady (third person) on behalf of her sister Chinnaya (appellant).
Kindersley J. also with the same opinion held that the gifted property & respondent’s promise to pay the annuity of Rs 653 can be treated as elements of the equitable agreement. Hence, the promise made by the respondent to pay Rs 653 as annuity to the appellant & later after the death of the old lady, the refusal to pay the same would be considered as breach of contract & this gives appellant a legal right to file a case against the respondent & sue her in order to recover the promised sum.
Therefore, the contract between Chinnaya (appellant) & Ramayya (respondent) was held valid & enforceable and the respondent was directed to pay the annuity amount to the appellant. So, the two rules, which were taken into account by the Hon’ble Court while deciding the matter, are:-
Strangers to a contract cannot file a case or sue.
But a stranger to consideration can file a suit if she/he is a beneficiary in a contract and can also recover the subsequent amount.
Conclusion
In this case, the importance of the ‘privity of consideration’ was explained under the provisions of Indian Contract Act, 1872. The meaning of valid consideration was interpreted under the ambit of Section 2(d) of the Indian Contract Act, 1872, according to which a consideration will always be valid even if it is furnished by a third party/stranger to the contract on behalf of a person who is actually a party to that contract. So, as per Indian Contract Act, 1872, a stranger to consideration can sue and recover a subsequent amount. This case also shows progressiveness & non-conventional approach of the Indian law to deal with the matters involving strangers to consideration.
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This article has been written by Siddiqua Abdullah, pursuing a Paralegal Associate Diploma and has been edited by Oishika Banerji (Team Lawsikho).
It has been publishedby Rachit Garg.
Table of Contents
Introduction
The doctrine of locus standi is an old doctrine. The doctrine signifies appearance before the court or before anybody on a given question. According to the doctrine of locus standi, a person who is stranger to a disputed matter cannot be allowed to interfere in the judicial proceedings. Only a person whose legal right has been violated, that is the aggrieved person against whom a decision has been pronounced, is allowed to bring an action in the court. The Latin word locus (plural loci) signifies “place.” “Locus standi” is a Latin phrase for “place to stand” and thereby refers to a vested legal right to file a lawsuit so as to provide a party with the ability to show the court of law that the law or action that has been challenged, has a considerable relation to the party and the resultant damages justify the party’s involvement in the case. It is the Supreme Court of the United States who has rightly confirmed that the essence of the discussed doctrine lies in the question as to whether the litigant has the entitlement to have the court determine the merits of the case or only specific issues associated with it. This article provides an idea to the author about the principle of locus standi thereby ideally referring to certain precedents that amplify the discussed concept.
Essential ingredients of locus standi
The essential ingredients that have been laid down under Order 7 Rule 11 of the Civil Procedure Code, 1908 have been laid down hereunder:
Presence of injury
It is necessary to note that the fundamental requirement for instituting a suit involves that person suffering from some kind of an injury. This injury can be the consequence of the act done by private parties or the state act. It is noteworthy to mention that the injury we are talking about can be either actual or anticipatory by its nature.
In the case of Shanti Kumar vs Home Insurance Co (1975), the Supreme Court of India had observed that the term “aggrieved person” does not mean a person who hassuffered any imaginary injury but it means that the rights of the person have been violated adversely in reality. It means the injury must be physical, mental, monetary, etc and not mere an imagination.
Traditionally the rigid view of locus standi was followed and according to which only the person who had any direct interest in the matter could bring an action in the court. But in the 20th century, there emerged a parallel viewpoint of the locus standi that is the relaxation of locus standi.
Causation
Put simply, the term ‘causation’ signifies the cause and effect relationship. It means that there shall be a presence of sufficient relationship between the act of one party in relation to the injury that is undergone by an aggrieved party. The purpose behind this ingredient is to ensure that the resultant injury can be traced back to the action that has caused it, belonging to the defendant. The ingredient also ensures that the injury is not caused by any independent or third party for then the causal relationship will be difficult to establish.
Exceptions to the principle of locus standi
Locus standi in relation to Public Interest Litigation (PIL)
The scenario in cases of PIL in regards to locus standi appears less complex in comparison to situations involving private litigation. Courts have contributed in bringing about a simpler, more flexible and wider rule for governing the aspect of locus standi in cases of PIL. The locus standi in cases of PIL is based on public welfare thereby abiding by the fundamental principles of the Constitution, to advance the cause of the community, disadvantaged groups and individuals, or the public interest.
In the case of S.P Gupta vs Union of India (1982), the Supreme Court observed that in India a large number of persons are exploited and ignorant of their legal rights. These weaker sections of the country are not in a position to approach the court for judicial remedy. So in order to provide justice to these people, the principle of locus standi should be relaxed. It further held that whenever the legal rights of a person or class of persons is violated and by any reason they cannot approach the court, then any public spirited person can file a petition on behalf of them under Articles 226 and 32 of the Indian Constitution in high court and Supreme Court respectively.
