This article has been written by Advocate Heena Joshi, from Team LawSikho.
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Introduction
We ignore the most vital things and run towards the crowd; just by reading the first line, you would not understand what I am trying to say, but yes, in the end, you will believe in it as well. So, in this article, I will share a comprehensive structure about networking, real-life examples, and hacks to build networking (trust me, I know many platforms that you might not be aware of). Further, this article is especially for young lawyers, law students and graduates, and law aspirants who want to learn the nitty-gritty of networking. In simple words, this article talks about “how networking can be built.”
I believe there are barely any individuals talking about how to build a network and the importance of doing so in the legal field. Everyone keeps telling us “Go, build a network, because it is important” but no one tells us “HOW?” A few questions might occur in your mind like “Why do people always guide us indirectly, like a puzzle?” or “Why don’t they just keep things simple?” Well, worry not, I am going to keep things simple and straightforward in this article because I myself don’t like to solve puzzles for basic necessities of life.
NETWORKING is a necessity of life. Yes, you read it right! Human beings are social animals (most common dialogue, but it is vital that one understand the meaning behind it).
In this article, I am going to explain how amazing networking can be built without any strong efforts. Yes, I will be talking about how you can build great connections with CEOs, businessmen, entrepreneurs, experts, teachers, professors, employees, employers, HRs, or anyone with whom you wish to build a powerful network.
Let me first explain the structure of this article. I will not keep it very long, but yes, I will explain it in bullet points, headlines, and real-life examples at the end, along with some extraordinary hacks and personality development tricks that will help you achieve a goal of networking with the right people. So let’s begin, shall we?
It takes time to meet the right people
The truth is, you may have to meet 500 people to meet the right person. There is hardly anyone who will tell you this harsh reality of life, yes it’s true you might meet 500 people but only 10-12 may stay connected with you at your present movements professionally as well as personally. In this article, I am going to write about how you can meet those 500 people. I can help you in finding these 500 people rest will be in your hands only.
No matter your personality, you can still learn the art of networking
Are you an extrovert or an introvert? You know what? It is just a myth; there is no such thing as an extrovert or an introvert. We open up to those whom we trust, respect, love, and care about the most, and trust me, it has nothing to do with blood relations. Now is the time to return to your childhood and recall a time when you helped your friend’s mother more than you needed to help your own mother (does that make sense?). Simply put, it has nothing to do with blood; the reason for all of this is where your energy is taking you. Now, stop giving yourself excuses that you are very introverted, so you don’t like meeting people; you are an extrovert who will only meet people to get a sense of leisure. We are both introverts when it is difficult for us to share our feelings of pain or pleasure, and extroverts when we party, celebrate, and sometimes talk too much with those around us.
Let’s get down to business: “How can we build a network?” You’ve looked for it and read it, and I’m sure you’re feeling lonely, vulnerable, and stressed about networking; don’t worry, you won’t feel that way after reading this article.
Building a network in a professional space
A single, short, one-word answer is “HELP”. You must help your surroundings with a strong will that you truly want to help them, no matter what (rationally), and the magic that I am about to reveal to you is that the only people for whom you feel like helping (no matter what) will have the potential to turn your life upside down or upside up; I have experienced both so I can reveal this secret.
Always remember, the zeal to help someone is not common
Do you know what consumes a lot of your energy? The effort is required when you subconsciously decide to help someone without even realising it. There, you need to make sure you help the right person. If you help the right person, it might change your life drastically, but yes, if you help the wrong person with the same zeal, it might destroy you too.
Choosing connections virtually
You don’t need a big, heavy website to build a professional network; always start small and keep increasing it. Connecting with people in virtual reality is the easiest thing to do. For example, you can join several WhatsApp groups, Facebook groups, LinkedIn groups, Telegram groups, YouTube subscriptions, Bumbles, and Tinders you name it- but ask yourself: Are these connections real? Will any single person from these above-mentioned groups be affected if something bad happens to me? Will these connections help you if you are searching for a job badly? Will these connections reach out to me and instruct me on what is right and wrong? Clear your mind; these virtual connections are useful to show up or show off what you already have, what you can offer, and what you are good at. What can you do for them? Again, to be clear, I am not talking about vague, weak connections; I am talking about strong relationships and how you can build them. You can live a stress-free life if you only have one or two strong connections with the right people.
You don’t have to be excellent at something to build a strong connection. “When you meet someone and then return home and sit alone and think, “You have no worries in life,” you’ve made the right connection. This is what you need to keep looking for, is the connection making you more worried in life, like you are not enough, or does it strike out some kind of passion in you, make you fearless, and make you feel that you are enough. This is where you need to realise this is the right connection. You might meet such people once a year or once in several weeks or months, but yes, this is exactly how you will recognise the right connection. Let’s end the conversation at a deeper level. Now let’s begin with the conversation at the outer space/upper level.
Real-life hacks to build networking
Basically, these are the options where you can meet people who share your interests.
Sitting in the courtroom and hearing judges and advocate speak
One important hack is to sit in the courtroom and listen to judges and advocates. I’ve never tried this hack, but most senior counsellors advise us to.
Join physical sessions by Bar Councils
I remember how Saket Court and the Delhi High Court Bar Council kept organising sessions on different legal topics. Sometimes they also organise events for MR. Advocate and Miss Advocate, and anyone can easily take part in them.
Attending events
One can also join offline events through various legal platforms, such as LawSikho, iPleaders, and Skill Arbitrage, inter alia. Presently, Lawsikho is the only organisation that organises weekly offline events/meetups every Friday at “The Circle Works, Huda City Centre, Metro station, Gurugram.”
Events are the best things that anyone can easily attend and gain knowledge from while also building networking skills. LawSikho has recently started their offline events, every Friday, from 6:00 p.m. to 8:30 p.m., at The Circle Huda City Centre, 5th Floor, Boardroom, Gurugram, Haryana. We named it “LawSikho Dialogue”. In these weekly events, LawSikho invites well-known legal personalities such as:
Sumit Chander (Supreme Court Advocate),
Mr. Bishwajit Dubey (Partner at Amarchand Mangaldas Delhi NCR Office),
Swaneet Bhatiya (Language and Legal English Expert & Faculty at LawSikho),
Vikash Chandra Shukla (Law Firm Partner at Prudential Partners), and
Advocate Bhumesh Verma (Managing Partner at Corp Common Legal).
LawSikho has organised 30+ offline events in Gurugram so far, and many of our attendees have gotten internships, freelance work, and made new friends. Sometimes, many advocates attend these events just to get expert opinions from guest speakers so they can argue better in court. For further details on such events by LawSikho, you can always contact me on my WhatsApp at 8979233993.
As you can see, events, sessions, and webinars in offline mode play an important role in building a network. Now let’s talk about several online platforms where you can get updates about such offline events and sessions.
Offline events
Good platforms to stay updated about all kinds of offline events
TownScript, Book My Show, and Couchsurfing (I’ve used these platforms, and they’re great for meeting people and attending offline events).
