Academia and plagiarism have a relationship that goes back a long way. The progress of humanity is driven by the people who are always looking ahead and trying to find out new things and improve the older ones. These are the researchers that discovered so many of the things that we use commonly nowadays.
Unfortunately, for every honest man, there is a dishonest man too. People committed acts of academic dishonesty where they would steal the works of other people and portray them as their own. In the olden days when detecting such theft was close to impossible, plagiarists would claim all the glory for themselves.
This would severely dishearten the real owner of that research and kill their motivation to work. So, laws were created to deal with plagiarism and plagiarists in order to safeguard the real owners of research. In this article, we will check out how these laws are implemented in real life today.
What counts as plagiarism
Plagiarism can be defined in many ways, but one of the most common definitions used today is the one by Oxford University. It is as follows.
“Plagiarism is presenting work or ideas from another source as your own, with or without the consent of the original author, by incorporating it in your own work without full acknowledgment”
That definition is a bit wordy, but it explains what is plagiarism quite thoroughly. However, it does not explain how many types of plagiarism there are. One can commit plagiarism in many different ways and each method is considered quite severe. Let’s check out the most common types of plagiarism listed by Editpad.
Plagiarism can be divided into four main categories. They are as follows:
Direct Plagiarism. In this type of plagiarism, the perpetrator uses the content verbatim from a source without acknowledging the original author at all. It is the most straightforward type of plagiarism.
Mosaic Plagiarism. In this type of plagiarism, the perpetrator uses small bits and pieces of work from different sources and uses them in their own work without acknowledgment. The bits and pieces can be just a few sentences or even entire passages. It is a more heinous type of plagiarism as it actively tries to hide dishonesty.
Accidental Plagiarism. This is any plagiarism that is done due to mistakes. Common ways in which accidental plagiarism occurs are due to incorrect citations, missing citations, and coincidental similarity in wording.
Source Based Plagiarism. This is basically direct plagiarism, except the perpetrator cites the work as if it was their own. Basically, the perpetrator tries to pass the source they copied as their own previous work.
These are some major types of plagiarism that plague academia today. Now, let’s learn how modern systems deal with plagiarism.
What are the consequences of plagiarism in academia
Nowadays there are checks and balances that help academic authorities to check any academic work for plagiarism. The most common method is the usage of AI check plagiarism tools. A plagiarism checker is capable of comparing any given work against the myriad sources present online in a matter of minutes.
Since they are powered by AI, they can detect even the most elusive sorts of plagiarism (such as mosaic plagiarism). The best tools available can even highlight the exact parts of your text that are plagiarized and they also provide the name and link of the sources that the content was copied from. (You can check plagiarism in your text from this popular online tool:https://www.editpad.org/tool/plagiarism-checker)
So, it is very easy to find out if somebody has committed plagiarism or not. Now, that we know how easy it is to check for plagiarism, let’s see what kind of punishments are given by academic institutes.
Providing a Failing Grade. A common example of an academic institute is a university. In a university, all work done by the students counts as academic work. That includes assignments, essays, and even theses. If any of these works are found to be plagiarized, then the institute is within its rights to reject that work and provide a failing grade to the perpetrator.
Recalling an Awarded Degree. If an alumnus of a university is found to be a plagiarist, then the university is within its rights to recall their awarded degree, i.e., the perpetrator loses their qualifications.
Expulsion. If a student is found to be committing plagiarism multiple times, their institute can expel them for it.
Blacklisting. An institute can also blacklist known plagiarists and prevent their admission into other colleges thereby blocking their careers.
Scientific journals are also academic bodies, and they can also deal with plagiarists in some ways.
The simplest way is that they can deny a plagiarized work and not publish it. If the person who submitted the work is a habitual problematic actor then publishers can also blacklist them and warn other publishing bodies to not entertain them. This can block the fake academic career of a plagiarist.
How to avoid plagiarism by understanding plagiarism law
It is easy to avoid plagiarism once you know what counts as plagiarism. Here are a few simple laws that you need to remember to ensure that you never commit plagiarism again.
Citation. Citation is basically providing enough information about the source from which you used some content so that readers know that this is supporting content. Citations have two parts, a small in-text part, and a more in-depth reference at the end of a work that provides complete information about the source.
Citing sources prevents plagiarism because it acknowledges the original owner of the content.
Quotation. Quotes are small pieces of text taken verbatim from the source. They are written between two quotation marks that look like this “”. Quotations are also followed by citations.
Paraphrasing. When something is too long to quote, you may paraphrase it instead. Just cite it at the end to prevent plagiarism.
Paraphrasing also helps with reducing plagiarism if it was simply due to similar wording.
By using these three things in their work, a writer can prevent plagiarism from occurring and safeguard themselves against its consequences.
Conclusion
Hopefully, now you have a better understanding of plagiarism law and how most organizations deal with it. The law we discussed in this article is more or less the same around the world, but if you want to learn more about Indian law with regard to plagiarism, then you can read this work for further information.
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.
LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:
Over-the-top (OTT) platforms changed the way we entertain ourselves. They bypassed cable, broadcast, and satellite television platforms. Despite the extraordinary rise of OTTs in the past few years, millions of families in India still have cable televisions. OTTs have not yet succeeded in fully replacing cable televisions. As per statistics, in the year 2020, there were 103 million cable television households across India. It proves that cable televisions play a vital role in Indian households. The Government of India understood the importance of cable television and the need to regulate cable television networks, so, the Cable Television Networks (Regulation) Act 1995 was enacted. Let us have a close look at the same.
History and object of the Cable Television Networks (Regulation) Act, 1995
The Cable Television Networks (Regulation) Act 1995 (hereinafter referred to as “the Act”) was introduced to tackle the unexpected surge in the number of cable television (TV) networks and satellite broadcasts in the early 1990s. Cable TV is a system of TV reception in which signals from distant stations are picked up by a master antenna or receiver and sent by coaxial or optical fibre cables located at the subscribers’ premises.
Regulating the haphazard booming of cable TV networks was the main object of the Act. Due to the absence of legislation regulating cable TV networks, many cable TV operators broadcasted TV programmes as per their whims and fancies. There was no legislation governing the content that was being broadcasted by them. There were also no guidelines as to the quality of service provided by the cable TV operator. All these reasons led to the enactment of the Act.
The need for legislation to specifically regulate cable TV networks was strongly felt by the Rajasthan High Court in the landmark case ofShiv Cable TV System v. State of Rajasthan (1993), which is discussed later in this article.
Regulation in cable television network
The Act regulates cable TV networks in two distinct ways. First, it regulates the authorization of cable TV operators to provide the services. That is done by making it mandatory for cable TV operators to be registered. Secondly, it regulates the types of content that can be broadcasted by them. The Act is divided into five chapters and twenty-three Sections. It came into force on the 29th of September, 1994. The Act is further supported by the Cable Television Networks Rules, 1994.
Who is a cable operator
As per Section 2(aiii) of the Act, a cable operator is a person who provides cable services through a cable TV network, or controls or manages the operation of a cable TV network and fulfils the eligibility criteria that may be prescribed by the Central Government.
Who is a subscriber
Under Section 2(i) of the Act, a subscriber is any person who receives the signals of a cable TV network at a place indicated by him to the cable operator, without transmitting it to someone else. Under the Act, the person may be an individual, association, company, organisation, or body. A subscriber is basically a person who avails the services of the cable operator in consideration of a payment.
Section 4 of the Act mandates the cable operator to be registered by applying to the registering authority. The process of registration is provided both under Section 4 of the Act and Rule 3 of the Rules. To become a cable operator, one must fulfil certain eligibility criteria and file the registration application. The eligibility criteria are as follows-
His equipment should be compliant with the Rules;
Must possess GST registration
Be open for inspection by officials of the Ministry of Broadcasting and Information.
Registration process
The process for registration as a cable operator has a few steps namely- application, examination, and certificate of registration, as explained below.
Application
The process of registration begins when the cable operator applies with the TRAI. The application is called Form I. Its format is given the Rules. The application should be accompanied by-
A registration of INR 500/- (Rupees Five Hundred only), and
Submit the documents required.
The following are the documents that may be required for the registration are-
PAN Card
Aadhar card
Proof of registration of business
Address proof
Cancelled cheque
Identity proof of partners, promoters, or directors of the cable operator (if any)
Details of the area where the cable operator wishes to provide his services
List of the cable operator’s hardware equipment
List of channels being provided or proposed to be provided
Copy of challan vide which the registration fee has been deposited
The application and the fee should be deposited in the Head Post Office where the application for registration is being made. The fees must be deposited under the Head ‘Un-Classified Receipts’ (U.C.R.)
Examination
The application is then examined by the TRAI under Section 4 of the Act. TRAI will check whether or not all the required documents are submitted.
Certificate of registration
If TRAI is satisfied with the documents submitted by the applicant, it will grant him a certificate of registration under Section 4(5) of the Act. The format of the certificate is provided in Form 3 in the Rules.
Renewal of registration
Under Rule 3(1) of the Rules, the cable operator registration should be renewed after every 12 months. The process of renewing is the same as registration. A renewal application should be made along with a fee of INR 500/- at the Head Post Office, addressing the TRAI. The fees must be deposited under the Head ‘U.C.R.’ The application should be accompanied by the same set of documents that were filed along with the application for registration. After the examination of the application, the TRAI will renew the applicant’s registration.
Duplicate certificate
A duplicate Registration Certificate can be also availed under Rule 3(3)(b) of the Rules. The process of obtaining a duplicate Registration Certificate is the same as registration. For that, an application should be made along with a fee of INR 250/- at the Head Post Office, addressing the TRAI. The fees must be deposited under the Head ‘U.C.R.’ The application should be accompanied by the same set of documents that were filed along with the application for registration. After examination of the application, the TRAI will issue a duplicate Registration Certificate. The format of the duplicate Registration Certificate is provided in Form 3A in the Rules.
Power of the TRAI to refuse registration or renewal
Under Section 4(5) of the Act, after examining the application, the TRAI may refuse to grant the Registration Certificate, its renewal, or the duplicate Registration Certificate. It may happen due to the non-fulfilment of eligibility criteria, failure to furnish the necessary documents or fees, or any other reason. Whatever the reason, it shall be communicated to the applicant by way of writing. Such a refusal can be appealed to the Central Government.
Power of the TRAI to suspend or revoke the registration
Under Section 4(7) of the Act, the Central Government may suspend or revoke the registration if the cable operator violates one or more of the terms and conditions of such registration. But before such suspension or revocation, he shall be given a reasonable opportunity of being heard.
Digital addressable system
Section 4A of the Act allows the Central Government to impose on all cable operators the obligation to transmit or re-transmit the programmes of any channel in an encrypted form through a digital addressable system. Encrypted form means the changing of a cable TV network’s signal in such a way that it can be decoded by using an addressable system only. An addressable system is an electronic device used to decode the signals of any cable TV network.
Section 4A(3) of the Act allows the Central Government to direct the TRAI to specify certain free-to-air channels that must be included in the package of channels forming the basic service tier of the cable operators. The basic service tier is a package containing free-to-air channels offered by a cable operator to the subscribers, which the subscribers can opt for by paying a single price.
Section 4A(3) of the Act also allows the Central Government to direct the TRAI to specify certain genre-wise channels for providing a mixture of programmes of entertainment, information, education, etc. TRAI can also fix the tariff for the basic service tiers.
Also, Section 4A(5) of the Act makes it compulsory for cable operators to publicise information like subscription rates, the standard of quality of service, and subscribers’ grievance redressal mechanism at prescribed regular intervals.
Right of way for cable operators
Section 4B of the Act gives all cable operators the right to lay and establish cables and erect posts under, over, along, across, in or on any immovable property which is under a public authority’s control or management. To establish such cables or erect posts, the cable operator must send a request to the public authority. The said Section also provides that Central Government may lay down guidelines for the State Governments for-
Speedy disposal of cable operators’ requests for laying cables or erecting posts, and
Speedy dispute settlement as to the refusal to grant permission for laying cables or erecting posts.
Upon receiving the request, the public authority may impose certain reasonable conditions, and then permit the cable operator to do any or all of the following acts-
To place and maintain underground cables or posts, and
To periodically enter the immovable property to place, examine, repair, alter, or remove the cables or posts.
As per the public authority’s option, the cable operator is obligated to reinstate or restore the immovable property or pay the reinstatement or restoration charges. Considering public interests, the public authority may require the cable operator to remove, shift, or alter the position of any underground cable or post within a specific period. The cost for such removal, shift, or alteration of the position shall be given by the public authority itself.
Programme code
Section 5 of the Act mandates everyone to transmit or re-transmit through a cable service only those programmes that conform with the programme code, which is provided in Rule 6 of the Rules.
The programme code provides an exhaustive list of types of programmes that should not be transmitted or re-transmitted by the cable operator. Some of the prohibited types of programmes are the ones that-
Offends against good taste or decency;
Contains criticism of friendly countries;
Contains visuals or words contemptuous of religious groups or promote communal attitudes;
Contains anything affecting the integrity of the country, etc.
The programme code also lays downs the following obligations on the cable operator concerning the programmes carried in his cable service-
He must strive to protect women in a positive, leadership role of sobriety, moral and character-building qualities;
For carrying any programme for which copyright under the Copyright Act of 1957 subsists, he must be granted a license from the original copyright owners of the programme;
He should take due care to ensure that the programmes that may be potentially watched by children do not contain any bad language;
He should not carry any TV broadcast or channel which is not registered by the Central Government for being watched in India.
Advertisement code
Section 6 of the Act mandates everyone to transmit or re-transmit through a cable service only those advertisements that conform with the advertisement code, which is provided in Rule 7 of the Rules.
The advertisement code provides that the advertisements carried in any cable service should conform with the laws of the country and not offend the subscribers’ morality, decency and religious sentiments.
The advertisement code also provides a list of qualities which advertisements carried in cable services should not possess. Some of such qualities which no advertisement should possess are as follows-
Deriding any race, caste, colour, creed, or nationality;
Against any provision of the Constitution of India;
Tending to incite people to crime, cause disorder, or breach of a law;
Exploiting the national emblem, any part of the Constitution of India, a national leader, or a State dignitary;
Projecting a derogatory image of women;
Exploiting social evils like dowry and child marriage;
Directly or indirectly promoting the production or consumption of cigarettes, tobacco products, alcohol, infant milk substitutes, feeding bottles, infant food, etc.
Few other types of advertisements prohibited under Rule 7 of the Rules are as follows-
Advertisements directed towards any religious or political end;
Advertisements containing indecent, vulgar, or offensive themes, etc.
The advertisement code also imposes a cap on the duration of advertisements in programmes. The maximum duration of advertisements carried in any programme is 12 minutes per hour, which may include up to 10 minutes of commercial advertisements and 2 minutes of the channel’s self-promotional advertisements.
Maintenance of register
Section 7 of the Act mandates every cable operator to maintain a register to briefly record the programmes transmitted or re-transmitted by him during a month. The register should be maintained by him for at least one year from the transmission or re-transmission. The format of the register is provided in Form 5 in the Rules.
Compulsory transmission of certain channels
Under Section 8 of the Act, the Central Government may specify certain Doordarshan channels or Parliament-operated channels, which every cable operator should re-transmit. Such re-transmission should be made without any deletion or alteration of any programme transmitted on such channels.
Standard equipment
Section 9 of the Act prohibits all cable operators from using any equipment or digital addressable system in their cable TV network unless it conforms with the Indian Standards established by the Bureau of Indian Standards under the Bureau of Indian Standards Act, 1986.
Interference with any telecommunication system
Section 10 of the Act requires every cable operator to ensure that his cable TV network does not interfere with the functioning of any authorised telecommunication systems. The cable operators must also make sure that their cable TV network conforms with any standards that may be prescribed by the Central Government.