In this case, the Supreme Court held that advocates and judges are an important part of the judicial system. And as the law minister’s letter violated an essential feature of the Indian Constitution, the advocates had interest in the matter and thus, they also had locus standi as well. It also means that every Indian citizen has the right to challenge the constitutional validity of the laws passed by the Parliament as the Indian Constitution belongs to all its citizens ( this is mentioned in the Preamble of the Indian Constitution).
It was in the case of Akhil Bhartiya Soshit Karmachari Sangh vs. Union of India(1980), where the Apex Court had ruled that although the Akhil Bhartiya Soshit Karmachari Sangh (Railway) was an unregistered association, it was eligible to file a writ-petition under Article 226 of the Indian Constitution, in order to get redressal of a popular grievance. The Court had further held that constitutional jurisprudence provides access to justice by means of class actions, public interest litigation, and representative proceedings.
Legislations constitutionality
It is ideal to note that the principle of locus standi is often seen to be relaxed when it comes to the constitutionality of legislation being in issue. In Indian context, statutory legality can be challenged before the court of law without affecting the functionality of the same.
In the case of Charan Lal Sahu & Anr. v. Giyani Zail Singh (1984), the question regarding challenging the election of the President and the Vice President in accordance with the Presidential and Vice Presidential Act, 1952, was raised. It concerned the election of President in 1982 for which 36 nominations were filed including that of the petitioner, Charan Lal Sahu. As the documentation of 34 candidates was not proper, the Returning Officer rejected their nomination. The two candidates who were not rejected were Zail Singh and H.R Khanna ( retired Justice of the Supreme Court).
On 12th July 1982, Zail Singh became the President of India. As Charan Lal’s nomination was canceled and thus he couldn’t contest for the election. After the election was over, he challenged the election on the ground that Zail Singh had exercised undue influence over the voters. Sahu also alleged that H.R Khanna was not competent as he gave wrong decisions on fundamental rights cases. The Attorney General represented the President of India and challenged the locus standi of Charan Lal. According to Section 14A of the Presidential and Vice Presidential Act, 1952 the election of President and Vice President can be only challenged by the candidates of the election. And Section 13(1) of the Act says that a candidate is the one who has been nominated as a candidate in an election. So the Hon’ble Supreme Court held that since the petitioner was not nominated as a candidate in the Presidential election, he had no locus standi and hence his petition was dismissed.
Remedies laid down by existing statutes in force
There may be statutes which expressly relaxes the rigid requirement of locus standi. One can recognise such relaxation by usage of phrases such as “person aggrieved” or “aggrieved person”. However, the final decision is made by the court of law approaching the dispute appearing before it. The phrase ‘person aggrieved’ showcases a divergent scope and it not only includes the person who actually suffered the loss but those who have an apprehension towards future loss. The case of Sunil Batra vs Delhi Administration(1980) needs a reference in this case.
In this case, Sunil Batra was a prisoner in the Tihar jail. He wrote a letter to a Supreme Court judge, in which he mentioned that the jail warden was brutally assaulting another prisoner i.e, Prem Chand, who was sentenced with life imprisonment. The warden assaulted Prem so that he could extract money from his relatives. One day Prem Chand got severely injured as the warden hit him with an iron rod. Thus, Chand was treated by the prison’s doctor but when his condition deteriorated then he was shifted to hospital. So, in this case the question arose whether a letter could be treated as a writ petition or not. Thus, the Supreme Court widened the ambit of the writ of habeas corpus which included all kinds of ill practices that were being practiced in the jail. And hence the letter was converted into a writ petition. After this case the following reforms were made:
Provisions were made so that the prisoners could be aware of their legal rights.
Provision was made regarding lodging of prisoners’ complaints. A register should be kept at every jail so that the prisoners can lodge their complaints.
Confidential interviews of prisoners with advocates appointed by the court were arranged.
Session Judges were also required to visit jails periodically in order to enquire from the prisoners, so that whenever it is necessary they can take actions against it.
Conclusion
Over all these years, the principle of locus standi has evolved to a great extent. The traditional concept that only aggrieved persons can bring suit in court led to the deprivation of justice by many. So now the rigid view has been relaxed so that even people of weaker sections can get justice. It means any person who is acting in good faith can bring a suit in the court of law. This relaxation in the principle of locus standi is the result of judicial activism. As the main objective our judicial system is to maintain justice in the society and because of this reason Public Interest Litigation came into existence in India in the 1970s and locus standi is an integral part of Public Interest Litigation. The relaxation of locus standi has promoted the public interest litigation and this has led to a revolution in the administration of justice. But due to this relaxation, principle of locus standi is abused which leads to accumulation of frivolous cases in the court. So, the courts must be cautious while admitting a case so that there is no misuse of the principle of locus standi.
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