Stepping out, meeting people, building relations
You need to step out to meet people and build real relationships. If you are lazy, scrolling reels day and night, then it is a strong sign you need to step out and have real connections in life, and if you are feeling that, despite everything, you are lacking in something, then step out and talk with people in offline mode also.
Having evening snacks with a well-known law firm partner and talking to him about real problems in life is a blessing hardly everyone gets: When you compare yourself to a guy doing his LL.B. at a university in a small district with few opportunities, you will see this offline event opportunity as a diamond in your fist. I have seen how those who stepped out of their comfort zone have reached far and are now in the most protective environment.
A connection can be virtual, but networking is not
As I mentioned above, out of 500, only a few will actually be next to you, and to build that, you just need to step out and explore as many opportunities as possible.
Real-life example
I thought of giving my life example, but it will make this article lengthy, which I don’t want, but yes, I can tell you one thing: my life changed from the downside to the upside just by having one strong connection, network, or whatever you call it. I will definitely be sharing my life story in the next article. I hope this article will both help you and give you the courage to meet the right people in the right places. If you enjoyed reading this article or found it useful, please leave me a message on my WhatsApp number, 8979233993.
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:
On 28th March 2017, a proposition adopted by the American Congress cleared the way for Internet Service Providers to sell user data. The history of what you have surfed on the internet is valuable information for businesses. It gives them an indication of your likes and dislikes, your thoughts, and the things you seek online.
Since such data can give these businesses quite a bit of an idea about your political and religious views and what kind of products or services you prefer, it’s precious. Such data makes it possible to create your profile so advertisements that cater to your preferences can be targeted at you. However, that might not settle well with consumers.
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Trump legalizes using and sharing browsing history by ISPs
In October 2016, consumer privacy was sought to be protected by the Obama administration when the Federal Communication Commission (FCC) adopted a regulation to protect it. The FCC started recognizing browser history as sensitive information after these rules were formulated. Consumers were now being given a choice not to share any of it.
Later, President Trump repealed net neutrality so ISPs like AT&T or Verizon could use the information they gathered about their clients.
However, net neutrality also protects other things. For instance, ISPs can divide traffic into fast and slow lanes without net neutrality. In other cases, they might offer their partners’ services at better speeds.
The situation in Europe
Personal information sale comes under the purview of the Data Protection Legislation. Since 25th May 2018, it has been governed by the General Data Protection Directive. The GDPR’s Article 6 lays down the conditions under which user data sales will be considered legal. User data can be collected and processed by ISPs only on individual consent or when it’s deemed to be of legitimate interest.
Working Party 29 in 2019 shared its opinion on how legitimate interest can be applied. Apart from being lawful, there should be no ambiguity in its explanation, so balancing it against the data subject’s fundamental rights is possible.
Moreover, the issue of legitimate interest must be present and real. The Working Party 29 also adds that legitimate interest shall under no circumstances allow the controller to excessively monitor its clients’ behavior. Neither can data be sold or used for profiling on the pretext of legitimate interest. Hence, ISPs can’t use legitimate interest to justify selling user browser history to any third party.
Strict provisions govern sensitive information processing
Further, the GDPR’s Article 9 stipulates that processing any personal data that reveals ethnic or racial origins, union memberships, religious or political beliefs, or political opinions is strictly prohibited. ISPs are also barred from processing any data related to biometric, health, or genetic data that may make it possible to uniquely identify an individual. Neither is any ISP allowed to process any data that concerns any individual’s sexual orientation.
In this regard, legitimate interest has no relevance. It’s only user consent that Internet Service Providers can cite when processing sensitive data. However, as per the provisions of the GDPR, any member state is free to reject the issue of user consent to justify sensitive data processing. Even the protection of vital interests cannot justify any purpose for collecting and sharing user data.
Conditions for consent
The conditions for valid consent are laid out in Article 7 of the GDPR. Consent requests shall have to be presented in a distinguishable manner on a form that’s intelligible and easy to access. Moreover, the language used should be clear and lucid. Positive action should indicate the giving of consent. It can’t be implicit. Consent can be withdrawn by the data subject at any time, and they will be duly informed about it.
Internet Service Providers shall therefore have to inform users clearly and transparently that browser history shall be processed and sold by them. This issue must be presented clearly in an easily accessible form. Therefore, read privacy policies to understand how companies handle your data, including online services and your ISP.
Many people also fight online tracking by using a VPN for PC. A Virtual Private Network stops ISPs from seeing what you do online by encrypting traffic. Furthermore, ISPs also won’t be able to slow down internet connections based on your activities. Such tools are excellent options for retaining more privacy online.
Conclusion
In the US, ISPs can legally collect and sell your browsing details. In Europe, restrictions apply. However, companies have been found to bypass laws and create user profiles based on their surfing histories. Thus, you should know how to protect yourself. The first step is reading the conditions of your accounts and services. Look for red flags, like if a company mentions that they sell data to unidentified third parties.
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 Oishika Banerji of Amity Law School, Kolkata. This article gives detailed insight into the question of whether India’s real estate sector is growing fast or not.
It has been published by Rachit Garg.
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An overview of India’s real estate sector
One of the industries with the highest international recognition is real estate. Housing, retail, hospitality, and commercial are its four subsectors. The expansion of the business environment and the demand for office space, as well as for housing in urban and semi-urban areas, are excellent complements to the growth of this sector. In terms of the direct, indirect, and induced effects on all areas of the economy, the construction industry comes in third among the 14 key industries.
The real estate industry has had a significant rebound despite growing building costs and a record increase in the repo rate (225 bps) in 2022. The real estate sector was finally able to take a deep breath this fiscal year after a protracted period of economic stagnation. After two protracted years of lockdowns brought on by the pandemic and the ensuing economic unrest, the industry has seen a thorough recovery this year across Tier I, II, and III cities.
In order to stay competitive, real estate brokers and agents have also modified their methods of operation and developed new working techniques. Financial buyers who have reintegrated themselves into the business have contributed to some of that competitiveness. These new rivals now have the resources to fund numerous new projects. Overcapacity has resulted from the escalating competition mixed with a decrease in demand, although there have been some changes in the nature of competition as a result of the overcapacity and the fierce competition.
Reasons behind the growth of the real estate sector in India
Numbers speak more than words when it comes to the real estate sector. Hence a series of statistics have been provided in relation to the sector in order to determine the growth range in the same. Numbers have been followed by reasons for the growth of the real estate sector in India
In India, the real estate market is anticipated to grow to US$ 1 trillion in size by 2030 from US$ 200 billion in 2021 and to account for 13% of GDP by 2025.
At 5.7 million square feet, the manufacturing industry leased 24% of all office space in 2020. Between Pune, Chennai, and Delhi NCR, SMEs and electronic component makers leased the most, followed by the auto industry in Chennai, Ahmedabad, and Pune. The 3PL, e-commerce, and retail industries accounted for 34%, 26%, and 9%, respectively, of office space leases.