Inspection of cable networks and services
Section 10A of the Act gives the right to inspect the cable networks and services to the Central Government, its authorised officers, or any authorised agency. The Central Government can exercise its right to inspect without taking any prior permission or intimation. However, the inspection should be generally carried out after giving reasonable notice, except in cases where the service of notice defeats the purpose of such inspection.
Seizure and confiscation of certain equipment
Chapter III of the Act deals with the seizure and confiscation of certain equipment of the cable operator. Under Section 11 of the Act, any authorised officer may seize any cable operator’s equipment, if the cable operator contravened the provisions of Sections 3, 4A, 5, 6, 8, 9, or 10 of the Act. However, in case of a violation of Sections 5 and 6, the authorised officer can seize the equipment related to the programming service provided on the channel generated at the cable operator’s level. The authorised officer may be within one’s local limits of jurisdiction-
A District Magistrate,
A Sub-divisional Magistrate,
A Commissioner of Police, or
Any other officer notified by the Central or State Government.
Further, the seized equipment shall be confiscated under Section 12 of the Act if the cable operator fails to register himself as a cable operator under Section 4 of the Act within 30 days from the date of the seizure. But the order for confiscation can be done only after giving the cable operator a written notice mentioning the grounds on which the confiscation is proposed. The notice should also give him a reasonable opportunity to make a written representation within a specific time. The notice should be given within 10 days from the date of the seizure; if not, the seized equipment should be returned to the cable operator himself.
Nevertheless, such seizure or confiscation shall not bar the cable operator from being subjected to any other punishment under the Act. After the order of confiscation has been passed, the cable operator can appeal only once. The order passed by the Appellate Court shall be final.
Offences and penalties
Any person who contravenes any provision of the Act is liable for punishment under Section 16 of the Act. The courts shall take cognizance of any offence committed under this Act only if a written complaint is made by any authorised officer. The punishment under this Act is-
For the first offence: Imprisonment for a term up to 2 years or fine extending to INR 1000/- or both,
For every subsequent offence: Imprisonment for a term up to 5 years and fine extending to INR 5000/-.
In case any offence under the Act is committed by a company, under Section 17 of the Act, every person who was in charge of the company and its conduct at the time of the offence shall be liable to be punished. However, he shall not be held liable for the offence if he proves that-
The offence was committed without his knowledge, or
He had exercised due diligence to prevent the commission of the offence.
Further, in case of any offence committed under this Act by a company, if it is proved that the offence was committed with the consent or due to the negligence of any director, manager, secretary, or officer of the company, then he shall be held liable to the punishment.
Prohibition of certain programmes
Section 19 of the Act empowers any authorised officer to issue an order in the public interest prohibiting any cable operator from transmitting or re-transmitting any programme or channel on the following grounds-
Not in conformity with the programme or advertisement code,
Likely to promote disharmony, enmity, or hatred on grounds of religion, race, language, etc., or
Likely to disturb public tranquillity.
Prohibition of certain cable network television
Under Section 20 of the Act, in the public interest, the Central Government can prohibit the operation of any cable TV network in any specific area.
The Central Government can also regulate or prohibit the transmission or re-transmission of any channel or programme in the interest of-
Sovereignty, the integrity of India,
India’s security,
India’s friendly relations with any foreign State, or
Public order, decency, or morality.
Landmark cases
Union of India v. Board of Control for Cricket in India and Ors (2017)
In this case, the re-transmission of live signals of nationally important sports events by Prasar Bharati was contested by the BCCI. Under Section 3 of the Sports Broadcasting Signals (Mandatory Sharing with Prasar Bharati) Act, 2007 (hereinafter referred to as “the Sports Act”), the Board of Control for Cricket in India (BCCI) is mandated to share the live broadcasting signals of nationally important sports events with Prasar Bharati, which shall be re-transmitted by Prasar Bharati’s terrestrial and DTH networks. BCCI contended that the re-telecast of such signals by the cable operators was due to the necessity imposed on them under Section 8 of the Act. BCCI challenged the legality of such an arrangement.
The Apex Court held that under Section 3 of the Sports Act, the live signals received by Prasar Bharati from BCCI should be re-transmitter by Prasar Bharati only through its own terrestrial or DTH networks and not the cable operators.
Shiv Cable TV System v. State of Rajasthan (1993)
In this case, the Collector-cum-District Magistrate of Sri Ganganagar order the stopping of several cable TV operators from transmitting TV programmes on the ground that they failed to obtain a valid licence required under the Indian Telegraph Act of 1885. The cable TV operators contented that the order violated their right to trade and business guaranteed under Article 19(1)(g) of the Indian Constitution.
But the Rajasthan High Court held that the order did not violate Article 19(1)(g), as ‘cable television networks’ fall within the ambit of “wireless television apparatus” as defined under Section 2(2) of the Indian Wireless Telegraph Act 1933, and a license is required for possessing any “wireless television apparatus” under the same Act. So, it was after this case the Central Government realised the need for legislation to regulate cable TV networks.
Conclusion
The Cable Television Networks (Regulation Act of 1995 is a boon to the media and entertainment industry in India. Without the Act’s enactment, there would have been haphazard functioning of cable TV networks. Cable operators would have transmitted or re-transmitted any copyrighted work without the owners’ permission. There would have been no control over the kind of content being transmitted or re-transmitted by the cable operator. The Act is truly wholesome and efficient in regulating cable TV networks in India.
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.
LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:
This article is written by Gautam Badlani, a student at Chanakya National Law University, Patna. This article examines the concept of money laundering, thereby providing an overview of the techniques, stages, and harms of this activity. It further examines the provisions of the various domestic and international legislations relating to money laundering.
It has been published by Rachit Garg.
Table of Contents
Introduction
The advancement of the economic and financial systems has led to the rise of complex economic offenses which are not only difficult to trace but also adversely affect the nations’ economic assets. One such economic offense is money laundering. Money laundering is defined as the coordinated and systematic transfer of illicit funds through several financial systems which results in the creation of a complex web of transactions and makes it difficult to trace the original source of the funds. In this manner, the illegal proceeds are entered into a legitimate financial system and all the blemishes of illegality are wiped of.
This article analyses the concept of money laundering and provides an in-depth analysis of the various stages of money laundering. The article highlights the various techniques which are followed by the money launderers and the adverse effects of money laundering on a nation’s economic credibility. Lastly, the article also provides a comparative analysis of the financial regulatory regimes of various countries.
What is money laundering
Money laundering can be defined as the movement of illegal funds through a range of deceptive transactions which are intended to disguise the original source of the money and introduce it in the legitimate financial system.
The offence of money laundering threatens the credibility of the financial and economic systems of the nations and therefore most of the states have enacted laws to prevent money laundering. One of the reasons for a sudden rise in anti-money laundering laws is the growing public awareness regarding the harmful effects of money laundering. The growing public pressure has forced the governments to extend the scope of anti-money laundering laws and the financial and banking systems are also facing an enhanced public pressure to ensure the compliance with the regulatory standards.
However in order to ensure that the laws are effectively implemented there is a need to analyse the process and various techniques that are followed by the money launderers.
Reasons behind the rise of money laundering
The phenomenal growth of money laundering offences in the past few decades can be attributed to the rapid technological growth that has made international communications easier. Moreover, several international banks have emerged that have facilitated faster and easier cross-border transfers of funds. Once the money enters the international banking system, it becomes difficult to trace the original source of the money.
The money launderer need not physically carry the cash from one place to another, as he can launder money in the form of digital cash or currency or through electronic exchange mediums. Technology has made capital fluid in nature, and large amounts of money can be transferred with a single click.
Process of money laundering
Money laundering largely involves four steps:
Illicit activity
In order for money to be laundered, the first step is to have illicit financial activity. The proceeds of the illicit activity are the subject of the money laundering activities.
Placement stage
The first stage is called the placement stage. In this stage, the money is entered into the legitimate economy. This can be done by making a purchase through a legitimate financial system. Cash deposits in banks can also be made in a series of small transactions.
Layering stage
The second stage is known as the layering stage. Once the money enters the financial system, a system of complicated financial transactions is developed to conceal the source of the funds. The complex network of transactions avoids any audit trial.
Integration stage
The third stage is known as the integration stage. Under this stage, the money is integrated with the financial system. The money re-enters the financial system in legitimate form as normal funds.
Techniques of money laundering
There are several techniques for money laundering, such as:
Cyberlaundering
Cyberlaundering is popularly known as the money laundering of the digital age. Under cyber-money laundering, money laundering takes place using online channels and digital cash. This technique ensures the anonymity of the parties involved. The perpetrators leverage e-commerce, crowdfunding, or online games for the purpose of covering their illegal money.
Smurfing and structuring
This is one of the most popular techniques of money laundering. Under this technique, large amounts of funds are structured into numerous small transactions. These transactions are split into numerous accounts, which avoids regulatory attention.
Many countries have laws requiring banks and financial institutions to inform the government when any cash transaction exceeding a certain specified limit is processed. By structuring the transactions into multiple small amounts, the money launderers evade any scrutiny by the regulators. For example, in the United States, under the Bank Secrecy Act of 1970, financial institutions are required to report any cash transaction that exceeds $10,000.
Hawala system
Hawala system is a system which involves the informal transfer of funds and where the money is transferred based on trust without any actual movement. The transfer of money is merely informally recorded in the books maintained by the Hawala brokers. The hawala system is a traditional system which exists outside the modern banking system.
Under this system, transactions take place between the hawala brokers based on trust, and the hawala dealers credit or debit the transactions in the informal journals kept by them. This system does not involve any actual movement of currency, and no official records are kept of the transaction. As a result, the system ensures the anonymity of the source of funds.
The system is frequently used by people in poor countries, which have no proper formal banking infrastructure and where formal banking is highly expensive. For example, this system may be used by migrant workers to send remittances to their families. Due to the lack of regulatory oversight and the anonymous nature of this system, it provides an opportunity for money launderers to hide the source of their illegal funds.
Shell companies
Money launderers often use shell companies and cash incentive concerns such as casinos, bars, restaurants, etc., to mix their illegal funds with the legitimate revenue gained from these concerns. They are thus able to hide the source of their illegal funds and avoid legal scrutiny.
Disadvantages of money laundering
Money laundering poses a threat to the economic growth and stability of every nation. Money laundering also poses a threat to the political and social stability of a nation. Corporations and rich individuals escape paying taxes through money laundering, which causes economic loss to the national treasury and adversely affects the government’s spending power. Ultimately, it is the poor and the society at large that suffer when the government has to cut down on its expenditure on welfare schemes. It results in increased taxes for those who pay their taxes honestly and also increases business costs.
Money laundering provides economic resources to criminals and increases their influence in society. This makes people lose their faith in economic institutions and harms national ethical standards. The money is used by criminals to commit further offences.
Money laundering is closely interconnected with corruption. It is often used to provide safe havens for the bribes received by high-ranking officials. Countries that witness high levels of money laundering enjoy less confidence among global investors, which adversely affects the national economy. Money laundering destabilises international capital flows and also adversely affects foreign direct investments.
The International Monetary Fund (IMF) points out that the crimes related to money laundering threaten the financial stability of a country and adversely affect foreign investments and international capital flow.
Money laundering in the banking sector
Most of the money is laundered through banks and financial institutions. Numerous small deposits are made in banks around the globe by the money launderers, and then these amounts are syphoned off. In most cases, the money launderer builds a complex web of financial transactions, which makes it difficult to trace the source of the funds.
Many countries have enacted laws requiring banks and financial institutions to keep records of suspicious transactions and to carry out due diligence on their customers. Banks and financial institutions must report any suspicious financial transactions to the regulatory authorities. They must also carry out detailed assessments to analyse the money laundering risk that the institution faces.
Under the domestic legislation of various nations, the banks are required to build an inherent Anti Money Laundering (AML) system. The AML mechanism is aimed at preventing transactions that legitimise illegal proceeds. The banks are required to verify the identity of the customers and check the legitimacy of the funds deposited by them. Banks are required to conform to compliance requirements such as Know Your Customer (KYC). The banks must check whether their customers belong to the list of economic offenders, criminals, crime suspects, or companies that phase in sanctions.
Yes Bank case
Recently, the Yes Bank co-founder, Rana Kapoor, and his family members were charged by the ED for the offence of money laundering. The investigation by the ED revealed that the promoters of Dewan Housing Finance Limited engaged in a criminal conspiracy and syphoned the proceeds of crimes offshore.
The investigation stated that debentures worth Rs. 3700 crores were issued by Yes Bank, and subsequently, the funds were transferred to Dewan Housing Finance Limited. Thereafter, a loan of Rs 600 crore was issued by Dewan Housing in favour of an entity that was owned by Rana Kapoor and his family members. The loan was sanctioned without adequate collateral. The ED noted that the entity to which the loan was sanctioned was not engaged in any active business and was not in a position to repay the loan.
Furthermore, Yes Bank officials approved another loan for M/s Belief Realtors Private Limited. However, the sanctioned loan was transferred offshore and was not utilised for the purpose for which it was sanctioned.
Rana Kapoor and others involved are facing legal proceedings, and several chargesheets have been filed by the ED.
Money laundering in the insurance sector
Insurance companies, particularly life insurance companies, have become a primary target of money launderers. Compared to banks and financial institutions, insurance companies have to comply with few regulatory statutes and do not have a robust mechanism to monitor suspicious activity.
Once the money laundered makes a lump sum payment to the insurance companies, he is entitled to make a claim. Thus, money launderers invest illegal proceeds in insurance policies and receive legitimate funds when they make a claim. Some money launderers surrender their claims, while others take out a loan against the insurance policies. This helps in creating an intricate web of financial transactions that goes unnoticed by the regulatory authorities.
The insurance companies must also conduct due diligence on their customers and verify their identities. They must ensure that they do not provide services to economic offenders or criminal suspects. Any unusual payment methods, excessive premiums, or substantial transactions must be reported to the regulatory authorities.
International initiatives
In the past few decades, there has been a worldwide increase in the number of money laundering offences. Since the crime of money laundering is international in nature and crosses borders, a need was felt to establish standards for international law enforcement. Several initiatives have been taken at the international level by organisations such as the United Nations to establish international standards for preventing the crime of money laundering. Here are a few examples:
Financial Action Task Force (FATF)
The Financial Action Task Force (FATF) was set up at the 1989 G7 Summit, which was held in Paris. It consists of 39 members and aims at developing global standards for preventing money laundering. FATF also keeps a check on terror financing, and its primary responsibility is to develop worldwide standards for preventing money laundering.
India joined the FATF as an observer in 2006 and became a full member of the organisation in 2010.
The FATF Recommendations 2012 require the countries to identify risks associated with money laundering and terrorist financing. The countries are required to establish mechanisms and designate authorities for the purpose of mitigating these risks. Moreover, the recommendations provide that financial institutions should be prevented from maintaining anonymous accounts, and they should be required to maintain records of domestic and international transactions for a minimum of 5 years.
The members are required to criminalise money laundering as per the norms of the Vienna Convention.
Vienna Convention
The United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, 1988 is aimed at preventing the drug traficals from covering the source of them illegal funds through money laundering. The primary aim of the Convention is to criminalize and punish money laundering. The Convention obliges the nations to undertake legislative measures to ensure that the drug traffickers are not able to launder the proceeds generated from their illegal activities. This would eliminate the monetary incentive behind drug trafficking. The Convention defines proceeds as the property that is obtained by the commission of any offense, whether directly or indirectly. The party states have to enact laws enabling the confiscation of the proceeds and prosecution of the traffickers.
The parties to the convention are under an obligation to ensure that the justice system and banks and other financial institutions are sufficiently empowered to monitor, detect and block the transactions involving illegal proceeds. If the proceeds are converted into any property, then the property would be liable to confiscation as well. The Convention also contains provisions aimed at promoting international cooperation for the purpose of preventing money laundering. It facilitates the extradition of drug traffickers.