The office sector drew 71% of the total PE investments in real estate in Q4 FY21, followed by retail at 15%, residential, and warehousing at 7% apiece. In one year, the top 7 cities in India’s real estate market saw land deals totaling more than 1,700 acres. US$10.3 billion in foreign investments were made in the commercial real estate sector between 2017 and 2021. Developers anticipated a sharp increase in demand for office space in SEZs that started in February 2022, following the replacement of the current SEZs statute.
The possible grounds that act as catalysts behind the acceleration of the real sector in India have been provided hereunder:
Demand for real estate stands robust in India:
By 2025, Savills India projects that the need for data centre real estate would rise by 15 to 18 million square feet.
Residential property demand has increased as a result of growing urbanisation and rising household income.
India is one of the top 10 home markets in the world for price appreciation.
By 2023, organised retail real estate stock is anticipated to grow by 28% to 82 million square feet.
Availability of attractive opportunities:
ICRA forecasts that Indian businesses would raise more than Rs. 3.5 trillion (US$ 48 billion) through infrastructure and real estate investment trusts in 2022 as opposed to the US$ 29 billion raised so far.
Blackstone, a private market investor, has made large investments in the Indian real estate market, totaling Rs. 3.8 lakh crore (US$ 50 billion), and it plans to make more investments totaling Rs. 1.7 lakh crore (US$ 22 billion) by 2030.
Exports from SEZs increased by 13.6% from Rs. 7.1 lakh crore (US$ 100.3 billion) in FY19 to Rs. 7.96 lakh crore (US$ 113.0 billion) in FY20. To make the market more accessible to small and retail investors, the Securities and Exchange Board of India reduced the minimum application value for Real Estate Investment Trusts from Rs. 50,000 (US$ 685.28) to Rs. 10,000-15,000 (US$ 137.06 – US$ 205.59) in July 2021.
Between April 2000 and September 2022, FDI in the sector which includes construction development and activities amounted to US$55.18 billion.
Support of effective policies:
Institutional investments in Indian real estate totaled $5 billion in 2020, which is 93% more transactions than were reported the year before.
In Q4 FY21, the real estate sector attracted 19 deals for a total of Rs. 23,946 crore ($3,241 million) in private equity investments.
Rise in investment in the real estate sector:
India recorded investments totaling US$2.4 billion in real estate assets in the first half of 2021, an increase of 52% YoY. From April 2000 to September 2022, FDI in the sector, which includes construction development and activities, amounted to US$55.18 billion.
With increased demand for both business and residential spaces, the Indian real estate sector has recently experienced rapid growth. Increasing investor interest in securing favourable prices in the midst of the pandemic had likely propelled institutional investments in the Indian real estate sector to reach Rs. 36,500 crore (US$ 5 billion) in 2021. In the first half of 2021, private equity investments in Indian real estate reached US$ 2.9 billion, which is a 2x increase from the first half of 2020, according to a recent research by Colliers India.
Some of the major investments made in the real estate sector are provided hereunder:
Private equity investment inflows into India’s real estate market between January and July 2022 totaled US$3.27 billion.
A healthy recovery followed the strict lockdown imposed in the second quarter as a result of the spread of COVID-19 across the nation was indicated by the home sales volume across seven major cities in India, which increased 113% YoY to reach 62,800 units in the third quarter of 2021 from 29,520 units in the same period last year.
Institutional real estate investment in India increased by 7% YoY in the third quarter of 2021. Compared to the same period last year, investment totaled US$ 2,977 million in the first nine months of 2021, up from US$ 1,534 million.
The 16-storey commercial skyscraper in Navi Mumbai owned by Aurum Ventures was purchased by Ascendas India in November 2021 for Rs. 353 crore (US$ 47 million), making it the largest sale of a solo commercial tower by a global institutional investor in recent years.
Role of Central Government in pushing the real estate sector
The Central Government’s massive push for building infrastructure, including the dedicated rail freight corridor, world-class multiple-lane express highways crisscrossing the nation, airports, railways, and even bus terminals, is considered to be one of the main factors influencing positive sentiments in the real estate sector. Numerous actions have been taken to promote sector growth by the governments of the individual states and India.
A few significant initiatives by the Central Government in recent years that have catalyzed the growth of the industry include the revival of stalled projects through the SWAMIH fund, the creation of an affordable housing fund with an initial corpus of about Rs 10,000 crore to fund housing finance companies (HFCs) in the priority sector, real estate debt restructuring, and moratorium benefits during the pandemic period.
Further, tax deductions for housing loan interest up to Rs. 1.5 lakh ($2069.89) and a tax holiday for projects that build affordable housing have been extended through the end of the fiscal year 2021–2022, respectively, under the Union Budget 2021–22. For the primary purchase or sale of residential units of value (up to Rs. 2 crore (US$ 271,450.60) from November 12, 2020 to June 30, 2021), there were income tax relief measures for real estate developers and homebuyers included in the Atmanirbhar Bharat 3.0 package announced by Finance Minister Mrs. Nirmala Sitharaman in November 2020.
The establishment of a Rs. 25,000 crore (US$ 3.58 billion) alternative investment fund has been authorised by the Union Cabinet in order to revive approximately 1,600 housing projects that have stagnated in the country’s biggest cities (AIF).
Following the COVID-19 pandemic, the hybridization of the workplace has led to a trained workforce moving to satellite cities, which has increased the demand for housing in these areas. The long-term appeal of these places is increased by new industrial and transportation corridors, low-cost labour, simpler supply chain and logistics management, and lower costs of living and conducting business.
Contribution by the e-commerce sector and the IT industry towards real estate
One of the nations with the fastest-growing e-commerce sectors is India. Nearly every industry, including technology and fashion firms, has an online presence. However, it is also clear from all of this that the real estate sector is not far behind. E-commerce companies need massive infrastructure including warehouses and distribution centres, adding to the real estate boom in India.
According to reports, India is second in the world for online business. More than 20 million Indians, according to sources, search for homes and properties online. Over 50% of real estate transactions take place on online platforms.
When it comes to online commerce, real estate web portals are also building a name for themselves. These sites interact with clients and assist them in finding the best offers. These websites primarily serve clients looking for details such as clubhouses, amenities, swimming pools, and other things.
When it comes to e-commerce, there are no geographical restrictions, therefore, online real estate websites can serve not only the major cities but also the smallest towns and cities.
Real estate sector and associated customer sentiments
Rise in NRI buying: The declining value of the rupee and the prospects of the emerging Indian economy encourage non-resident Indians (NRIs) to make investments in their domicile nation. Additionally, fresh introductions of high-quality housing items in significant Indian cities have drawn these customers. The interest of NRI buyers has greatly benefited from the interconnected global environment and expanding local market infrastructure.
Growth among millennials: One of the distinctive features of today’s demand is that even millennials are increasingly thinking about purchasing a home. The millennial generation is also referred to as the “renting generation” since they initially chose to use their money to pay for an asset’s use rather than its ownership.