United Nations Convention Against Transnational Organized Crime
Article 6 of the Convention deals with the measures that the parties to the Convention are supposed to take in order to prevent the offence of money laundering. Each party to the Convention is under an obligation to implement a comprehensive regulatory mechanism for the purpose of supervising the banking and financial systems and other institutions which are likely to be used by the money launderers to cover their illegal proceeds. The domestic regulatory mechanism must emphasize on the identification of customers, keeping a record of the customers and reporting of any suspicious transactions.
Moreover, the member states must ensure that the administrative agencies and the judicial authorities are empowered to exchange information at the domestic as well as international level for the purpose of collecting and analysing data about the potential offences of money laundering. The states must ensure that there is a feasible mechanism for the purpose of detecting and monitoring the cross-border movement of cash and other monetary instruments. However, the regulatory measures must not act as an impediment to the free flow of legitimate capital. An example of such a measure can be imposing an obligation on the ndividuals and institutions to report any cross-border transfer of cash or other monitory instrument that they undertake.
Prevention of Money Laundering Act, 2000
The Prevention of Money Laundering (PMLA) Act, 2000, was enacted by the Parliament to fulfil international obligations and commitments. It is aimed at prohibiting money laundering and confiscating the property that is involved in concealing or facilitating the offence of money laundering.
Section 3 of the Act defines the offence of money laundering and states that whoever knowingly or intentionally indulges, directly or indirectly, in any activity relating to the proceeds of a crime or attempts to project the proceeds of the crime as untainted property, will be guilty of the offence of money laundering. Section 4 prescribes the punishment for money laundering. Any person who commits the crime of money laundering faces up to seven years in prison and a fine of up to five lakh rupees.
Section 48 lists the classes of authorities who will be appointed for the purposes of the Act. It includes a Director (who may also be called Joint Director or Additional Director), Deputy Director, Assistant Director and other such class of authorities as may be appointed by the Central Government. A Director or Joint Director or Additional Director or Deputy Director will be appointed by the Central Government under Section 49. Thereafter, the Central Government may empower the Director to appoint the authorities subordinate to him.
Vijay Madanlal Choudhary v. Union of India (2022)
Conditions of bail
The twin conditions of bail, as provided under Section 45 after the 2018 Amendment, were challenged in the case of Vijay Madanlal Choudhary v. Union of India (2022). The Supreme Court, while upholding the constitutional validity of the twin conditions, held that money laundering not only adversely affects the social and economic stability of the country but also promotes heinous offences such as terrorism, drug trafficking, etc. The Court held that while the conditions were struck down in Nikesh Tarachand, the Parliament had cured the defect by introducing the 2018 amendments.
The Court held that once the Parliament, by appropriate legislation, removes the defect due to which the concerned provisions were declared unconstitutional, the provisions cannot be declared void on the ground of being violative of Article 13 of the Constitution. The Court further noted that the 2018 Amendment was applicable retrospectively.
The Court noted that the 2002 Act is special legislation that is aimed at preventing money laundering. Money laundering has a transnational adverse effect on financial structures and threatens the sovereignty and integrity of nations. Thus, it is necessary to introduce stringent measures for dealing with the offence of money laundering. The special procedure laid down by the Act for prosecuting money laundering offences was in view of the gravity of the offence. The Court held that the offence of money laundering constituted a separate class of offence and that the stringent conditions for bail were reasonable.
Thus, the Court concluded that the conditions of bail provided under Section 45 are reasonable and not unconstitutional.
Powers of ED
The petitioners also challenged the wide powers conferred on the ED by the Act. The petitioners contended that the ED can undertake search and seizure operations without even registering an FIR. The petitioners pleaded that the Act did not contain the requisite safeguards to control the exercise of arbitrary power by the ED. The Act provides that the ED has to prepare a document concerning the details of the alleged offense and such report is to be called the Enforcement Case Information Report. However, the petitioners pleaded that the ED must be held to be bound to furnish a copy of the ECIR to the accused.
The Court pointed out that search and seizure operations under Section 5 can be conducted only by the Director or an officer who has been authorised by the Director and such an officer must not be below the rank of the Deputy Director. The Director or the officer can act only if he has reasons to believe that there is a person who is in the position of illegal proceeds and such an opinion has to be formed on the basis of legitimate reasons which have to be recorded in writing. The court heLD that an ECIR is different from an FIR and there is no statutory obligation imposed on the ED to finish a copy of the ECIR to the accused person. It is sufficient if the ED discloses the grounds of arrest to the accused person at the time of arrest.
The judgment has also been criticized by some people because it gives judicial legitimacy to the wide, unrestricted and unfettered powers that have been conferred on the ED by the Act.
Landmark cases relating to money laundering
Vijay Mallya
Vijay Mallya was an Indian businessman who was the founder and chairman of Kingfisher Airlines Ltd. His airline company went bankrupt in the year 2012.
Subsequently, an investigation was initiated against him and it was alleged that he had used his influence and power to obtain heavy loans without providing sufficient and credible collateral. The Enforcement Directorate booked him under the Prevention of Money Laundering Act and reported that Vijay Mallya had used the techniques of layering and integration for the purpose of concealing the original source of money and making it difficult for the regulatory authorities to trace where he transacted the funds borrowed from the nationalised banks. It was alleged that Mallya violated Section 3 of the Prevention of Money Laundering Act and transferred the funds through several foreign accounts and created over invoices for the purpose of obtaining loans from the banks.
However, Mallya went to London to escape the Indian enforcement authorities. Thereafter, extradition requests were made by the Government of India before the courts of the United Kingdom. Vijay Mallya is now facing extradition proceedings in the United Kingdom.
The Supreme Court of India ordered Mallya to appear before the court for his trial. Upon his failure to appear before the Court, the Supreme Court found him guilty of contempt of court.
Nirav Modi and Mehul Choksi
Nirav Modi is a famous jeweller and businessman. He and his uncle, Mehul Choksi, were accused of fraudulently obtaining loans worth crores of rupees from Punjab National Bank through fraudulent letters of undertaking. Through fraudulent letters of undertaking, Nirav Modi obtained guarantees from the banks. Letters of undertaking are bank guarantees that enable an entity to obtain short-term credit from the overseas branch of the bank. These letters are generally used for business and trade transactions. Nirav Modi did not use the funds obtained through bank guarantees for legitimate business purposes but rather syphoned them to foreign countries.
Subsequently, proceedings against him were initiated by the Central Bureau of Investigation for obtaining letters of undertaking through fraud. The ED also registered a case against him for laundering the proceeds of crime. The ED also attached several movable properties of Nirav Modi such as jewellery and properties. The ED also discovered that foreign dummy companieswere used by him to transfer the funds.
However, Nirav Modi escaped to the United Kingdom days before his scam came to light. Nirav Modi is also facing extradition proceedings in the United Kingdom. Nirav Modi’s uncle, Mehul Chouski, was also charged with the offence of money laundering.
Chanda Kochhar
Chanda kochin, the former head of the ICICI Bank, was arrested by the Central Bureau of Investigation for offence of money laundering. She was accused of providing high valued loans to the Videocon group by exploiting her power and position. She had resigned as the Chief Executive Officer and the Managing Director of ICICI Bank in 2018 when alligations surfaced in regards to the misuse of power by her to exploit the lending systems of the bank. A whistleblower had reported that the husband and other family members of Chanda Kochhar had gained financial benefits by the sanctioning of loans to Videocon gGroup.
The CBI reported that a sanctioning committee which was headed by Chanda Kochhar had approved the sanction of loans wort crores of rupees to the Videocon group in violation of the policies and rules of the ICICI Bank. These loans for subsequently declared to be non performing assets.
United States laws
The United States legal system also has machinery for the prevention of money laundering activities. The Bank Secrecy Act, 1970 is aimed to ensure that the financial systems of the country are not exploited to facilitate the offence of money laundering. It is often regarded as the first US Federal law enacted to keep a check on money laundering activities. Under this Act, the banks and financial institutions are under an obligation to report any transaction beyond $ 10,000. They are also under an obligation to report suspicious activities in relation to foreign banks or accounts.
Moreover 18 U.S. Code § 1956 provides that whoever knowingly conducts a transaction involving the property related to the proceeds of a crime with-
The intention to promote a specified unlawful activity,
The intention to evade taxes,
The knowledge that the transaction is designed to conceal the source, nature or location of the illegal proceeds,
The intention to avoid any transaction disclosure requirement under the federal or state law,
shall be punishable with a fine of up to $5,00,000 or twice the value of the property involved in the transaction, or with imprisonment for up to 20 years.
18 U.S. Code § 1957 provides that it shall be an offence to knowingly engage in a transaction involving a property that has been derived from a specific unofficial activity through the medium of banks, financial institutions, or foreign banks. Moreover, the Section confers extraterritorial jurisdiction on the courts for any money-laundering-related conduct by a US citizen anywhere in the world or where the money-laundering activity has been conducted by a non-US citizen, provided that the activity occurs in part in India.
Cuellar v. United States (2008)
In the case of Regalado Cuellar v. United States (2008), the petitioner was driving from Texas to Mexico when his car was searched and $81,000 was discovered in it. The petitioner was convicted of violating federal money laundering statutes, that is, 18 U. S. C. §1956(a)(2)(B)(i). The petitioner filed an appeal before the Supreme Court and pleaded that under the federal statute, the government is required to establish that the petitioner intended to portray the discovered money as legitimate wealth.
The Court held that merely proving that the defendant intended to conceal the money he was carrying is not sufficient, and the government was required to establish that the petitioner intended to conceal the nature and source of the money. While overturning the conviction, the Court held that the prosecution had not adequately discharged its burden.
United Kingdom
The United Kingdom is a member of FATF, and therefore its domestic legislation dealing with money laundering complies with the global standards laid down by FATF. The Financial Conduct Authority is the primary financial regulatory body of the United Kingdom and is responsible for ensuring the safety of the nation’s financial systems. It investigates offences related to money laundering.
The Proceeds of Crime Act 2002 defines the acts that constitute an offence of money laundering. The Act mandates the banks and financial institutions to keep a check on money laundering activities, keep records of transactions, and conduct customer due diligence. Part 7 of the Act provides that the following activities will constitute an offence of money laundering:
If any person conceals, disguises, converts or transfers any criminal property.
If any person removes a criminal property from England, Scotland, Wales and Northern Ireland.
If any person contributes to an arrangement that he knows or suspects to facilitate the use, control or retention of a criminal property.
If any person acquires, operates or possesses the criminal property.
The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 came into force in June 2017. These Regulations are applicable to financial systems, real estate companies, legal professionals, crypto asset exchanges and other relevant areas. These regulations are applicable to all types of gambling providers and put an obligation on the trustees to ensure enhanced transparency of beneficiaries. The individuals and institutions covered by these regulations have to implement a risk based due diligence procedure and they have to frame policies, in writing, regarding the steps taken to mitigate the risk that their institutions face in relation to being exposed to money laundering. It is pertinent to note that the new requirements make it a penal offence to make a false or misleading statement about money laundering.
European Union
The European Union has published three Directives which are guidelines for exacting appropriate legislations for the establishment of effective regulatory mechanisms. These Directives are intended to counter the money laundering activities by enabling member states to identify and identify the loopholes that are exploited by the money launderers and take corrective measures.
The Directive makes it mandatory for the member states to carry out a nationwide risk assessment after every 4 years. Moreover, the member states are required to coordinate with each other for the proper formulation of cross border assets registers. These registers are supposed to contain the information about accounts, real estate transactions etc.
However, one of the challenges that Directives have faced is that the time period prescribed by the European Union for the implementation of the Directives by the member states extends to several years. During this period, money launders are able to develop new techniques and methods of money laundering. Thus, even before the complete implementation of any Directive, new methods of exploiting the financial and credit systems are developed by the money launderers.
First Directive
The European Economic Community adopted Council Directive 91/308/EEC with the objective keeping a check on the misuse of financial systems for the purpose of money laundering. This Directive states that money laundering possesses a threat to the financial stability of the national economy and facilities and promotes organised crime and drug trafficking. Moreover, the Directive acknowledged the possibility of services of professionals being used in the offence of money laundering. The Directive provides that the member states should use their penal powers to prosecute the offenders of money laundering and their domestic and national legislations should comply with the global standards and norms.
Moreover, the Directive provides that the member states should amend the confidentiality rules applicable in their countries to enable the banks, financial and credit institutions to legally disclose the suspicious activities of their customers to the regulatory authorities. These Directives impose an obligation on the member states to enact efficient laws to prevent the exploitation of the banking and financial systems. Moreover the Directives also impose an obligation on the member states to ensure that the free flow of capital which is aimed at flourishing the national economy is not exploited by the money launderers to cover there illegal proceeds.
Second Directive
The Second Money Laundering Directive (2001) extended the scope of the Directive to cover the activities related to organised crime and fraud. The primary purpose of the Second Directive was to ensure that the recommendations provided by the FATF were inculcated by the member states in their domestic legislation.
The Second Directive gave a wider meaning to the definition of money laundering and included currency exchange offices and investment firms within its scope on the grounds that they were also vulnerable to money laundering activities.
The Directive also hinted at the possibility of including legal professionals who are engaged in financial and corporate transactions within its scope. The European Parliament opposed this on the ground that covering legal professionals within the scope of the Directive would compromise the client confidentiality rules. Resultantly, lawyers are not included within the scope of the Directive and they are exempted from providing the information that they receive from the client in the course of the court proceedings.
Third Directive
The Third Directive noted that even the non-financial businesses can be exploited by the money launderers for advancing the money laundering activities. Moreover, it was felt that the services of professionals such as lawyers can also be used for the purpose of furthering the transactions relating to money laundering.
Hence, the Third Directive included within its scope professionals such as lawyers, accountants, real estate agents, casinos and other company services. It simplified the due diligence procedure for certain low risk transactions involving public authority or bodies that have a transparent record and whose activities are available to the general public. At the same time, the Third Directive also enhanced the due diligence procedure for transactions involving politically exposed persons.
Penalties under the three Directives
It is pertinent to note that the money laundering Directives do not prescribe any penalties. The penalties are left at the discretion of the member states to be determined by their domestic legislation. However, the member states are directed to provide effective and dissuasive penalties so as to deter the commission of the offence of money laundering.
Suggestions
The fight against money laundering has become a priority for the international community. Money launderers exploit the loopholes in the banking and financing systems of different countries. This happens because of the differences in the regulatory standards followed by different nations. There is an urgent need to ensure that all nations follow the basic international standards laid down for monitoring and regulating the flow of cross-border finances.
Money launderers have developed new and innovative techniques for covering the source of their illegal funds. In their efforts, the money launderers are backed by a nexus of politicians, bankers, lawyers, and accountants. This makes it very difficult for regulators to trace and identify any illegal transactions.
The Prevention of Money Laundering Act, 2002, is essential to prevent the nation from being engulfed by scams of money laundering. However, there have been numerous disputes relating to the excessive powers that this Act confers on the investigating authorities.
In order to control the menace of money laundering, there is a need for greater cooperation among the nations and international enforcement agencies. The bankers need to be more cautious and aware and flag any suspicious transactions to regulatory agencies. The banking and financial systems need to be made more robust to ensure that they are not used as a vehicle for money laundering. Every financial institution must have an inherent mechanism to monitor and detect any suspicious transactions.
Conclusion
Money laundering has become a global problem. Laws aimed at preventing money laundering are the need of the hour to save the country from being engulfed by a series of economic offences. It is perhaps because of this reason, the Supreme Court has upheld the constitutional validity of the wide powers conferred on the ED by the Prevention of Money Laundering Act, 2002.
Most nations have adopted a twin approach for the purpose of countering and monitoring money laundering activities. A preventive approach is adopted in relation to the banking, financial, and insurance sectors. Under this approach, steps are taken to introduce regulatory mechanisms in the financial sector to prevent money laundering activities. On the other hand, a regressive approach is adopted by virtue of laws such as the Prevention of Money Laundering Act, which prescribe criminal penalties for those who engage in money laundering activities.
Frequently Asked Questions (FAQs)
What are the basics of money laundering?
Money laundering is the process by which money generated from illicit sources is passed through several transactions to give it a legitimate basis and conceal the original source of the funds.
What are some of the examples of money laundering?
Some of the general examples of money laundering are bank laundering, real estate laundering, restaurant and hotel laundering, laundering through casinos, and laundering in the insurance sector.
What are tax havens?
Tax havens are those countries that impose no or minimal tax rates on foreign businesses and individuals. Wealthy corporations and individuals often transfer their funds to these jurisdictions so that they are subjected to lower tax rates as compared to their home countries. These jurisdictions thus provide an opportunity for wealthy individuals to hide their money from law enforcement agencies.
Who is the biggest money launderer?
The Wachovia Bank is often regarded as the world’s biggest money launderer. It facilitated the laundering of about $380 billion by the drug traffickers during the period 2004–2007. Wachovia Bank was one of the biggest banks in the United States. However, it was used by the drug traffickers to launder the illegitimate proceeds of drug trafficking.
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.
LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:
International law on human right violation refers to a body of law that is meant to govern, protect and promote human rights at the international level. The source of law is “Universal Declaration of Human Rights”, which was adopted by the United Nations General Assembly in 1948. This Declaration sets out a broad range of civil, political, economic, social, and cultural rights that are intrinsic or natural to all human beings regardless of their caste, creed, race, gender, nationality, or any other status. These rights includes right to life and liberty, security, freedom from torture, slavery, illogical and random detention, right to justice, freedom of expression, assembly and association, right to education, healthcare, right to work and right to participate in cultural life. Further to this declaration there are innumerable international treaties, rules and standards that aims to protect specific human rights categorised as under:
Countries across the globe that have ratified these treaties, standards or rules are obligated to act in accordance to these standards and in the event they fail to fulfil their obligation under international human right law, then the affected individuals or groups who are the victims of this non compliance can register their complaints with the relevant international bodies such as UN Human Rights Council or International Criminal Court. This article aims to highlight human rights with respect to China thereby throwing light on violation of human rights in the case of the Uyghur community.
Background of human right violation in China and continuation of the trend
China has a long history of human right violation and it can be traced back to the early years of the People’s Republic of China, when the Communist Party with a view of consolidating its power, launched a series of political campaigns with an aim of suppressing dissension and dissenter / rebels.
In the 1950s and 1960s, the Chinese government carried out a series of political cleansing campaign, which included Anti-Rightist Campaign and the cultural revolution, resulting in imprisonment, torture, and execution of millions of people. Ever since China has been facing criticisms for its human right record, political repression, censorship, suppression and curb on freedom of expression and assembly. The focus of this political tyranny has shifted to the treatment of minority groups, particularly the Uyghur community in Xinjiang.
The intense crackdown by the Chinese government on Uyghurs and other ethnic minorities began in 2014, when the government launched its “strike hard” campaign against terrorism and extremism. This campaign has seen mass detention of Uyghurs in re-education camps, and various other forms of subjugation, repression such as forced labour, forced sterilisation, and mass surveillance, have been inflicted on the community.
Although the Chinese government has been defending its action on the pretext of preventing terrorism, human rights organisations and governments around the world have been forthright in condemning this treatment of Uyghurs as a gross violation of human rights.
Apart from the treatment meted out to the Uyghurs, China faces criticism about its action towards Tibetans, Falun Gong practitioners, and other minority groups in China. The Chinese government has been consistently denying these allegations but lack of transparency and accountability continues.
Conflict between China and Uyghur community
There is a major disagreement between Chinese policy makers and Uyghurs with the main disagreement being which group has greater historical claims to the Xinjiang region. Uyghurs believe that their ancestry originated from this area whereas Chinese government policy considers that province of Xinjiang belonged to China since around 200 BC during Han dynasty.
Uyghur Community – Who are they
Principally Uyghurs are a minority group of ethnic Muslims based out of Xinjiang province, which is a Uyghur Autonomous Region located in northwest China. This community is culturally and linguistically distinct from the ethnic Han majority in China and have their own language, Uyghur.
Their lineage can be traced to the sixth century. C.E. when they migrated to Mongolian steppes. They are Turkic people, who spoke a language close to Uzbek. Predominantly Islam was their religion and their religious leaders founded several Islamic states and these states were referred to as East Turkestan. In the year of 1884 this entire area of East Turkestan was annexed into mainland China and renamed as Xinjiang which means “New Frontier”.
With the collapse of Qing dynasty in 1911, some of the Uyghur leaders successfully attempted to create several Muslim Republics in Western China, but with the Communist Party rising to prominence in 1949, China officially claimed Xinjiang one more time. As a matter of government policy members of ethnic majority, particularly the Han community were encouraged to settle in this newly acquired province. When this all started Han, the community made up just 6.7% of the region’s population and by 1978 that figure shot up to 41.6%. The province has turned out to be not only largest in China but has turned out to be the largest economy as well, with the Han community becoming an integral part of this development and inundating the cities. Currently the Uyghur population stands at 12 million and represents a slight majority but mainly residing in the rural areas and remains excluded from this development.
Chinese crackdown on Xinjiang
The Muslim population belonging to the Uyghur community has been facing all kinds of prohibition under the regime of the Chinese Communist Party ever since 1949. With oppression on the rise, the community has been seeking independence from China, which gained traction in the year 1990 with the collapse of the Soviet Union and with the formation of Central Asian States like Kazakhstan, Kyrgyzstan and Uzbekistan.
The year 1990 also saw China for the first time categorising and branding, Muslims of the Uyghur community as terrorists. In 1996 Taliban came to power and by 1998, although Uyghur Muslims came in close proximity to Taliban and Al-Qaeda, Xinjiang did not face any extremism.
As a result of this ongoing discrimination by the Chinese government on the Uyghur community, for the first time ethnic riots broke out in the month of July 2009. Although both the Han and Uyghur communities suffered setbacks, losses and mortality, this period witnessed the change of attitude and approach of the Chinese Communist Party towards the Uyghur community. Atrocities committed under this hard line approach by the Chinese government on the Uyghur community became from bad to worse.
What is currently happening to Uyghur Community since 2013
The year 2017, saw China building a huge detention centre, which they defined as re-education camps, individuals from the Uyghur community were arrested on frivolous grounds and detained in these camps. They were forced to denounce their religious and cultural beliefs and go through various other indoctrination. The Chinese government has been denying these accusations of human rights abuses and on the contrary is claiming that these actions as a whole is a step towards curbing terrorism and combating extremism, on which the international community has expressed its strong reservation.
Can China be seeing as committing genocide
According to UN, only certain acts can be construed as genocide:
Killing members of a certain ethnicity;
Causing serious bodily or mental harm, to members of a particular group;
Imposing measures to prevent births, all cantering around one ethnicity;
Forcibly transferring children from one group to another;
Systematically destroying the group.
Some people are of the view that may be China is committing cultural genocide, practice in which language, religion and cultural practices of a group are outlawed. Cultural genocide is the apt word to describe China’s campaign against the Uyghur community.
Under the Rome Statute of the International Criminal Court (ICC), crimes against humanity are considered to be serious specified offences that are committed with knowledge in a manner that is systematically framed and planned so as to affect a major portion of the targeted population. “Widespread” can be used as a referred term in this regard to signify scale of the acts or number of victims who are aggrieved by the series of such activities. A “systematic” attack in this regard indicates a pattern or methodical plan of such crimes.
It is ideal to note that crimes against humanity are considered to be the gravest human rights abuses under the international law regime. The specific crimes that can be carried out against humanity ranges from imprisonment or deprivation of liberty in violation of international rules and regulations to that of persecution of any religious group alongside torture, murder, outraging of modesty, forced labour , etc.
Response from international community
In January 2021, US finally declared that Chinese government was committing genocide. This stand was later seconded by governments of various states such as Canada, the Czech Republic, Lithuania, Belgium, the U.K. and the Netherlands. All of these nations passed an unanimous motion that China was either committing genocide against the Uyghur community or a risk of genocide existed. This was followed by sanctions and boycott, to which China responded by denying all allegations and issuing its own sanctions against members of E.U.
Conclusion
As we come to the end of this article, it is ideal to state that human right is a fundamental right versed on every individual living in this planet irrespective of the nation or origin he or she is coming from. One of the fundamental human rights is the right to a dignified living and personal liberty. The same can be seen to be shadowed for the Uyghur community with China and its authorities in the background. With the launch of the “Strike Hard Campaign against Violent Terrorism”, China enforced human rights violations on the minority community thereby making their days count in Chinese land. It is the State’s vested responsibility to ensure justice for violation of human rights within its defined jurisdiction or territory. It is the further responsibility of the domestic criminal justice mechanisms to impartially investigate the violations and identify and prosecute the individuals responsible in accordance with the fair trial standards and norms led down under international regime. The Chinese government has repeatedly continued to deny that officials have been committing abuses in Xinjiang and thereby have also showcased unwillingness to conduct or carry out investigations concerning the same. Thuis, all we can think of for a better tomorrow for this community and many such related communities across the world is a humanitarian recognition alongside guaranteed human rights.
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.
LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:
Discharge of contract under the Indian Contract Act, 1872 means when the party to the contract fulfills their obligations, the contract is to be executed. It implies termination of the contractual obligation. The discharge of contract means that the obligations of the contract come to an end, when the discharge of course all duties which arose under the contract are terminated. Let us take for example, person X owes Rs 500,000 to person Y and agrees to repay the same within one year. The debt owed is documented by the parties by means of a contract. Subsequently, person X encountered an unfortunate event that resulted in him losing a job and thereby asking to settle the final amount at Rs 100,000. Person Y accepted the same and thereby the contract between them had come into effect. This article discusses the aspect of discharge of contract by means of breach of contract.
What is a breach of contract
Contracts impose a set of performance obligations on all parties to the agreement. Failure to comply with these requirements of a contract without legal excuse is called a breach of the contract. Breach of contract is also the name of a civil cause of action pursued in court against the breaching party.
If a party to a contract does not perform his obligations or expressly refuses to perform the contract, it is called a breach of contract. In the case of breach of contract, the party who does not or refuses to perform his obligations is called the defaulting party. Whereas the other is called an aggrieved party.
Examples for breach of contract-
The failure of a party to make payments as required by the contract: A tenant stops paying the rent.
The failure to perform a task or the alleged timeliness of performance: A painter starts painting in an office building, but does not finish the job by the agreed-upon completion date.
Various modes of discharge of contract
Discharge of contract by performance: Discharge by means of person involves the obligation of a party coming to an end, at the time he performs his promise. The contract completely comes to an end by means of performance of respective obligations by all the parties. This is termed to be the normal and natural mode of discharging a contract.
Discharge of contract by mutual consent or agreement: When every party involved in an agreement by mutually consenting to discharge the contract they have entered into, cancels the same or alters its terms or enters into a new agreement substituted for it, the same is said to be discharge of contract by mutual consent.
Discharge of contract by the impossibility of performance: Discharge of contract by the impossibility of performing a laid down task in the contract with reasons for the same being death, illness, or a reason caused by the other party, is termed to be discharge of contract by the impossibility of performance.
Discharge of contract by lapse of time: If the promisor fails to perform and the promisee fails to take action in regards to such failed action, then the latter fails to seek remedy by means of statutory promises. Thus the contract gets discharged because of a lapse of time.
Discharge of contract by the operation of law: The contract is said to be discharged by the legal operation when the contractual duties of the parties come to an end due to legal involvement. The term operation of law can be simplified to mean legal components that are given automatically.
Section 39 of the Indian Contract Act, 1872 states that if a party to the contract without a valid or unlawful reason, refuses to perform his obligations under the contract, the other party has the right to repudiate the contract.
Discharge by breach of contract
There are two types of breach, namely,
Actual breach: If a party fails to perform his obligations under the contract in the stipulated time or refuses to perform such obligation, then such breach of contract is called as actual Breach.
Example- Vinod promises to deliver flowers to Dheeraj. On the 19th of April, the appointment day, he refuses to deliver the flowers. In this case, it is an actual breach.
Anticipatory breach/ constructive breach: If a party to a contract, before the stipulated time of his performance, by word or mouth or by behaviour makes known or his intention, not to perform the promise. It is deemed to be an anticipatory or constructive breach of the contract.
Example- If Vinod informs Dheeraj before 19th of April, his intention not to deliver the flowers and sells the flowers to Trishul before that date it will be a case of anticipatory or constructive breach of contract on the part of Vinod.
In a situation of anticipatory or constructive breach of the contract, the aggrieved party has the right to
Assume the anticipatory breach to be an actual breach of contract and sue for breach of promise or
Not to assume the anticipatory breach to be an actual breach and wait for the performance of the contract on the stipulated date, and sue for breach of promise if the promisor fails to perform
Remedies available in discharge by breach of contract to the aggrieved party
Cancellation/Exoneration/Rescission
Claim for Quantum meruit
Claim for injunction
Claim for Restitution
Claim for specific performance
Claim for damages.
(1) cancellation/exoneration/recession: When one party commits a breach of contract, the aggrieved party can assume that the contract is terminated and resend the contract, and is exempted from the further performance
Example- Suresh makes a contract to sell certain goods to Rajesh for Rs.15,000 and Rajesh promises to make the payment on the delivery of the goods
If Suresh refuses to deliver the goods at the promised time Rajesh can assure the contract is terminated. In this case, he is freed from his commitment to pay the amount of Rs.15,000.
Exceptions: where the aggrieved party cannot rescind the contract
i. When the aggrieved party who wants to cancel, the contract has given his express or tacit confirmation to the contract.
ii. When the contract is in a state of change with the entrance of a third party, and a third party has, lawfully in good faith, acquired the right of performance of the whole or part of the contract so the aggrieved party cannot be exonerated
iii. When the contract is not divisible, the aggrieved party cannot rescind one part of the contract.
iv. When without the fault of the parties to the contract, the circumstances change and it is no more possible for the parties to go back to the old state. The aggrieved party cannot be exonerated from the performance.
(2) Claim for Quantum meruit: Quantum Meruit literally means “as much as earned“. When one party at the request of another party does something or supply some goods to the other party and the compensation of such goods or services has not been decided the time of the contract then the law decides what should be adequate compensation for such goods or services, is called as Quantum meruit
How much or what would be the compensation depends upon the circumstances of the case of;
Example- A promises to construct a house for B for Rs.1,00,00. After A has started the construction, but before its completion, B abrogates the contract and stops A from work in such a situation. A can sue for adequate compensation for the work that he has already been done, and also sue for damages.
Essentials for the law of quantum meruit to be operative –
i. It is necessary for the contract to be divisible in the sense that it is possible to estimate the value of the path that has been executed.
ii. It is also essential that the contract is not abrogated by the party, making the demand for compensation.
Example- A is in a contract to write a book for a publisher. After writing two chapters, he refuses to complete the book in this case. A cannot claim to be paid for the two chapters he has written.
(3) Claim for an injunction: It is a negative order given by the court that restrains a party from doing something
In the case of Warner Bros. vs Nelson (1937), a film actress agreed to act exclusively for Warner Bros for a year and for no other producer. During the year she contracted to act for another producer. It was held that she could be restrained by injection for doing so.
(4) Claim for restitution: Section 65 provides that when a contract becomes void, Any person who has received any advantage under such contract, is bound to restore it or make compensation for it to the other person from whom he received it.
Application of claim of restitution- This section applies to contracts that become void. It does not apply to contracts which are known to be void ab initio.
Example- If Rajesh pays Rs.200 to Suresh to beat Dixit, the money is not recoverable as the contract is void ab initio.
(5) Claim for specific performance: when in the case of a breach of contract, damages or not deemed to be adequate remedy, the aggrieved party can sue the party in breach to carry out his promise. This is a direction by the court for specific performance of the contract at the suit of the aggrieved party.
Example- A agreed to deliver goods to B, On 21st of August 2023.