Boon of the pandemic: The pandemic fueled expansion in the Indian real estate industry. The idea of a home as one of life’s most basic necessities was transformed in this period. People felt the need for a spacious home that can accommodate their needs for work and other requirements. Large dwellings became more popular as a consequence of such thought. Therefore, since the pandemic, there has been a rise in house demand, and consumer confidence remains high.
Systemization and unification of real estate sector : the way forward
Real estate is currently moving away from fragmentation, and important stakeholders are making deliberate efforts to systematise and unify the industry. This will make sure that well-known, listed developers build up their equity and solidify their market position.
The products that are introduced to the market for consumers will be of the highest calibre and will be of world-class due to organised developers gaining a larger market share. Both consumers and developers will gain in the long run from this movement’s favourable developments.
The shift from disorganised to organised business structures will be another significant trend in the real estate sector.
Commercial real estate funds are becoming more visible on the market as small-time investors increasingly find appeal in the prospect of receiving a steady passive income from safe real estate assets.
With the ambitious Pradhan Mantri Awas Yojana (PMAY) scheme of the Union Ministry of Housing and Metropolitan Affairs, the Central Government intended to build 20 million affordable houses in urban areas across the country by 2022, post which, the residential sector is likely to increase dramatically. The need for commercial and retail office space will rise as more homes are expected to be built in urban areas.
An estimated 10 million housing units are currently needed in urban areas. By 2030, the country would need an additional 25 million affordable dwelling units to accommodate the increase in the urban population.
The amount of FDI in Indian real estate is increasing, which promotes greater openness. Developers have updated their accounting and management systems to meet due diligence criteria in order to seek investment. Indian real estate is anticipated to draw a sizable amount of FDI over the next two years, with a capital influx of $8 billion by FY22.
Looking ahead to 2023, the Indian economy shows what can only be interpreted as encouraging indicators, including a predicted increase in job creation, a rebound from the current stock market fall, and an 8–9% overall growth. All of these would ultimately lead to a rise in housing demand as more individuals entered the housing market, which is crucial for the health of the real estate industry.
In light of the above facts and statistics, it stands clear that the real estate sector of India is indeed growing fast.
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 Ayush Tiwari, a student at the Symbiosis Law School, NOIDA. It aims to discuss the relationship between auditing and corporate governance and how both are very important to save a company from fraud and provide investors and other stakeholders with a sense of relief.
Through the corporate governance framework, large shareholders are ensured that they will receive a return on their investment. Effective corporate governance aligns the interests of company management with those of shareholders, lowering agency costs. Corporate governance has emerged as one of the most pressing challenges in today’s corporate world. Corporate failures, like those of Enron, WorldCom, the Bank of Credit and Commerce International (BCCI), Polly Peck International, and Baring Bank, have highlighted the issue, with various governments and regulatory agencies attempting to implement stringent governance regimes to ensure the smooth operation of corporate organisations and prevent such failures. These incidents, and more recently Satyam’s, have shown severe gaps in auditing. The greatest accounting scam in India, the Satyam scam, has harmed the auditing profession and exposed auditors’ inherent conflict of interest in the Indian corporate environment. As a result, this is a good moment to reconsider the auditor’s function in the corporate governance structure.
What is corporate governance
Corporate governance refers to the interaction that exists between the participants in establishing and implementing the goals of a corporate firm. The CEO, management, board of directors, shareholders, auditors, and audit committee collaboratively administer a company for the benefit of all stakeholders.
Strong corporate governance requires effective internal control systems, rules, procedures, and a group to guide management in order to satisfy the demands of all stakeholders. Corporate governance focuses on both the well-being of the management and the shareholders. Internal and external corporate governance benefits board culture, market share, future capital needs, and, most importantly, the trust of the shareholders in an organisation.
Corporate governance entails accepting management as trustees on behalf of shareholders in order to protect their rights as genuine owners of the company. Since corporate governance is nothing more than ethics and moral obligations, it is about upholding organisational commitments to a code of behaviour, ethics, and values.
What is auditing
An audit is a formal review and verification of a company’s financial statements and records. It has become a crucial prerequisite for effective corporate governance since it plays a significant role in guaranteeing openness and accountability in corporate financial management; as a result, auditors are sometimes referred to as gatekeepers. A corporation operates with capital contributed by individuals who do not have authority over how the money is used. They would like to see that their investments are secure and being used for their intended objectives and that the company’s yearly reports offer an accurate and fair picture of the company’s state of affairs.
The firm’s accounts must be verified and audited for this purpose by a suitably competent and independent individual who is neither employed nor owed by or otherwise obligated to the company. The contract under which a firm’s auditor works for the company should be with the company as a distinct person. An auditor, like anybody who performs professional services for reward, owes the company an implied legal duty of care in and regarding the manner in which the audit is done.
Auditing is the formal inspection and verification of a company’s financial statements and records. It is described as a systematic and independent study of an enterprise’s data, statements, records, operations, and performances (financial or otherwise) for a specific reason. In any audit, the auditor observes and recognises the propositions under scrutiny, collects evidence, assesses it, and then formulates his conclusion, which is given in his audit report. The goal is then to provide a judgment on the sufficiency of controls (financial and otherwise) within the environment they audit, as well as to assess and enhance the efficacy of risk management, control, and governance processes.
Types of auditing
The auditing processes are mainly of the following types:
Internal auditing
Internal auditing is performed by the employees of a company or organisation. The corporation does not share these audits with the public. Instead, they are used for management and other internal stakeholders. By giving managers specific recommendations for enhancing internal controls, internal auditing helps businesses make better decisions. Additionally, they manage timely, fair, and accurate financial reporting while ensuring compliance with laws and regulations. Before enabling external auditors to analyse the financial accounts, management teams might use internal audits to find defects or inefficiencies within the organisation.
External auditing
External auditing, carried out by independent organisations and other parties, offers an honest assessment that internal auditors might not be able to offer. To find any significant inaccuracies or flaws in a company’s financial statements, external financial audits are used.
When an auditor offers a clear or unbiased opinion, it signifies that the auditor has faith in the correctness and completeness of the presentation of the financial statements.
External audits are crucial for enabling various stakeholders to make judgments about the organisation that is being audited with confidence.
External auditors are independent, which is the main distinction between them and internal auditors. It implies that they may offer a more objective assessment than an internal auditor, whose objectivity might be affected by the employer-employee relationship.
Tax audits
Tax audits are required by Section 44B of the Income Tax Act of 1961 in India. It mandates that the financial statements of anybody whose business had a turnover of more than Rs. 10 million in any prior year or has annual gross revenues of more than Rs. 5 million be audited by a chartered accountant who is independent of them.
It is to be noted that any entity, whether a person, corporation, partnership, or other entity, is subject to tax audits. If the tax audit regulations are not followed, there might be a penalty of 0.5% of the turnover or Rs. 100,000, whichever is lower.
There are currently no formal rules governing the hiring or termination of a tax auditor.
Corporate audit
A corporate audit must be performed in accordance with the Companies Act of 2013. Every financial year, all businesses, regardless of their kind of business or turnover, should have their annual accounts audited. The corporate directors can effectively complete this procedure by selecting an auditor for the audit. Additionally, the company’s shareholders appoint an auditor at each annual general meeting (AGM), who serves in that capacity until the end of the next AGM.
The Companies Act of 2013 states that auditors may be appointed for terms of up to five years. Auditors, however, cannot be appointed for more than one or two periods in the case of individuals and partnership businesses. An independent chartered accounting firm or individual may be chosen to serve as the company’s auditor.
Relationship between auditing and corporate governance
Modern corporations are the primary economic drivers in any country. The agency problem, which arises from the interaction between company management and shareholders, encompasses the corporate governance philosophy. A corporate governance system is characterised as a country-specific structure of legal, institutional, and cultural variables that shape the patterns of influence that shareholders (or other stakeholders) have on management decision-making. Corporate governance procedures are the strategies used to solve corporate governance concerns at the corporate level.
Auditing has discovered numerous corporate frauds in the past, and it is a vital tool for protecting investors’ interests. They are sometimes referred to as “gatekeepers” since they play a significant role in guaranteeing transparency and accountability in the business sector. Auditing is critical to public confidence in financial disclosures, particularly because an auditor is seen as a middleman between corporations and investors in relation to corporate financial statements. Auditors serve as the shareholders’ and potential investors’ eyes and ears; hence, the job of an unbiased, objective auditor is unquestionably necessary to create trust in the market and deliver a genuine and fair picture of the company.
A detailed examination of transactions was used to reach such an aim. He highlighted the notion of internal control and stated that when a competent internal control system exists, a full audit is usually not required in its entirety.
With the passage of time and the expansion of organisations to the point where a much better internal system of control became economically feasible, a full audit of transactions became impracticable, and the audit function’s objectives shifted significantly. The auditor’s report on financial statements developed into a finished product rather than just evidence of the absence of fraud. The following are the goals of auditing financial accounts, according to the Institute of Chartered Accountants of India:
The goal of auditing financial statements generated within a framework of accepted accounting rules and practices, as well as any relevant legislative requirements, is to allow an auditor to provide an opinion on such financial statements.
The auditor’s opinion aids in determining an enterprise’s accurate and fair picture of its financial status and operating results. However, the user should not believe that the auditor’s view guarantees the enterprise’s future viability or the efficiency or effectiveness with which management has managed the enterprise’s affairs.
As a result, the primary goal of auditing nowadays is to evaluate financial statements to determine if they accurately and fairly depict the organisation’s financial situation. The detection of fraud and mistakes is only an incidental objective. An auditor is frequently in a position to detect fraud. If fraud is uncovered after the auditor has completed his audit, it does not necessarily imply that the auditor was careless or did not fulfil his responsibilities completely. The auditor does not ensure that no fraud exists until he has signed the report on the accounts. If he conducted his audit with due care and skill in accordance with the professional standards required, the auditor would not be held liable for failing to detect the fraud.
Qualifications and disqualifications of an auditor
An auditor in India is a chartered accountant appointed by the Chartered Accountants Act of 1949 to review the books of accounts and accounts of a company registered under the Companies Act of 2013, and report on them to the firm’s shareholders. A firm may be appointed in its own name if the majority of its partners practising in India are eligible to serve as auditors. When a firm, including a limited liability partnership, is designated as a company’s auditor, only the partners who are chartered accountants are authorised to act and sign on the firm’s behalf.
An auditor is an official of the company for the purposes of misfeasance summons under Section 212 of theUnited Kingdom’s Insolvency Act 1986, as well as criminal offences like fraud, deception, etc. When an auditor is employed to conduct and carry out the audit function without being appointed as an auditor, he may not be considered a company official.
The following individuals are ineligible for appointment as a company’s auditor under Section 141(3) of the Companies Act, 2013:
a person who is a partner or who is employed by a company officer or employee;
a person who, or his relative or partner
owns any security or interest in the firm or any of its subsidiaries, or in any of its holding or associate companies, or in a subsidiary of the such holding company;
owes money to the firm or a subsidiary of the company;
has granted a guarantee or supplied any security in connection with any third party’s debt to the firm or its subsidiary;
a person or corporation that has a commercial link with the company, its subsidiary, or its holding or associate company, whether directly or indirectly;
a person whose family is a director or works for the firm as a director or senior management employee;
a person in full-time employment elsewhere, or a person or a partner of a company holding appointment as its auditor, if such person or partner is holding an appointment as auditor of more than twenty companies on the date of such appointment or reappointment;
a person who has been convicted by a court of a fraud-related offence and a ten-year period has not expired from the date of such conviction; or,
any individual whose subsidiary, associate company, or another form of entity is engaged in consulting and specialised services as defined in Section 144 on the date of appointment.
Responsibilities of an auditor
Presenting an audit report
An auditor’s principal task is to review all of the company’s financial statements and account for any errors. The primary responsibility of an auditor is to provide the firm with his opinion, in the form of an audit report, on whether or not the financial statements present an accurate and fair picture of the status of the company’s operations. The auditor must ensure that the report produced complies with the applicable provisions of the Companies Act.
Reporting fraud
If an auditor discovers that the company is not keeping adequate books of accounts, he or she must alert the company, and if no action is taken by the director, the auditor must contact the registered office of the company within seven days.
The audit report of a government firm
The auditor of a government company will be appointed by the Comptroller and Auditor-General of India, and he or she will perform in accordance with their directions. He must give a report to them detailing his actions and the impact on the company’s finances and financial statements.
Within sixty days after receiving the report, the Comptroller and Auditor General of India shall have the authority to (a) undertake a supplemental audit and (b) comment on or update such an audit report.
The Comptroller and Auditor General of India may order a test audit of such a company’s finances.
Liability to pay damages
According to Section 245 of the Companies Act, 2013, the depositors and members of the company have the right to make an application before the tribunal if they believe that the administration or conduct of the company’s activities is harmful to the company’s interests.
They also have the right to seek damages or compensation from the auditor, including the audit firm, for any incorrect or misleading statement of particulars contained in his audit report, as well as for any fraudulent, illegal, or wrongful act or behaviour.
Branch audit
Where a business maintains a branch office, the accounts of that office must be audited by the auditor designated for the company or by any other person competent for appointment as the company’s auditor. The branch auditor shall make a report on the accounts of the branch reviewed by him and submit it to the company’s auditor, who shall address it in his report in the manner he deems necessary.
Auditing standards
Every auditor must follow the auditing guidelines. In cooperation with the National Financial Reporting Authority, the Central Government should notify these criteria. The government may further specify that the auditors’ report contains a comment on the subjects specified.