But backed out to deliver the goods due to which, A will face a huge loss and also would lose an important client. A can appeal to the court for specific performance of the contract specific performance shall not be granted in the following cases:
i) When it relates to personal skill.
ii) Where continuous supervision from the court is required.
iii) When he was ready to perform earlier, but the other party was not ready.
iv) Such an act has a strict ban from law to perform ( eg- lunatic ,insolvent).
-(6) Claim for damages: Damages or a monetary compensation allowed to the aggrieved party by law for the loss or injury suffered by him for the breach of contract . The purpose here is to help the party who has suffered a loss to retain the position. It had before the loss was imposed upon the party by the breach of contract.
Example- Suresh promises to deliver hundred cycle tyres at Rs.50 each to Mahesh on 1 May 2020, but does not perform his promise on that date . In such circumstances, if the price of the tire on 1st May is Rs.55 per the tyre , then Mahesh is entitled to claim damages at Rs.5 per tyre from Suresh and can sue for damages.
Kinds of damages
Compensatory damages:
i) General damages- When a contract is broken, the nature and direct loss suffered by the aggrieved party is called as general damage.
ii) Special damages- A loss that arises out of special circumstances, prevailing at the time of breach of contract is called a special damages.
iii) Punitive damages- This kind of damages deals with mentary compensation and is generally provided in cases involving grave disappointment, mental agony, for example sexual harassment.
Nominal damages:
When the aggrieved party has not in fact suffered any loss by reason of the breach of contract, the damage recoverable by him is nominal i.e very small but wants to teach a lesson.
Conclusion
As we come to the end of the article, we can understand that discharge of contract refers to the end of a contractual relationship with the obligations duties fulfilled by the parties in the contract. In this case the discharge of contract of cause due to the breach done by the defaulting party and there are various is available to the aggrieved party. The defaulter can be sued for breach of damages, injunction, quantum meruit or specific performance. Also, there are various modes of discharging a contract but the best way to do it is by performing the promise within the stipulated time and as stated in the contract by the parties to avoid unpleasant ways.
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.
LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:
In a tech-oriented world, businesses owe a long-term path of defined success. If a business wants to flourish on a large scale, it must define its presence among people in different ways. Today people have a keen interest in becoming entrepreneurs as they are familiar with the power of online platforms to make their business idea a super hit or flop; digital marketing is one of those powers. This article aims at discussing the need for digital marketing and the scope it carries alongside the challenges.
A brief about digital marketing
As per Saura (2021), Digital Marketing (DM) is a set of techniques to persuade a customer to buy something (product/service). Any sort of involvement of electronic devices for marketing can be considered as part of digital marketing. Online and offline marketing are two key pillars of digital marketing. In the current scenario, each business has a strong internet presence to serve its existing customers and approach new ones. It is somewhat the same as traditional marketing but still considered a new method for companies for reaching customers and understanding their buying behaviour. As per Gupta (2020), techniques that are used by online businesses to know their customers better are Search Engine Optimization (SEO), programmatic advertising, Search Engine Marketing (SEM), Content Marketing, Social Media Marketing (SMM), Email Marketing, Video Marketing, Influencer Marketing, Ephemeral Marketing, etc. Have a look on few of these:
Search Engine Optimization: According to Olson et al. (2021) this is a procedure of bringing more traffic or improving the quality of traffic on a web page from search engines like Google, Yahoo, Binge. This helps in increasing the rank of a website on a search engine.
Content Marketing: This is a strategy for attracting, engaging and retaining an audience by creating videos, podcasts, articles, blogs, copies, etc. This is a kind of inbound marketing, if done properly, makes it clear that the respective company values its customers (Lopes and Casais, 2022).
Email Marketing: For this you need to maintain a list of potential customers that are interested in your business, product and services. Just send them regular emails to update them about new products, services, discounts and so on (Desai and Vidyapeeth, 2019). Try to keep them engaged either via conversation or sales.
Opportunities in digital marketing
There are a variety of industries that rely directly on customer behaviour, like travel and tourism, retail, luxury, entertainment, technology, and so on. All these industries are open to digital marketing and, thus, also enjoy all the opportunities that come their way via their presence in the digital market.
a. Knowing customers with effective cookie handling: Today, every application used by an individual asks for storing customer information by way of system cookies. This stored information is later used to track the activities of a person, like what they are searching for, their preferences, buying power, etc., on behalf of which the ads are shown to the individual to push them to install a particular application or to buy a certain product or service.
b. Grabbing unsaid customer commitment by offering doorstep delivery: Since the digital market has taken place in our lives, the contact of manufacturers, traders, and sellers with customers has declined at a fast pace. Because of limited face-to-face contact, delivery or shipping service is the only way of knowing a customer and handing over the information to online businesses. For instance, during Covid, delivery businesses made up their position in a significant manner and proved themselves as an important part of the economy.
c. Cost-effective marketing: When a business is already familiar with its customers, their wants, and preferences, it becomes easy for it to design under-budget ads, billboards, etc., and these can attract lakhs of customers with one time of investment.
Key benefits of digital marketing
a. Personalised interaction: It promotes interactive and live communication with the customers, therefore giving them a chance to design a product or service as per their expectations and understanding. A personalised interactive one-on-one conversation with a customer helps in making up their mind to buy a certain commodity.
b. Easily measurable market results: Whenever a business runs an advertisement or campaign online, it is easy to track its performance in terms of how many people have seen it, how many have reacted to it, how many got influenced from it, and so on. This was not possible in traditional advertising, which gave inaccurate data indicating whether the funds are spent efficiently or not. Online ads offer a chance to monitor and evaluate customers’ behaviour and find ways to make profits.
c. Effective for start-ups and MSMEs: Digital presence is a panacea for evolving businesses. This would not only help them in attracting customers but also attract investors by creating creative ads, flyers, websites, applications, etc.
Key challenges in digital marketing
a. Digital Divide Issue: Digital divide is a disparity between those who can afford internet services and who cannot. Even access to reliable internet service and digital space is a challenge. In addition to technical challenges, this is also a social issue that needs to be resolved by digital marketers. Because of this gap between the privileged and underprivileged, not a notable percentage of people go forward with applications of e-marketing.
b. High customer acquisition cost: As discussed above, not so many people are aware of these online businesses; thus, attracting customers and retaining them on the applications is quite tough. Companies need higher investments for e-advertising via social networking and creating awareness.
c. Lack of skilled manpower: If an online business wants to succeed, it needs the right knowledge and capable expertise in the field of digital marketing. While hiring for this job, an employer needs to judge the technical as well as creative skills of the candidate because, at the end of the day, creativity is what lasts and attracts customers. On the other hand, candidates should have the ability to adapt to rapidly evolving technologies and participate in training sessions to embed new skills to counter the market.
d. Rising competition: As of now every small or big business is taking support of e-marketing to expand nationally and globally in the digital market, this is resulting in high competition. In order to stand out from the competitors, a business should have a major focus on its customer’s wants globally, and then send them ads, emails, and posts related to their preferences to make them buy certain products or services.
Conclusion
This article has discussed all the related perspectives of digital marketing whether good or bad. Above all its pros and cons, it is a fact that to chase this fast-changing world, evolving people, their taste, and their mindset, digital presence is the need of the hour. An individual running a business cannot go to each of its potential customers to know their needs and wants; this was the reason why traditional marketing strategies were slow in giving outcomes. And here, digital marketing plays a significant role in each industry type, the only requirement is to learn how to use its tools and techniques in the right manner. Therefore, it is not wrong to claim that digital marketing provides ample opportunities for building effective customer relationships by directly knocking on the doors of their mind with attractive ads and campaigns.
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.
LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:
This article is written by Ms Sushree Surekha Choudhury from KIIT School of Law. The article gives a descriptive overview of the principle of rule of law in the United States. It speaks about the origin of the concept and its development over the years.
It has been published by Rachit Garg.
Table of Contents
Introduction
Have you been someone who loved the “Harry Potter” series and novels in their childhood? If yes, you will definitely relate to what I say next. Remember how in ‘Harry Potter and the order of the Phoenix,’ Harry Potter was served with notices from the Ministry of Magic for making improper use of magic in a defence attack against the dementors? Remember how Dumbledore ran Hogwarts School with specific rules and regulations? Remember how Professor Umbridge was handed over to the administration but was later removed because of her tyranny? All of these instances were examples of the rule of law being followed in Hogwarts!
Rule of law: a basic feature of the Constitution
‘Rule of law’ derives its origin from the French expression ‘la principle de legalite.’ This expression means a government based on the principles of law. The expression ‘rule of law’ was coined for the first time by Sir Edward Coke. It was further articulated by Prof. A.V. Dicey in his book ‘The Law of the Constitution (1885)‘. This development took place in the UK and was thereafter adopted by the USA and India. The US rule of law is an adopted concept where all US citizens, institutions, authorities, and entities are accountable and responsible for the publicly promulgated laws. These laws are equally applicable and enforced against everyone equally. The adjudication process must be independent and fair. All these laws must be in consonance with international human rights principles. The courts play a crucial role in upholding the principles of the rule of law. The principles often come as a rescue for the minority communities of a state against discrimination in the laws of the land. Equality before the law has been given high importance in the American Constitution. It prescribes strict punishment to a majority community if it infringes the fundamental, constitutional, and legal rights of minorities.
Other essential features of the US Constitution
The rule of law, federalism and the separation of powers doctrine is at the heart of the US Constitution. Apart from these basic features, there are several other elements that together constitute the US Constitution. These are:
The people’s government
Firstly, the US Constitution is validated and legitimated by the people when it benefits them and accords them with basic rights and freedom. The US Constitution is by the people and for the people. These features are also embedded in the Preamble of the US Constitution. The US Constitution is not an act of the government but rather of the people constituting the government. A government without a Constitution is compared to a power without rights.
Political responsibility
Further, the US Constitution states that the US government is politically responsible toward its citizens and to the States. This responsibility is exercised through a system of checks and balances and accountability.
Limited government
Further, the US Constitution states that the US government is a limited government by nature. The political and legal limitations put on the government through the Constitution prevent it from being unlawful, vague, or arbitrary toward its subjects.
Division of powers
Furthermore, the US Constitution states that in order to achieve limited government, the powers of the government must be definitive and distributed. This is achieved by the division and separation of powers between the organs of the government.
Bill of rights
The US Constitution is regarded as a bill of rights. This is because it aims to provide and protect the basic rights of the citizens, as well as maintain a check and balance mechanism on the functioning of the federal government and its interference in the citizens’ exercise of these rights.
A brief history behind the conceptualization of rule of law
Marking the beginning since the 13th century AD, the concept of the rule of law took shape through the lenses of Sir Edward Coke and Prof. A.V. Dicey as in brief below. It was because of Coke and Dicey that the concept was made a principle, but the origins can be traced back to several regulations in place historically. It can be observed as:
Magna Carta (1215)
Article 39 of the Magna Carta (1215) incorporated the values of rule of law by stating that no person shall be deprived of his freedom, be exiled or be punished except by a lawful judgement. This Article ensured the right to freedom, personal liberty, right to life, and right to property to the people in the kingdom. This gave them protection from the arbitrary rule of the king. It incorporated the rule that the judgement against a person must be made according to law. It talked about following the proper procedure that we denote as due procedure today. This was how the concept of due procedure was first established in the UK, and this was followed by its adoption in the US.
Federalist Papers
In 1788, James Madison, in his Federalist Paper No. 51, wrote that when a government is formed, it is established and administered by men over men. Thus, the government is entrusted to control the governed and then control itself as well. This issue was discussed and addressed by US Constitution makers and policymakers. As a solution, they decided to divide the powers of the government by creating different branches of it. Ever since the division of powers between the executive, the legislature, and the judiciary has been prevalent. This separation of powers in the US was made to ensure that no organ is vested with excessive powers and thereby misuses these powers. The separation of powers doctrine provides checks and balances in the US government. The doctrine ensures that no man is treated above the law.
Elizabeth Stanton’s observations
Elizabeth Stanton, a notable social activist observed and delivered in 1869 that the rule of law can be said to have been maintained in a state where the citizens obey and respect the law. While giving importance to men that follow and observe the laws, Stanton stated that it would become impossible and overwhelming to punish for contempt and hold the rule of law if people decide not to obey the laws. Stanton also focused on the importance of making laws in a way that people find good to obey. Otherwise, the law will lose the respect of its citizens, and this will lead to disobedience and chaos. People obeying the laws is a part of the social contract. When people obey the laws, they are accorded social benefits and social order in return from the government.
Rule of law: an insight
Rule of law is the principle that ‘no man is above law.’ Law is not something which can be created by anyone’s act or will. It can only be discovered from the already existing truth of nature. One essential principle governing the rule of law is its feature of keeping a check on the power of the government. Rule of law focuses on the principle that the government must act conforming to the laws and regulations of the country. The government should, at all times, follow the due process of law. These principles provide protection against an arbitrary ruling of the government and, thus, protect the interests of the people.
Theories on the concept of rule of law
The rule of law developed in the US from the contributions of many theorists. It developed through these theories and the concept kept evolving as to the changing needs of society. Some of these theories were:
Coke’s theory of the rule of law
The origin of the concept of rule of law dates back to the 13th century AD when judge Henry de Bracton said that the King ought to be subject to God and to law. This was the origin of the idea, which was later given shape by Sir Edward Coke.
Sir Edward Coke explained that the rule of law must have the following elements:
There must be an absence of arbitrary powers or the use of powers arbitrarily by the government, and
He stated the proper way of inflicting punishment. Coke stated that, according to the rule of law, no person should be punished except for a breach of the law. He further clarified that such a breach can be punished only when it is established and proven in the courts of the land in a legal manner.
These principles marked the beginning of the concept of the rule of law.
Criticisms of Coke’s theory of rule of law
Coke’s theory of rule of law marked the beginning of the conceptualization of the rule of law. It came with certain criticisms. The theory was fiercely criticized by Thomas Hobbes. Thomas Hobbes criticized Coke’s theory of Common Law by pointing out the subjectivity and the indeterminacy of artificial reason. Hobbes referred to the theory as a theory of artificial reason. Coke called reason to be the heart of the theory but Hobbes was of the opinion that reason is a concept well understood by lawyers and lawmakers. It is more in maxims than in usage.
Dicey’s theory of the rule of law
After the invent of Coke’s theory, Prof. A.V. Dicey in his book spoke about the rule of law possessing the following elements:
There must be absolute supremacy of the law of the land,
There must be an absolute absence of arbitrary powers of the government, and
Even the broad discretionary authority of the government could be termed arbitrariness.
Professor Dicey stated that the rule of law consists of the following principles:
Supremacy of law
Dicey stated that the most basic yet crucial provision of rule of law is the supremacy of laws. Under this principle, no one can be punished except for a breach of law and only after such a breach is legally proved in a court of law. This principle also states that the law is supreme and treats all alike. It is the same for a common person as it might be for a government official. Everyone is bound to obey the laws of the land. Due procedure must be followed by the courts in establishing breaches.
Equality before law
This principle states that no man is above the law. Every individual is seen and treated equally under the law. People of all classes, castes, creeds, colours, and races in the United States are treated alike under the US Constitution. Equality before the law has been given high importance in the US.
The predominance of legal spirit
Legal spirit refers to the spirit of justice. This principle states that law and justice are coincidental. It states that law must follow justice, meaning that law should be in accordance with the law and not vice-versa. Dicey believed that rights such as the right to personal liberty, the right to freedom should rather be granted by judicial precedent than the US Constitution. Rights should be granted by the judiciary, and the US Constitution is the consequence of these rights. The Constitution should not be a source of it.
Criticisms of Dicey’s theory of rule of law
Dicey’s theory of rule of law was fairly accepted in the 19th century. However, it was criticized by several theorists in the coming years. Mentioned below are a few criticisms of Dicey’s theory of the rule of law:
Dicey stated that the UK Constitution was drafted according to the rule of law. This was opposed by the theorist G.W. Paton. Paton, while opposing Dicey’s view, stated that the UK Constitution is a result of years of political struggles and learning and not a clear and logically deduced legal theory of the rule of law.
Dicey focused on the concept of equality before law and said it to be an essential principle of the rule of law. This view was criticized by Wade and Forsyth, who drew attention to the principle of rex non-protest precarre. This was the principle that ‘the king can do no wrong.’ This principle provided an upper hand to the ruler of the state by providing immunity from the laws of the land. It was violative of the principle of equality before law and thus, Wake and Forsyth argued that there was no equality before the law in reality.
W.I. Jennings criticized Dicey’s theory of the supremacy of law. Jennings criticized this principle by stating that Dicey made a distinction between arbitrary powers and discretionary powers but failed to determine the differentiating factors between the two. He further criticized that, according to Dicey, the supremacy of law disallowed excessive discretionary powers of the government, but Dicey failed to answer the question ‘How much is too much?’, Jennings stated that even though Dicey’s theory consisted of these principles, the reality was different. There was, in fact, the exercise of arbitrary powers/excessive discretionary powers by several government authorities and departments.
Development of the rule of law in the US
The rule of law developed in the US when it was first adopted from the UK, and thereafter, the idea was conceptualized through phases and a series of discussions and legal observations.
Adoption from the UK
The rule of law was first adopted in 1787. American policymakers and lawmakers adopted the concept from the UK, where it had been prevalent since medieval times. By incorporating the principle into the functioning of the US government, policymakers often described the principle as the ‘government of laws, not of men.’ Apart from the Magna Carta (1215) where King John decided to be obedient to the English laws, the idealization of the concept has traces from the ancient Roman jurisprudence as well. Henry de Bracton emphasized the fact that the ruler (king) must not be under the men of the state but rather under the supreme power of God and under the law, since it is the law that makes the king. North American English colonies also believed that the king’s dominion is derived from law. Therefore, the king must obey the supreme law.
Dr. Thomas Bonham v. The College of Physicians (1610)
In the case of Dr. Thomas Bonham v. The College of Physicians (1610), the principle of judicial review was emphasized. Judicial review was considered a fundamental principle in the direction of achieving the implementation of the rule of law. In this case, Chief Justice Coke emphasized that the judges must be given the power to strike off an Act of Parliament if they observe it to be against the principles of law and justice. Such an Act of Parliament should be declared void also when it is against the common law of the country. Stating these reasons, the court, in this case, concluded that the judiciary must possess the power of judicial review.
Court’s power of judicial review
Even though the aforementioned case emphasized the power of judicial review of the courts and observed that such power must be exercised, it was largely inactive in the years that followed. In 1776, Supreme Court judges called the whole notion contradictory and paradoxical because of the presence of the principle of legislative supremacy. The principle of legislative supremacy gives the highest degree of power to the policymakers and lawmakers and this makes it impossible for the judges to declare any Act of Parliament void since that Act is created under and protected by the principle of legislative supremacy.
Constitutional supremacy
The Federal Constitution of 1787 introduced the concept of ‘constitutional supremacy.’ This impacted society significantly as it increased the importance of the US Constitution and put everyone under an obligation to abide by it. The ambit of constitutional supremacy confined the federal government, government officials, senators as well as citizens under the supreme law of the land, under Article VI.
Martin Luther King Jr. (1963)
Sir Martin has made significant contributions to the field of law and justice. He once wrote a letter from the Birmingham jail where he discussed the difference between law and justice. He believed that law, even when applied uniformly, does not guarantee a fair consequence. He believed that a person who once broke a law but accepted the punishment willingly to arise society’s conscience towards justice and injustice, in fact, has the highest respect for law. Sir Martin focused on the importance of appropriate justice and stated that a society that aims to establish and adhere to a rule of law must ensure that the rule of law guarantees justice in the end.
The Rule of Law in Times of Stress (2003)
The article contributed by US judge Diane Wood discussed about the importance of transparency in a legal system. She focused on the importance of having a transparent legal system where neither the law nor the due process is confidential. Focusing on the importance of uniformity in law, she stated that such transparent law must not be arbitrary and should be such that people can understand it. Speaking further about transparency in law, she stated transparency not only means that the citizens know what the law is but also know the reason behind the enactment of such law. Further, the rule of law must ensure that following it must end with predictable consequences.
The rule of law and the US Constitution
As discussed earlier, the US Constitution is the supreme law of the land. All other legislation, government actions, rules and regulations, etc., abide by the rules of the Constitution. A government that runs in accordance with the constitution is referred to as its “constitutionalism.” It is only when a government maintains its constitutionalism that it is treated as a “constitutional government.” A constitutional government abide by the principles and doctrines of the constitution, as well as derives power and authority from it. Constitutionalism is maintained when there is a reasonable restriction on the powers of the government and arbitrariness is removed with the help of separation and balance of power. Simply put, constitutionalism is the adherence to the rule of law by a government and its constitution. The US Constitution supersedes all other laws of the country and all the officials, the government and the citizens abide by this supreme law.
The government and its officials are entrusted with the obligation to uphold constitutionalism through the rule of law in the US. They protect the rights and liberties of individuals by applying the rule of law as a basic feature of the US Constitution. The principles of constitutional supremacy and judicial review were the first to establish a rule of law in the US judicial system. This took place through landmark judgements and their judicial interpretations. In this context, the most important decision was laid down in the case of Marbury v. Madison in 1803.
Marbury v. Madison (1803)
After the introduction of the Supremacy Clause and the development of the concept of constitutional supremacy in 1787, judgements in similar lines of the principle followed. In the landmark judgment of Marbury v. Madison (1803), the doctrine was implemented and discussed. It was observed that an act of the Parliament which may be inconsistent with the US Constitution will become void. This judgement established certain crucial principles:
Federal laws inconsistent with the US Constitution are invalid (constitutional supremacy), and
Judges were vested with the power to decide the constitutionality of federal laws (judicial review).
Facts of the case
The case involved a dispute between then President John Adams and the next incoming President, Thoman Jefferson. In 1800, the Democratic Republic party of Jefferson beat the Federalist party of John Adams in the presidential elections. While John Adams enjoyed power, he made friends and allies and posted them to higher positions in the administration and the judiciary. Adams, before leaving office, was unable to serve commissions to certain appointees and, during this time, Jefferson assumed power. Jefferson, through his Secretary of State, James Madison, stopped the appointment of these officers. William Marbury, who was to be appointed as a justice of peace for Washington, D.C., sued Madison for non-appointment. Marbury requested the Supreme Court to issue a writ of mandamus against this action of Madison to compel him to fulfill his lawful obligation.
The decision of the Court
Chief Justice Marshall ruled in favour of Marbury. He stated that it was Marbury’s right to be served by the commission and that, by stopping it, President Jefferson and his party were violating the supreme laws of the land. J. Marshall said a writ petition of mandamus could be filed against the Secretary of State and stated that the Jefferson government cannot withhold Marbury’s appointment.
However, J. Marshall then sided with Jefferson and Madison. This was because J. Marshall stated that the judiciary did not have the right to issue a writ of mandamus. Marbury was seeking a writ of mandamus under the Judiciary Act of 1789. This Act was inconsistent with the US Constitution since it violated Article III of Section 2 of the Constitution. By this, J. Marshall established the principle of constitutional supremacy. This was a part of the rule of law principles. J. Marshall further explained that between the Judiciary Act (1789) and the US Constitution, the Constitution shall prevail as it is the supreme law of the land. The Judiciary Act of Congress was thus declared invalid as being violative of the Constitution.
This case became particularly important not because of the decision it pronounced but for the principles it established while determining the case. The case followed the principle of constitutional supremacy. The judiciary also exercised its power of judicial review by declaring an Act void for violating the Constitution. The case also holds unrivaled importance in the history of the US for establishing and upholding the separation of powers doctrine in the country. These features together form the rule of law as we call it today. It was observed that the US Constitution and the power of judicial review in the US is an extension of the principle of rule of law. The principle of ‘the government of laws and not of men’ thus became the principle of the American legal system and governance.
The rule of law states that no person can act superior to the law of the land. A law must be made for the public welfare and everyone must obey it. Even the ones who make the laws (the legislative), enforce the laws (the executive), and all the officials and people with power must obey the law. A law inconsistent with the US Constitution is not valid. Rule of law also means equality before the law. A law that is discriminatory in nature, or is vague as to the rights of a certain section of society as compared to another, is not valid. Rule of law is a set of certain standards that, when followed, make a law valid and good. A good law is considered to restrain but not coerce people and gives enough room for every individual’s rights and freedoms. The law should be such that it gives liberty but not a license to do as they please. Thus, rule of law is aimed at establishing a perfect balance between freedom and reasonable restriction. In the end, the most basic and essential element is adherence to the supreme law. The Supreme Court of the United States intends to act like a watchdog of the US Constitution to maintain the purity of law and publish contempts and violations. The different branches or organs of the government were vested with the power to perform this function.
The US President is the supreme official who is vested with the responsibility of maintaining the rule of law and constitutionalism in the US. The President must ensure that the government, officials, states, and all the laws and legislation of the country are in adherence to the US Constitution. This obligation is vested upon the President right from the day he takes the oath and resumes office of the President. He vows to protect and defend the US Constitution (under Article II, Section 1, Clause 8). The Senators and other representatives of the US federation also swear loyalty to these vows. As the head of the executive and the supreme official, it becomes the duty of the President to ensure that the rule of law is abided by in the US.
United States v. United Mine Workers (1947)
The US Supreme Court Justice Felix Frankfurter while deciding the case of United States v. United Mine Workers (1947) observed that for achieving a free society law has to be administered through an independent judiciary. Absolute power in the hands of a few men will lead to chaos and tyranny. When the judiciary is absolutely free from political pressure and influences, it is said to be an independent judiciary. Justice Frankfurter believed that an independent judiciary is essential to uphold the rule of law. Independence of the judiciary will result in impartial decisions and every person will have an equal opportunity of being heard and guaranteed justice. The decisions made by a court shall also be subject to appeal and review from a higher court. This will ensure adherence to the rule of law by the courts by instilling accountability.
Gideon v. Wainwright (1963)
While focusing on the equality before the law principle of the rule of law, Justice Hugo Black observed in Gideon v. Wainwright (1963) that every individual, including an indigent criminal defendant, has the right to counsel. He observed that if a poor alleged criminal cannot afford to hire counsel to represent his case, the state has to provide him with the necessary legal assistance. He highlighted the Sixth Amendment to the US Constitution that guarantees the assistance of counsel to criminal defendants. Justice Black stated that fairness and impartiality in the trial cannot be claimed if the defendant has not been given equal standing before the law. If a defendant had to face the trial without legal assistance because he could not afford it, the trial could not be treated as a fair trial. He stated that from its very inception, the US Constitution has focused on procedural and substantive safeguards for ensuring fair trials in impartial courts and tribunals where everyone stands equal before the law. This is the rule of law.
Justice Anthony Kennedy’s interview
The US Supreme Court Justice Anthony Kennedy in an interview with ABA President William Neukom (2007) talked about the rule of law, saying that in America, the rule of law is considered to promote and ensure freedom, justice, and equality. The primary purpose of the rule of law in the United States is to promote basic rights. These values are further promoted by the US Constitution, which guarantees the basic rights of US citizens.
Advantages of the rule of law
The rule of law brought positive changes to American society. It brought equality between people and provided equal protection before law. Mentioned below are the many advantages the theory encapsulates:
Rule of law ensures and encourages judicial independence.
Rule of law upholds the values of the Constitution.
Rule of law limits the powers of the government and prevents arbitrariness.
Rule of law promotes transparency and equality in the legislative actions of the government.
Rule of law protects the people from inequality, and discrimination, and protects their legal rights, constitutional rights as well as civil rights.
By ensuring equality in opportunities and employment, the rule of law facilitates the economic growth of the state as more people get the opportunity to work.
Rule of law ensures two most important features in any democracy: constitutional supremacy and power of judicial review of the judiciary.
International rule of law promotes international peace, security and equality.
Rule of law provides for an accountable government that possesses transparency, honesty, and fairness.
Rule of law establishes a stable, corruption-free regime.
Criticisms of the rule of law
The rule of law from its inception of conceptualization has been criticized over phases and periods of its evolution. While some criticize it as being influenced by political pressures, others believe it favours the dominant classes of society. The feminists criticize the theory for its failure to value and address women’s atrocities. Mentioned below are the criticisms of the theory of the rule of law:
Criticism of a ‘legal person’ and its construction
While the rule of law theorists argued it to be naturally evolving, believers of Marxism and feminist movements argued it to be a result of social forces and factors. Marxism criticizes how the rule of law conceptualizes free and autonomous legal individuality. Marxism believes that the concept of free and equal individuals is not true in a society that is a result of production and the economic market. The rule of law and equality before the law principles shadow the honest construction of society with a concealed notion of legal individuality.
Feminists have criticized the rule of law for how a legal person is construed. They argued from the lens of feminist jurisprudence that a legal person under the rule of law is mainly focused on men. The nature of the portrayal of a legal person has shadowed and silenced the experience of women. This is said because the rule of law is only focused on providing equality in the public sphere, which essentially affects men. The atrocities of women in the private sphere is little or not addressed at all.
Criticism of features of equality, neutrality and generality
The rule of law claims to guarantee equality to all and equality before the law to all classes. It claims to be neutral for all genders and categories of people. Marxism criticizes these features as only existing in the paper. Marxism believes that the rule of law is a dominant ideology, made and modified for the benefit of the dominant classes of society. As the concept of a legal person itself is not true to its application in society, thus the logical reasoning of equality and neutrality does not hold true either.
The feminists criticized the concept of neutrality in the rule of law, saying that women’s rights have been suppressed and their voices silenced. As the rule of law addresses women’s rights and grievances negligibly, it cannot be said to be neutral. The rule of law is inadequate in providing legal equality to women.
The rule of law is criticized for favouring the dominant classes of society. Thus, the beneficiaries of this principle are ultimately the capitalists. Those who do not belong to these dominant classes of society continue to suffer in the hands of the law and anarchy that gives no legal importance to their rights. The rule of law is further criticized for increasing discrimination in society and the plight of the poorer classes, who get further oppressed. The dominant classes, empowered by the support of law, further assert dominance over the oppressed class. This in turn widens the gap between the rich and the poor in society.
Politics in law
The nature of rule of law is criticized as being influenced by arbitrariness and political pressures. Liberals claim the rule of law to be free from political influence, but this has been denied by critical legal scholars. They believe the law to be a result of domination by political conflicts between different political groups. Feminists criticize the rule of law as being discriminative in several concepts and procedures, such as rape trials.
A dominant ideology
The rule of law has been criticized as being a dominant ideology. Marxism believes an ideology to be socially construed and as a consequence of social factors that shape its existence. The rule of law expresses its ideology to be neutral, but in an evolving society, the ideology differs for different classes of people. The oppressed sections of society have a very different ideology and perspective on freedom, rights, and liberty than the elite classes. A neutral ideology can be claimed only when all the aspects and factors affecting the shaping of ideologies in society are completely understood. The rule of law is criticized for not having a complete understanding of the material history of society from its inception. Ideologies take different forms by socially contradicting ideas and experiences. The rule of law only takes into consideration the ideology from the perspective of ‘what is more evident.’ This has legitimized the ideology of the dominant class. The dominant classes of the society dominate the social relations and the rule of law is too, construed by it.
International rule of law
International law has never particularly defined what is the rule of law as a concept but it has been considered synonymous to law and justice, and also a political ideology that guides the international society as a whole. As the name suggests, international rule of law is concerned with the domestic laws of all the states being in adherence to the international norms of justice, and that all the states abide by the international rule of law and justice. Further, the international rule of law also ensures that the domestic law of different states are at par with one another and are based on similar standards of norms. As it always has been, the international rule of law aims to protect human rights and the international norms and standards are articulated in a manner that fulfils this objective. The international rule of law binds not only the states but also the international bodies and organizations that function together in achieving the common objective. Therefore, international rule of law can be regarded as a model rule of law for all international organizations, bodies, and states to make their regulating laws.