Winding up
According to Section 305, it is a legal requirement that an auditor attach a copy of the business’s audits completed by him when the firm is willingly wound up.
Roles of an auditor in corporate governance
Protection of stakeholders’ interests
Auditors frequently have access to vital information on various activities carried out in the organisation, which makes them aware of mismanagement. Here, the auditor has the chance to alert management of policy flaws while also bridging the gap between stakeholders and management. This information exchange has the potential to improve corporate governance.
Increasing accountability
Occasionally, auditors at an organisation become aware of numerous misstatements and falsified figures. This is the moment when the auditor might suggest sanctions for any corporate manipulation. This will aid in instilling a feeling of accountability in all stakeholders and will also assist the Board of Directors in identifying those who are not displaying professionalism in their job. Penalties can take numerous forms, such as removing a person from a certain job, postponing a promotion, cutting the yearly bonus, and so on.
Crisis management
Larger organisations will face a financial crisis at some point. This can be attributed to any fraud or corruption within the organisation as well as any external claim. In such cases, the auditor is supposed to have an action plan available that includes allocating distinct roles to different administrative stakeholders. The goal of this action plan is to keep investors’ trust in the firm alive. It also contains measures pertaining to the media and law enforcement officers.
Reduction of risk factors
Auditors frequently conduct risk assessments to guarantee the smooth operation of the organisation. During these risk assessments, they examine all of the hazards that might lead to a company’s downfall. They also examine all of the steps taken by a corporation to guarantee that there is no corruption inside the organisation.
The auditors develop an action plan to remove or decrease all risks after analysing all risk variables. Every risk assessment performed by an auditor checks to see if the company has taken measures to mitigate previously documented risks.
Maintaining relationships with regulators
The majority of regulators and shareholders need openness in the activities in which they are involved. External auditors frequently go to great lengths to ensure that the company’s activities are transparent, which aids regulators in conferring trust in the firm. When auditors attest to the company’s disclosures, regulators become supportive.
Role of SEBI in auditing and corporate governance in India
In order to safeguard investors’ and issuers’ interests, SEBI has established corporate governance principles under which the securities market must function. SEBI has the authority to look into situations in which the market or its participants have been affected and to impose governance norms under the directive. Accountability and openness are guaranteed through an established appeals procedure. If a firm doesn’t follow its governance rules and regulations, SEBI has the authority to remove it from the securities list.
The following are crucial components of good corporate governance:
Transparency;
Accountability;
Disclosure;
Equity;
Equity;
Rule of law.
Audit processes
To make sure the procedure is thorough and efficient, the following procedures would be done annually:
The audit shall be carried out in accordance with the SEBI-issued Norms, Terms of Reference (TOR), and Guidelines.
The board of the Stock Exchange / Depository shall select the auditors in accordance with the established auditor selection norms and TOR. Stock Exchange / Depository (Auditee) may negotiate. A maximum of three consecutive audits by the auditors are permitted. SEBI must receive the auditor’s proposal for records.
The audit schedule, along with the details of the current and past audits, must be provided to SEBI at least two months in advance.
Taking into account the developments that have occurred over the last year or after the release of the previous audit report, SEBI may decide to expand the audit’s scope.
An audit must be done, and the auditee must receive the audit report. Specific compliance or non-compliance concerns, observations of small deviations, and qualitative comments on areas for development should all be included in the report. The report should also evaluate any outstanding issues from earlier audit reports.
The management of the auditee offers its opinion on the nonconformities (NCs) and conclusions. Specific remedial actions must be done for each NC within a 3-month time frame and reported to SEBI. If a follow-up audit is necessary to assess the status of NCs, the auditor should say so. Within a month of the auditor’s conclusion, SEBI must receive the report and management comments.
To be sure that the corrective steps have been done, a follow-up audit, if any, must be planned within three months following the audit.
If a follow-up audit is not necessary, the auditee’s management must provide the auditors and SEBI with a report detailing the corrective measures they have implemented within three months. This report needs to include an updated issue log that shows the remedial measures that have been done and have been audited.
Terms of Reference (ToR)
General Controls for Data Center Facilities
Software Change Control
Data communication / Network controls
Security Controls – General office infrastructure
Access policy and controls
Electronic Document controls
General Access controls
Performance audit
Business Continuity / Disaster Recovery Facilities
IT Support & IT Asset Management
Entity-Specific Software
Any other Item like electronic waste disposal or based upon previous audit reports as well as any other specific information given by SEBI
Guidelines for audit reports
Each major area included in the TOR should be explicitly covered in the audit report, along with any nonconformities (NCs) or observations (or lack thereof). Auditors should offer qualitative suggestions for how to enhance each section of the process based on the best practices they have seen. Additionally, tabulated data displaying NCs and observations for each major area in TOR should be included in the report. Reports should be presented in full detail, coupled with an executive summary in tabular format. A summary comment from the auditors should be included in the executive summary as well, indicating if a follow-up audit is necessary and the deadlines for the various remedial actions for non-conformities. The stock exchange/depository must additionally provide a declaration from the MD/CEO attesting to the integrity and security of IT systems in addition to the audit report.
Audit committee
The composition and role of the committee have been given under Section 177 of the Companies Act, 2013, and Regulation 18 and Part C of Schedule IISEBI (LODR) Regulations, 2015. A company’s audit committee is essential to internal financial control and aids in risk management. Therefore, a company’s constitution is a crucial component.
Composition of the audit committee
According to the provisions of the Companies Act of 2013, the audit committee shall include a minimum of three directors, with a majority of independent directors. In accordance with the Companies Act, such individuals who can read and comprehend financial statements must be assigned to the audit committee. This provision also applies when appointing a chairperson.
The SEBI (LODR) Regulations 2015 stipulate that the audit committee shall have at least three directors. Additionally, the audit committee should include two-thirds of independent directors. A director who is independent must chair the audit committee. All members of the audit committee should be financially literate, and at least one of them should be an accounting or related financial management specialist.
Meetings to be held by the audit committee
The Companies Act of 2013 does not stipulate how often the audit committee must convene. However, subject to any legal requirements, the audit committee should convene as often as necessary.
According to the SEBI (LODR) Regulations 2015, the audit committee must meet at least four times each year, and no more than 120 days cannot pass between sessions. A minimum of two independent directors, as well as two members of the audit committee, should constitute a quorum for such a meeting.
Power of the audit committee
Under Companies Act
According to the Companies Act of 2013, the audit committee has the following powers:
to request auditors’ opinions on internal control mechanisms, the audit’s scope, and the financial statement before the board is notified; to discuss any concerns with the company’s management and with the internal and statutory auditors;
to look into a matter involving the company, the committee may seek expert opinion from other sources. The committee has the authority to look up information in the company’s records.
Under SEBI guidelines
The following powers are granted to the audit committee under the SEBI (LODR) Regulations 2015:
to look into a situation within the parameters of the investigation;
to ask any employee for information;
to seek outside legal or other expert counsel;
to invite outsiders with the necessary skills if necessary.