Mentioned below are some elements of the international rule of law:
The nature of law must be certain. It must be concise and provide accurate guidance in solving questions.
The international rule of law must be guided by the principle of “equality before the law” and every international body, organization and state must abide by it.
There must not be any chance of arbitrariness. The law must restrict the exercise of power by those in authority and must protect human rights.
The international rule of law must be implemented in solving disputes, enforcing judgements and making policies, in its true spirit.
International treaties and conventions promote the rule of law in the international sphere. The United Nations Secretary-General explains the rule of law as a principle under which all people, organizations and states are accountable for the publicly promulgated laws and the international norms and standards attached to them. It possesses features of separation of powers, supremacy of law, equality before law, fairness, absence of arbitrariness, legal certainty and transparency (Report of Secretary-General: The rule of law and transitional justice in conflict and post-conflict societies, 2004).
Conclusion
The rule of law is an age-old principle. It was first observed in the 13th century AD and has evolved ever since. The concept has become a fundamental principle in national and international spheres. International law organizations set international norms and standards for the rule of law. These countries take inspiration from these standards and inculcate them into their domestic laws. The states follow the rule of law through their Constitutions. The rule of law principle was first formulated in the UK by Sir Edward Coke and Prof. A.V. Dicey, and thereafter, it gained recognition in the US and India. The US Constitution adopted the rule of law principle as a basic feature and made laws in adherence to this principle.
Frequently Asked Questions (FAQs)
Is the rule of law codified?
The rule of law is not codified under any Article of the US Constitution or international law. It is a principle that forms the essence of these laws. It is a basic feature that governs the laws and the government of a state. Under international law, these are a set of norms and standards that govern the relations between different states and subjects of international law.
How does the rule of law prevent arbitrariness?
The rule of law principles limits the powers of the government and puts reasonable restrictions. It mandates them to follow due procedures and also divides power between the organs of government. These features put a check on governmental actions and thus, prevent arbitrariness.
How is the independence of the judiciary related to the rule of law?
Independence of the judiciary and the power of judicial review are essential features of the rule of law. It keeps an eye on the laws made by the legislative and strikes them down if found arbitrary. It also prevents arbitrary actions of the government and its officials.
What is the modern concept of the rule of law?
The modern concept of the rule of law safeguards the political and civil rights of people. It guarantees socio-economic freedom and cultural and educational rights to every individual in a society. It does not interfere in the religious affairs of people. It guarantees a right to privacy. It ensures equality for the minorities and less privileged sections of society. It protects people from the government’s arbitrariness. It guarantees an independent judiciary to grant justice to people.
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.
LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:
This article has been written to give a perspective about the repercussions of availing a home loan with the intent that the readers make a wise choice when they do so. In India, around 80% of residential real estate projects are acquired by home loan. This particular data standalone sums up the importance to be aware about the choice you will make and making sure you don’t miss out on weighing all the pros and cons to make a decision ideal for you and your most precious asset, your family.
An emotional purchase
There’s nothing wrong with purchasing anything which makes you feel strong emotions, it could be your first car, first trip, first gift from your own hard-earned money. However, as rightly stated by wise men, you cannot let your feelings cloud your judgment, they might end up making you experience emotions you didn’t wish for.
A sense of obligation is felt at a social as well as at a personal level, to own a roof in your name. This obligation often works as a catalyst that persuades your mind to avail the loan when you might not or in fact is not ready for it. Another feeling is that of uncertainty, the second most precious asset to your life is peace, people want to settle at a place that gives them a sense of peace because they don’t have to think about the anxiety of moving out to another place, do all their due diligence, legal work, rent agreements, search for a place accordance to the finances, and tons of factor to consider while moving into a new place, again and again like a cycle.
It’s absolutely okay to feel these emotions, we all are human, but again the principle question is are we clouding our judgment? Are we depending solely on emotions to make a decision that will greatly impact not just ours but the lives of people we hold dearest in our life? After all, a house is just a house until a family makes it a home.
Investment angel in the unforeseeable future
There is this phenomenon that is commonly shared with the other precious aspects of life such as health, relationship, growth and success, that is, a long time commitment which is also the cardinal factor you should consider before availing a home loan.
Let’s face it, the usual timeline for a loan ranging around 30-75 lakhs can last up to 10-30 years.
Welcome to the era of unpredictability, layoffs and modernisation, there is no telling where your life will take you to in the next phase, both in a negative as well as in a positive way. Consider a situation, where you are getting an opportunity in a new city, you may feel influenced because you have to pay heavy EMI’s and that would be getting a major chunk of your money and hence increasing the chances of dropping the idea to move out, you need to understand what you missed here, your growth.
The next is the investment angle, if you are paying a major portion of your monthly salary in the repayment of your debt, you would be missing out to invest in equity, shares, stocks, funds and alike which would further give you long-term valuable returns, those returns can give you access to execute your ideas which can open up a world of opportunities for you, you again need to understand what you paid alongside the equated monthly installments, you paid the cost of opportunity lost.
If you contemplate through the lens of asset and liability, the home loan is a liability, and understanding each and every aspect is important so that this liability doesn’t come in the way of a potential asset in the future, we would be now discussing these angles in a much broader and at an important level, that is, the impact it can create to the development and steadiness of a family.
Risk of financial turmoil in light of family planning
Raising a child is already financially stressful and with the coming times, everything is going to increase only, providing proper education, health and growth are the primary concern of parents. Not only birth but there can be several instances where your life can be turned upside down, an event is all that it takes.
Fulfilling the primary requirements is not the end of the goal, no one wishes for that, everyone wants to live a life not just of necessity but of desires and fulfillment of wishes which gives them satisfaction.
Another dent that you might be experiencing could be hindering the growth of not just yours but the most precious asset of your life, your family. For instance, you may compromise that extra music classes your child wishes to join, or some wishes you thought would bring joy to your loved ones. However, the monthly EMI has already taken a good share of your finances and you might feel compelled under such situations, satisfaction is costly and you need to pick what investment will give you one.
The next dent is the penal interests and amounts which are to be given in times of default, in a simpler sense these can add up to a lot in the end and will negatively impact your financial liberty making your expenses worse.
Further, a loan is not only taken to build a home but to achieve one’s goals and attain a healthy lifestyle and for that CIBIL comes into the picture. Your CIBIL takes a hit, reduces the point, attains negative remarks which are visible in the credit report that resulting in decreasing your creditworthiness which eventually ends up reducing your chances of availing future loans, be it for the education of your child, finances needed to recover from serious illness, an uncertain event etc that would literally change your world upside down, after all the asset of reputation is the most difficult to revive.
This doesn’t end here, you lose out to another opportunity that would have eased out your financial stress by lowering the EMI burdens and that is home loan transfers. For those of you who don’t know this, home loan transfers is a tool that you can use to get a new lender who pays the outstanding amount of the loan to your former lender and henceforth, the liability is shifted to repay the loan to your new lender, borrowers do so to get better interest rates but, since you are classified as high risk from the perspective of banks, it gets way difficult to get one.
Conclusion
This article does not intend to discourage the issuance of home loans, it simply helps you out to weigh all the negative impacts it could possibly have on your future and of your loved ones so that you can make an informed decision, as availing a home loan have certain advantages too; however, it is up to us how we execute the whole repayment so that it doesn’t cost something we didn’t wish for.
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.
LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:
With companies growing aggressively in the last decade, hiring has evolved over a period of time. The current generation of entrepreneurs have given more importance to their teams, especially with respect to hiring in the first place. Having a proper matrix has always caught their attention and value addition in getting the right fit for the job has been a priority. Recent lockdown during the Covid-19 pandemic has also opened doors to remote work culture which has actually transformed the world into a global village for hiring remote talent. The model has been very successful except for a few challenges that need to be addressed. This article provides insight as to how remote talent must be recruited in India for the purpose of startups.
India – a solution for remote operations/setups
India as a country of 1.4 billion people is the most populous country of the world and a hotbed of talent. Diversity in culture spreads across the length and breadth of the country. Education is of top priority in India and people go to the extent of selling their valuables and ornaments, taking out loans with parents’ possessions to get degrees. The firm belief of getting prosperous through education holds high. Literacy in India is at 78% which translates to 1.1 billion literates. Hard work along with smart work is a culture in this country which has sprung from the socio-economic backgrounds and upbringing in most of the societies. English has become a language of choice and fluency in communication has been a major game changer in the past 2 decades. All these factors have influenced the country into the most sought-after destination for remote setups that Startups require to scale up rapidly. The availability of large pools of talent at a reasonable cost has been an icing on the cake.
The gig economy
As per NITI Aayog, the apex policy think tank, India has a workforce of 500 million and the world’s youngest population. Add to that, rapid urbanisation, adoption of smartphones and technology, availability of the Internet across the length and breadth of the country presents an Ideal solution for remote working. The government has presented some of the best measures to enable companies from various parts of the world to operate with their arrangements of getting work outsourced to India. Recent trends predict that there are a significant number of highly talented individuals looking for remote work which enables them to work from the comfort of their homes, be available for their parents and are looking for greener pastures in their homelands and smaller towns. Examples of gig workers include support roles in sales and marketing like presales, inside sales, digital marketing, customer support, finance and accounting, HR outsourcing right from employer branding, talent acquisition to policy framework, ESOPS, Learning and Development, Analytics, freelance writers and content developers, online tutors, digital marketing experts, web developers, cybersecurity experts, and many others. But the bigger shift we have witnessed is for the IT Industry where location of resources does not matter at the grassroots level until the desired work and results are obtained. So remote technology support both for Software and Hardware has been at the forefront of outsourcing to India where skilled talent is at its peak and growing at a phenomenal rate.
Women in workforce
There has been a big thrust in India on education for women in the 1990s and the number of graduates and postgraduates have grown very fast. The slogan that goes something like this “if a Man gets literate, one person gets literate, but when a Female gets literate, the family gets literate” has been doing the rounds for decades. Now when we compare the percentage of the working population of females in India it has been falling dramatically over the past decade. The simple reason being the culture where females need to take care of the house as well and raise children even in the scenario of them being more educated than their husbands. But with remote opportunities available, the resources need to be tapped where millions of women with college degrees would like to work from the comforts of their homes.
For few skilled jobs which require routine tasks females have been found to be much better than their counterparts in delivering results. This presents startups with a unique blend of talent which comes at a cheaper cost with quality and scaling up is easy. Loyalty is also much better which is a big plus. I can vouch for the same being into recruitment for over 15 years now, I have personally witnessed that Women are better at many job roles based on Interview feedback and their availability in India for remote work is very high.
Startup culture
When we think of any startup, the funding that they have received is because they have presented a challenge in the present scenario that they are aiming to solve. This leads to different sets of demands and requirements from their teams. The workforce is expected to be part of delivering solutions by forming them in the 1st place. People need to be open to newer ideas, try them, even fail and take the onus of failure on themselves. They should not get dejected and keep working till the processes are streamlined and results are obtained. People should be aligned to the bigger picture and goals of the organisation which needs to be obtained within a stipulated time frame and deadlines are critical.
The founders need to have a culture where everyone in the organisation adapts to newer ways of working and be agile in the adoption of technology faster than in an established corporation. The Startup culture requires candidates to understand the importance of facing tough situations and come out of it successfully and each day is unique with its own set of challenges. It becomes very important for the Agency working with a Startup to present the scenarios to the prospective candidate during the Initial pitch of evaluation so that everyone is on the same page when it comes to expectations and key performance indicators. Keeping in mind the above scenario let us now look at the challenges that need to be addressed while hiring for remote talent so that it becomes a WIN-WIN situation for both the employer and the employees.
Finding the right pool of target candidates
In a country with 500 million people in the workforce, it is not easy to target the right candidates through job boards alone. Here is where understanding of job description and the local presence of the specialist in India to connect with Local Agencies, Educational Institutions, Skill Training Institutes, HR Tech firms, etc can help to target the right segment of candidates who can then be vetted on their skills to get the exact match. Experience in getting access to those job seekers is the key to finding the right fit.
Employer branding
In a digital economy where information flow is seamless, candidates get to cherry-pick the organisations since they get to choose between 2-3 offers at a time. Even before that it is vital that employer branding is in place to present the opportunity to potential job seekers and get them interested. The Agency in India needs to have a very clear understanding on the part of employers to position them with benefits and offerings along with Diversity, Equity and Inclusion.
Vetting of candidates especially for Remote work
The process of vetting candidates has to be more thorough when it comes to remote work since the entire Interview process will be online. The Interview questions need to be well researched to get into the nature of the candidates that will filter out the ones who don’t seem to be fit for the role. Psychometric Tests and Behavioural Analysis becomes more important.
Funnel is critical – The next key steps
This is the critical part of the process where candidates who have been found to be the right fit needs to be examined in terms of the requirements for the role and the degree to the Onboarding process where handholding and subsequent training that would be required during the course of 3-6 months so that both employer and candidates find themselves at ease on expectations being delivered and being empowered to fulfil the promise. It is imperative for the talent specialists in India to understand the Millennials and Gen Z to crack the code and keep their interest throughout the process and journey.
Plan A
The requirement in any startup is an urgency to get the best possible talent as soon as possible. The concept revolves around selecting the right fit by targeting the fastest pool of available candidates. This leads to the formation of a formidable team which is vital in delivering results for the firm. Each member in the team has a good number of responsibilities that needs to be delivered within set time frames. Passive hiring can only be done for some roles that are at the core of the agenda and reporting directly to the Founders. Since there are some niche skills that require specific expertise in a particular area, they may not be available in numbers, targeted hiring can bring a solution.
Plan B
In any team game there are always players behind the scenes that are available to replace on-field game members in case of any injuries or issues. The same needs to be built on especially for remote operations where there can be resignations and resources that need to be replaced.
A single point of contact in India
This is a critical step in the hiring process which is often overlooked. A local HR or connection with the Talent Acquisition Specialist is vital since there can be smaller issues that need to be addressed all the way where employees are in discomfort and can be resolved by simple measures. Once the link between the local connect and remote employees is strong, it serves many purposes mainly on getting vibes if the employee is unhappy or is about to leave. On the other hand, the right connection can give many references of similar potential resources which can help strengthen the relationship and team. This goes a long way in building future-ready teams.
The Agency – Startup Marriage
The most critical part of the game rests on proper understanding right from the start when it comes to a Recruitment Firm in India that understands the needs of Founders at the Startup and criticalities that needs to be addressed in every point of the recruitment process from getting the right candidate, employer branding, evaluation process, offer process, negotiations, joining formalities, onboarding, handholding, training, backup and expansion plans.
Conclusion
As we come to the end of this article, it is ideal to state that India has forever been a startup hub with every lane having tea and fast food stalls and the owners doing a profitable business with similar means. What has happened in present times is recognition of the culture of doing business with the aim to earn profit thereby also making India benefit in economic terms. This recognition is just the beginning as a new era of startup culture has infested India in a good way.
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.
LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:
This article has been written by Mahesh P Sudhakaran. The article deals with key aspects pertaining to Section 230 of the Companies Act, 2013 which is concerned with making compromises and arrangements in order to restructure the debt of a company.
It has been published by Rachit Garg.
Table of Contents
Introduction
It’s normal for any business to gain profits and accrue losses during its functioning, as long as there is a balance between the both in a manner wherein the stakeholders or creditors are protected and the company is financially sound to move forward with its functioning. However, when this balance is forsaken and the company incurs debt to a substantial extent, essentially weakening its financial position and threatening its very existence. In such a scenario, the company looks for other means to protect itself without being completely buried in debt. One such means resorted to by companies is by restructuring their debts with a view to improving their financial position. In simple terms, debt restructuring is a method or process by which a borrower who is incapable of paying off their debts restructures or reorganizes their debt in a way that makes it much more feasible for them to pay their debts. Debt restructuring can be carried out in a number of ways including reducing the rate of interest, adjusting the principal value or the term of the debt etc. Section 230 of the Companies Act, 2013 (“the Act”) is one such provision that enables a company can restructure its debt.
Applicability of Section 230
This provision can be invoked when a company is facing financial difficulties and is incurring debt to a point wherein the very survival of the company is in question. This provision enables the company to restructure its debts by providing the company with a legal framework to make compromises or arrangements with its creditors in order to resolve its financial issues. When a company isn’t able to pay off its debts or is on the brink of insolvency, it may propose a scheme of compromise or a mechanism with its creditors which can involve altering the terms of repayment or reducing the amount of debt to ensure repayment. The applicability of this provision is wide as it covers all companies registered under the Companies Act, 2013, including both private and public companies. Any company by virtue of this Act can invoke this section provided it has the approval of NCLT which is the regulatory authority empowered to monitor the corporate sector in India.
A detailed explanation of Section 230
Section 230 of the Act is concerned with the power to compromise or make arrangements with creditors and members when the company aims to restructure or reorganize its debt in order to resolve a financial crisis. As per this Section, a company can propose a scheme or a mode for compromise or arrangement with its creditors or its members, or both. Such a scheme must be approved by at least three-fourths of the creditors or members, or classes of them who are present and voting either in person or by proxy at a meeting convened for the purpose by the tribunal. The scheme has to be mandatorily sanctioned by the National Company Law Tribunal (NCLT), which is empowered to oversee and approve the proposed scheme. The NCLT can also order meetings of creditors or members to be held and may give directions as to the procedure to be adhered to during such meetings. If the compromise or arrangement is approved by the prescribed majority of creditors or members and is sanctioned by the NCLT, it becomes binding on the company and all its creditors or members. The scheme may then be executed by the company in compliance with the provisions. To sum up, Section 230 provides companies with a system to restructure or reorganize their debts with a view to avoiding bankruptcy or insolvency, while also securing the interests of creditors and members of the company. Let’s examine each sub-section in detail:
Section 230(1): Application to be submitted
As per this sub-section, when a compromise or an arrangement is proposed between a company and its members or creditors, an application can be submitted to the tribunal by the company, its members, its creditors or liquidators (in case the company is being wound up, the liquidator, in this case, is appointed under the purview of this Act or The Bankruptcy Code, 2016). Upon the receipt of such an application, the tribunal sets up a meeting between all the creditors or class of creditors, or members or class of creditors and such a meeting is conducted as per the tribunal’s directions. It is important to note that arrangement in this section includes reorganising a company’s share capital by means of consolidation of shares within different classes or through the division of shares within different classes or by both these modes.
Section 230(2): Affidavit to be disclosed
This provision is concerned with the contents of the affidavit to be disclosed along with an application made by the company or any other person mentioned in sub-section(1). The following are to be included:
All information pertaining to the company like the latest financial position, auditor’s report or any information regarding any proceedings against the company etc.
Information regarding the reduction of share capital in case the compromise or arrangement is concerned with the reduction of share capital.
If the compromise or arrangement includes any scheme of corporate restructuring, then such scheme should have the consent of at least 75% of the secured creditors. It should further include-
Creditor’s Responsibility Statement in the form prescribed.
Safeguards that ensure the interests of other creditors are protected.
Auditor’s report which states that the fund requirements of the company after the restructuring will be consistent with the liquidity test which is based on the estimates provided by the board.
A statement that signifies the adoption of any guidelines prescribed by the Reserve Bank of India provided any such guidelines are implemented.
Valuation report by a registered valuer that accommodates the value of the shares, property and all assets irrespective of whether they are tangible or intangible and irrespective of whether they are movable or immovable.
Section 230(3): Notice to the creditors and members
As per this sub-section, a notice has to be sent to all the creditors or class of creditors, debenture holders of the company and to the members of the company individually to the address registered with the company and such notice should accompany the following:
A statement that contains information on the arrangement or compromise decided upon.
A copy of the Valuation report, if any.
Information that explains the potential effects of the arrangement or compromise for restructuring on the directors or trustees.
Any other information if need be
Also,
The above-mentioned notice is to be displayed on the company’s website
In case the company is a listed company then such information must also be sent to the Securities and Exchange Board and the stock exchange where the company is listed for placing a notice on their website.
Such a notice can also be published in a newspaper.
If the notice needs to be published for the purpose of advertisement, then it should specify the time frame within which the information on the compromise or arrangement shall be made accessible to the persons concerned free of charge from the registered office of the company.
Section 230(4): Objections
As per this sub-section, the notice sent under Section 230(3) of the Act should state that the persons holding the notice can vote in the meetings either by themselves or by proxies or through postal ballot with regard to the implementation of the compromise or arrangement within a month of receiving the notice.
Any objection to the proposed compromise or arrangement can only be made by persons who hold at least 10% of the shares or by persons who have an outstanding debt of at least 5% of the total debt that is outstanding as per the latest audited financial statement.
Section 230(5): Recipients of notice
A notice under sub-section (3) shall also be sent to the following authorities (if need be):
The Central Government
The income tax authorities
The Reserve Bank of India
The Securities and Exchange Board
The Registrar
The respective stock exchanges
The official liquidator
The Competition Commission of India
Other sectoral regulators are likely to be affected by the arrangement or compromise made.
Any representations if needed have to be made within 30 days of receiving the notice and in case of any failure to do so, it shall be presumed that there aren’t any representations or objections.
Section 230(6): Majority required for a binding resolution
As per this sub-section the compromise or the arrangement shall become binding on the company if:
Majority of persons who are required to vote constitute three-fourths of the creditors voting by any medium assent to the resolution/compromise/arrangement.
The particular compromise or arrangement should also be sanctioned by the Tribunal through an order.
Section 230(7): Order by the tribunal
This sub-section is concerned with the contents of the order by the tribunal with regard to the compromise or the arrangement. Such an order will have the following:
When the compromise or the arrangement involves the conversion of preference shares into equity shares then the preference shareholders are given the option to obtain arrears of dividend in cash or they can accept equity shares equivalent to the dividend.
Protecting any class of creditors.
Section 48 of the Act will be invoked in case the mode of restructuring has any bearing upon the rights of the shareholders.
Any proceedings pending before the Board for Industrial and Financial Reconstruction shall stand void if the arrangement or compromise is approved by the creditors.
In case there are dissenting shareholders or creditors matters relating to their exit offers are to be also mentioned.
However, it is important to also note that a compromise or arrangement involving account treatment cannot be sanctioned by the tribunal unless the auditor of the company submits their report to the tribunal stating that such accounting treatment is in coherence with accounting standards under the ambit of Section 133.
Section 230(8): Filing the Order
The company should file the order by the Tribunal with the registrar within 30 days of receiving such an order.
Section 230(9): Affidavit by creditors
As per this sub-section when the compromise or arrangement entered into has the assent of at least 90% of the creditors or class of creditors, then in such a scenario the meeting required can be dispensed with. However, such assent must be expressed through an affidavit by such creditors or class of creditors.
Section 230(10): Buyback of securities
As per this sub-section, in case the compromise or the arrangement involves a resolution that contains a buy-back of securities, such a compromise or arrangement has to comply with Section 68 of the Act. If it fails to do so the tribunal cannot sanction the compromise or arrangement.
Section 230(11)
This sub-section was added by a notification in 2020 and it provides an option to include takeover offers in compliance with Securities and Exchange Board regulations as a mode of restructuring or arrangements in the case of listed companies.
Section 230(12)
This sub-section was also added by the notification in 2020 and states that in case of any grievances, the aggrieved party is entitled to make an application to the tribunal concerning any takeover offer of companies other than listed companies.
Interplay between Section 230 and IBC
Section 230 of the Companies Act, 2013, and the IBC are both pertinent legislations that have bearing on insolvency, restructuring and other corporate matters. On paper both serve different purposes but the underlying essence of both remains similar to some extent.
As we critically examine the jurisprudence behind Section 230 of the Companies Act, 2013 it is key to note that this provision is concerned with companies registered under the Act deriving a mechanism to restructure the debt through negotiations and compromises with its creditors or members which must be agreed about by a certain majority of creditors or members as mentioned above, Section 230 is more or less a voluntary mechanism initiated by the company itself attempting to resolve its debt through negotiating and compromising.
On the contrary, the IBC provides a legal framework through which individuals, partnership firms and companies attempt to efficiently resolve debt through the appointment of an insolvency resolution professional, preparation and approval of a resolution plan and implementation of the same.
Both these provisions as we discussed earlier vary from one another in terms of scope and process; however, the common element concerning both is the end goal of providing companies with a range of tools to restructure their operations and avoid bankruptcy while also ensuring that the interests of all the stakeholders are preserved. Thus, the essence remains similar to a certain extent.
When the IBC was introduced it did not have specific provisions to deal with persons who were attempting to take advantage of the IBC. Section 29A of the IBC was incorporated in 2018 to curtail wilful defaulters and persons connected to Non-Performing Assets from partaking in the resolution process.
However, Section 230 does not specify any restriction with regard to eligibility and through the course of many judicial decisions, this position or contradiction was clarified. The Apex Court in the Arun Kumar case set forth that even if such regulation did not exist at that time the provisions were to be interpreted harmoniously and that section 230 should be interpreted with respect to the underlying purpose or object of the IBC, hence persons deemed ineligible by virtue of IBC cannot be allowed to propose resolutions under section 230.
Liquidation Regulations were amended on January 06, 2020, thereby introducing another amendment in the form of a proviso inserted to Regulation 2B (1) wherein it was specifically concluded that a party barred by the IBC could not be allowed to make proposals under the ambit of section 230.
As per Section 53 of the IBC is concerned with the distribution of assets at the time of liquidation. There provision establishes a link between section 230 of the Companies Act, 2013, and the IBC as in case a company isn’t able to resolve its debt crisis through restructuring under Section 230 then such company goes to liquidation and the distribution of assets at the time of liquidation is covered under section 35 of IBC. As per this provision, the assets of the company will be dealt with in accordance with the order of priority as per the IBC.
Power of NCLT in respect of compromise and arrangement – Section 231
Section 231
As per Section 231 of the Companies Act, 2013 when the tribunal makes an order by virtue of Section 230 of the Act, pertaining to permitting a particular arrangement or compromise it has the following powers:
Enforcement: The tribunal shall have the power to exercise its supervision to ensure the implementation or execution of the compromise or arrangement.
Modification: The tribunal also has the power to give its input with regard to the compromise or arrangement arrived at and the tribunal can also modify the compromise or arrangement if it deems it necessary to ensure enforcement of the compromise or arrangement.
Order for winding up: if the tribunal has reason to believe that the resolution derived post invocation of Section 231 cannot be implemented with or without modifications then in such a scenario the tribunal can set forth an order for the winding up of the company. In simpler terms, if the tribunal is satisfied that the restructuring of debt by terms proposed under the aforementioned section will not bring the company out of debt then it can initiate proceedings under Section 273 of the Act for winding up of the company.
It is also paramount to note that the provisions of this act also shall apply to companies registered before this act was enacted i.e. they apply retrospectively.
NCLAT and Section 231
There is no question regarding the NCLT’s power to determine whether or not a particular compromise or arrangement should be sanctioned in lieu of debt recovery however, the NCLAT wields certain inherent powers under the ambit of Rule 11 of the NCLAT Rules, 2016, which empowers the NCLAT to “make such orders or give such directions as may be necessary for meeting the end of justice or to prevent abuse of the process of the Appellate Tribunal”. Therefore, does the exercise of powers under Rule 11 empower NCLAT to modify compromises or arrangements denied by the NCLT? There was a significant debate with regard to the same and the NCLAT clarified its position on the same in the case of Rama Investment Company Private Limited v. Ankit Mittal, wherein the NCLAT held that the appellate tribunal cannot use its inherent powers under Rule 11 to modify an arrangement or compromise under the ambit of section 231 which isn’t sanctioned by the NCLT under Section 230.
Section 232
Section 232 of the Companies Act, 2013 empowers the NCLT to call meetings of creditors or members, with regard to the merger or amalgamation of companies. Here are some important aspects of this aforementioned provision:
The provision is concerned with the restructuring of companies by a merger or amalgamation of companies through a compromise or arrangement proposed by a company with other parties.
The primary objective of such a compromise or arrangement is the reconstruction of a company or the amalgamation of two or more companies.
The provision provides the Tribunal with the power to order a meeting of creditors or other members, which will be conducted as per the directions of NCLT.
The companies that merge are required to ensure the circulation of the draft proposal with regard to the scheme, a report that explains the effect of such compromise, a valuation report by an expert with regard to valuation, and accounting statements as per requirements.
If the Tribunal is satisfied that the procedure laid down has been complied with, then the compromise or arrangement will be sanctioned by the tribunal and it will make provisions for various key aspects.(Such provisions may include matters like transfer of property, liabilities, share allotment, dissolution etc)
The provision also mandates the filing of a certificate by the auditor of the company in order to signify that if any accounting treatment is proposed within the scheme it is in accordance with the accounting standards prescribed under section 133
The provision also includes provisions regarding punishment due to non-compliance.
To conclude, Section 232 of the Companies Act, 2013 empowers the NCLT to call for meetings of creditors or other members for the proposal of a scheme of merger or amalgamation of companies. The Section sets forth the procedure that the NCLT has to comply with when calling for such meetings. The provision aims to ensure that the interests of all stakeholders are secured and lays down a mechanism for the resolution of disputes.
Judicial pronouncements
Rama Investment Company Private Limited v. Ankit Mittal
In this case, Rama investment company(RICPL) and other respondents entered into amalgamation, such amalgamation was approved by the NCLT. However, an appeal against the same was filed with the NCLAT and the NCLAT held that the scheme herein was unjust and reversed NCLT’s orders. Aggrieved by this order RICPL filed an appeal invoking Rule 11 of NCLAT rules to modify its order. The question herein was whether Rule 11 could be invoked in the instant case and the NCLAT held that powers under the ambit of Rule 11 cannot be exercised in the instant case.
Arun Kumar Jagatramka v. Jindal Steel
In this case, the question regarding the eligibility of promoters for proposing schemes under the purview of section 230 was discussed. Section 29A of IBC expressly barred certain ineligible persons from participating however no such restriction was persistent under Section 230. The Supreme Court herein held that promoters deemed ineligible under section 29A would also be barred from filing applications under section 230 based on harmonious construction.
Hindustan Lever v. State of Maharashtra
In this case, the Apex Court held that NCLT could not pass an order of injunction under the ambit of section 230 against functions that are statutory in nature. The court stated that an injunction could not be passed under this provision in the course of discharging statutory functions.
Reserve Bank of India vs. SREI Equipment Finance Limited
In this case, the NCLAT discussed the Scope of powers of the NCLT under the purview of Section 230 of the Companies Act, 2013. The NCLAT herein set aside a direction by the NCLT Kolkata which was passed with an application for conducting a meeting for restructuring, the direction herein that was set aside allowed the creditors and regulatory authorities to maintain their current status with regard to accounts of the applicant companies.
Conclusion
Chapter XV of the Companies Act, 2013, that is Section 230-240 contains provisions regarding compromises, arrangements, mergers or amalgamations etc. One of the major functions of this part is providing relief to companies on the brink of insolvency through the restructuring of debts using various mechanisms. Section 230 in particular paves the way to debt restructuring by deriving compromises or arrangements taking into consensus the general will of the company as a whole and is indeed an effective medium of reviving a company from any colossal financial crisis.
Frequently Asked Questions (FAQs)
Who can initiate proceedings under the ambit of Section 230 of the Act?
The tribunal can set forth a meeting based on the application filed by the company or of any creditor or member of the company, or the liquidator.
Who can object to a scheme under section 230 of the Act?
Any person who is holding not less than 10 per cent of the shares or a person having not less than 5 per cent of the total outstanding debt as per the latest audit report or statement.
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.
LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:
Allow notifications