Roles and objectives of the audit committee
Under Companies Act
Every audit committee must abide by the written terms of reference specified by the board, as per Section 177(4) of the Companies Act, which will include:
the suggestion for the selection, compensation, and terms of the company’s auditors;
review and keep an eye on the auditor’s performance and independence, as well as the efficiency of the auditing process;
review the auditors’ report and the financial statement;
modification or approval of business deals involving related parties. According to the requirements outlined in Rule 6A of the Companies (Meetings of Board and its Powers) Rules, 2014 the audit committee may grant omnibus approval for related party transactions that a company has proposed entering into.
Under SEBI guidelines
The duties of the audit committee are outlined in Part C, Schedule II, of the SEBI (LODR) Regulations. It includes the following:
monitoring the listed entity’s financial reporting procedure and the disclosure of its financial data to verify the information’s veracity and accuracy;
recommend the selection of auditors for listed companies, as well as their compensation and terms of employment;
giving statutory auditors the go-ahead to be paid for the services they provided;
Before submitting it to the board for approval, carefully analyse the annual financial statements and auditors’ report, paying particular attention to the following:
Issues should be addressed in the directors’ responsibility statement
modifications to accounting policies and procedures, including any explanations;
significant accounting entries;
significant financial statement modifications resulting from audit findings;
Compliance with listing requirements and other legal obligations for financial statements;
RPT disclosures;
Modified opinion in the draft audit report.
to examine quarterly financial reports before submitting them for approval to the board;
defining and disclosing material modifications as part of the policy on the importance of RPTs and how to deal with them;
If the transaction’s value during the fiscal year exceeds 10% of the listed entity’s annual consolidated turnover as determined by its most recent audited financial statements, the RPT must have approval from the audit committee of the listed business;
evaluate the statement of the usage of funds received through an issue, the statement of money utilised for purposes different than those listed in the offer document, prospectus, or notice, and suggest to the board that action be taken in this respect;
examine and keep an eye on the auditor’s performance, independence, and effectiveness;
approving or a subsequent change in transactions involving a listed business and linked parties;
examine investments and loans made between companies;
evaluation of internal financial controls and risk management systems;
evaluation of internal financial controls and risk management systems;
to evaluate the effectiveness of external and internal auditors, as well as the suitability of internal control systems;
To assess the effectiveness of the internal audit function, taking into account the department’s structure, staffing, and seniority of the manager, as well as the department’s coverage of the reporting structure and frequency;
Talk to internal auditors about any significant findings;
to consult with statutory auditors regarding the type and scope of the audit before it is completed;
to examine the reasons behind significant payment failures to shareholders, creditors, debenture holders, and depositors;
analysing how the whistleblower mechanism operates;
after evaluating the applicant’s qualifications, to approve the CFO’s appointment;
performing any additional duties outlined in the audit committee’s terms of reference;
to assess the holding company’s involvement in a subsidiary that exceeds 100 crore rupees or 10% of the subsidiary’s asset size, whichever is lower, and includes any existing loans, advances, and investments.
Auditor’s responsibilities in the event of fraud detection
As previously said, auditors are frequently in a position to detect fraud. When an auditor discovers that a senior employee of a firm has been defrauding that company on a large scale and is in a position to continue doing so, it is typically the auditor’s responsibility to immediately disclose what has been discovered to the company’s management. The ICAI Auditing Guidelines, 2000, additionally provide that if an auditor suspects the presence of fraud, another irregularity, or an error while performing his or her duties, the following action should be taken. The auditor should make every effort to determine if fraud, other irregularities, or errors have happened; nonetheless, if fraud by senior management is suspected, the auditor should notify senior management of his concerns. In the event of major fraud or irregularities that are likely to result in financial benefit or loss for any individual or a large number of people, the auditor may report immediately to a third party without the knowledge or approval of management. In this perspective, the Enron and Satyam Computer scams are notable examples of major fraud committed with the assistance of their auditors and auditing companies.
The Enron scandal
In the case of Enron, a Texas-based energy corporation, financial relationships between the firm and some board members were used to negotiate the independence of the Enron Board of Directors. Two directors each invested more than $1 million in Enron stock and have a strong financial motive to keep the firm afloat. Even they did not stop them from siding with Enron’s management on several situations when they should have opposed. Auditors are appointed by the board of directors (auditing committee) with the goal of conducting audits in an objective, deliberate, and professional way. The auditor should be independent in order to protect the interests of shareholders and other stakeholders, but how can this be done if the board of directors is not independent?
The auditor’s independence is jeopardised due to his strong contact with management. Many times, management complied with auditors by providing non-audit services, earning their favour through the presentation of misleading financial statements.
In the case of Enron, the board of directors was not independent, which is why the auditor failed to do his duty. Despite the fact that Arthur Anderson was Enron’s external auditor, the board allows him to serve as an internal auditor and provide consulting services. Arthur Anderson received US$ 55 million for non-audit services in 2001. The roles of the auditor and audit committee were called into question in this case. Auditors must rely on management for their livelihood and have excellent working relationships with them. If they qualify the report or identify the wrongdoings of the management, it is unlikely that they will be selected in the future.
Anderson was reporting on the company’s accounts at Enron, and he did not report fraud to shareholders and other stakeholders because it was committed by management. If auditors have reported, they may not be appointed in subsequent years. Hence, the auditors made certain that they were in good books of management.
The Satyam scam
In this incident, Ramalinga Raju and his brother Rama Raju founded Satyam Computer Services Ltd. in 1987 as a private enterprise with only 20 employees in order to develop software and provide consulting services to large corporations. B. Ramalinga Raju, Satyam’s founder and former chairman, acknowledged on January 7, 2009, orchestrating an accounting fraud on Satyam’s accounts. Satyam Computer Services Ltd. was a publicly traded private corporation that was among the most well-known software companies in the country. Satyam’s shares were listed on the New York Stock Exchange, the Bombay Stock Exchange, and the National Stock Exchange of India as a publicly traded company. This indicated that Satyam had to follow Clause 49 of the Sarbanes Oxley Act, as well as any other applicable rules and regulations. Ramalinga Raju, the co-founder and chairman, retained control of Satyam even after it went public. The company had an optimal combination of non-executive and executive directors, an independent audit committee, a nomination committee, and independent pay committee directors. Satyam’s downward spiralling impact was found in two stages. Satyam’s books of accounts contained fabricated accounts after a related party deal that included the company’s promoter failed. Satyam’s problems began when its chairman issued a $1.6 billion bid for two Maytas organisations, namely Maytas Properties Ltd. and Maytas Infrastructure Ltd., both of which Raju’s family promoted and controlled. Despite reservations expressed by a few independent directors, the board opted unanimously to proceed with the scheduled transaction. Satyam informed the stock exchanges of the board’s approval, as required by the listing agreement. Satyam was compelled to withdraw Mayta’s proposal within eight hours of its introduction, owing to a poor market reaction. Finally, on January 8, 2009, Ramalinga Raju unexpectedly resigned as Satyam’s chairman after confessing to a Rs. 7,800 crore financial scandal. Raju and his brother covered up the swindle in front of the company’s board, top management, and auditors. Ramalinga Raju fabricated data totaling Rs. 5040 crores in false currency and bank accounts, rather than Rs. 5361 crores.
There was no accrued interest of Rs. 376 crore, in addition to an underestimated liability of Rs. 1230 crore owing to money created by Raju and an inflated debtor’s position of Rs. 490 crore. As a result, only family members had complete access to the information. Satyam, previously India’s fourth-biggest IT business with a well-known clientele, became implicated in the country’s largest scam. The CEO, Srinivas Vadlamani, the CFO, and other directors of Satyam (PwC) bribed the auditors with a large sum of money to misrepresent the company’s financial statements, conceal fraud, and entice investors to part with their hard-earned cash. PwC served as Satyam’s auditor from 2000 to 2008 by maintaining a positive relationship with management. This fraud was carried out with the assistance of the worldwide reputed audit company PricewaterhouseCoopers (PwC), which is a major setback for corporate governance in India. This audit firm failed to identify any fraud and validated thousands of crores of rupees in bank accounts that did not appear to exist at all.
Conclusion
The audit is supposed to analyse the accounts kept by the directors in order to notify investors of the real financial status of the firm. The audit is designed to safeguard investors. The auditors do have a chance to make a thorough check of the accounts, call for the information, and satisfy themselves that the accounts have been fairly maintained and the balance sheet is fairly drawn up. The auditors do have to act in good faith and efficiently to check the accounts and certify the balance sheet of the company. Therefore, it is the responsibility of the auditors to protect the interests of investors in relation to the actions of the directors when they ostensibly behave in accordance with their authority while handling company assets. It is the auditor’s responsibility to find any unlawful or improper dealings, so it is crucial that they utilise their abilities and conduct a reasonable analysis of the books to ensure this. Auditing is a crucial tool for defending the rights of investors because it has already exposed several corporate crimes. Auditors are sometimes referred to as the company’s gatekeepers, eyes, and ears since they play a significant role in maintaining openness and accountability in the corporate sector.
It is also true that fraud may be discovered after the auditor has finished his audit, but this does not necessarily indicate that the auditor was careless or did not entirely fulfill his obligations. He examines and confirms the company’s records, finances, and certificates that are in front of him. The auditor would not be held liable for failing to uncover such fraud if he had done his audit with the necessary care and skill in accordance with the anticipated professional standards. As a result, it is expected that the auditor will perform a careful audit of the business.
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The article is written by Tushar Singh Samota, a law student from University Five Year Law College, Rajasthan University. The article discusses the concept of criminal complaints to Magistrates, which is mentioned in Section 200 of the CrPC. The discussion will be supported by various judicial pronouncements.
It is widely believed that people are frequently denied First Information Report (FIR) registration. The Indian legal system gives enough choices that one can use in such instances, but it is quite frequent for people to lack the necessary information to do so. If a person reports a crime and the police refuse to register the FIR for unjustified reasons, the individual may file a complaint with a higher-ranking official. If despite submitting a complaint to senior police officials, no FIR is lodged, the informant has the legal right to file a complaint with the Judicial Magistrate/ Metropolitan Magistrate under Section 156(3) of the Code of Criminal Procedure, 1973, requesting that the FIR be registered by the police and an investigation into the matter begin, and the Magistrate may take cognizance of the same under Section 190 of the Code.
In this article, the author will examine Section 200 of the CrPC, which will deal with further proceedings when the Magistrate will take cognizance of an offence on the complaint or the conditions under which a Magistrate will take account of the offence committed and its relevant components.
The significance of complaint proceedings made to Judicial Magistrates
Everyday court experiences indicate that many of the accusations are unfounded, and these complaints must be handled cautiously from the start. Furthermore, complaints that lack appropriate proof should be submitted for additional review so that only in true situations may the accused individual be summoned to court. It is critical to remember that an order calling a person to appear in a court of law for a criminal accusation carries significant implications and has the potential to deprive an accused person of his or her liberty, which is regarded as so valuable in our Republic.
Such an order should not be issued unless authorised by law. Section 200 to Section 203 have been adopted with this goal in mind, and their major purpose is to be able to discern real instances from fake ones and to root them out at the beginning without calling on the person against whom the complaint is filed. The Magistrate’s weeding-out operation under Sections 200 to 203 is wholly and only applicable to situations where cognizance is taken on a complaint. For obvious reasons, such a unique procedure or practice is not required when cognizance is based on a police report.
Judicial Magistrate’s complaint proceedings
When an effort is made to file a complaint under Section 154 or Section 155 of the Criminal Procedure Code (CrPC), the police may merely record an FIR if an offence of cognizable character is revealed. If the police decline to file an FIR, a complaint can be filed with the Superintendent of Police (SP) or Commissioner of Police (CP), who can then investigate themselves or instruct an officer subordinate to them to do so. However, if no inquiry is done by the SP/CP or requested to be conducted by a subordinate officer, the informant/complainant may approach a Judicial Magistrate of First Class (JMFC) who has authority over the police station where the first attempt to submit an FIR was made.
The abovementioned remedy is accessible to the informant under Section 156(3) of the CrPC. To avail of it, the informant/complainant must file an application/complaint with the JMFC court, detailing the relevant circumstances that constitute an offence of cognizable character. It is important to note that the application under Section 156(3) must also be accompanied by copies of the complaints made by the informant/complainant, first before the concerned police station and then before the SP/CP, to demonstrate that the informant/complainant exhausted their local remedies before approaching the court of law.
Following the facts and circumstances of each case, the Judicial Magistrate reviews the application or complaint after receiving one under Section 156(3) of the CrPC to determine whether the facts stated therein constitute an offence of a cognizable nature and whether the filing of an FIR is necessary. After reviewing the contents of the application/complaint, if the Magistrate believes that the facts mentioned in the application/complaint constitute a cognizable offence, he will direct the concerned police station to register an FIR, conduct an investigation, and submit a report as required by Section 173 of the CrPC.
Examination of the complainant before procedural issues
The examination of the complaint is the first step in strengthening the whole proceeding. Before initiating the procedure, the complaint must be thoroughly reviewed. Only after this examination Chapter XVI will come into action. This examination confirms the complainant’s locus standi. The Magistrate will also determine whether the complaint falls within the exclusions set out in Section 195 to Section 199.
When the prima facie case is established in the inquiry, the Magistrate may issue the process without further delay. This procedure of analysing the complaint must be carried out by the Magistrate himself, not by the advocate; nevertheless, the relevant counsel may assist in the process. Section 190 of the Code of Criminal Procedure establishes the requirement for Magistrates to take cognizance of offences. The Magistrate may take cognizance of this clause in the following circumstances:
Following the receipt of a police complaint;
Following receipt of charges of facts constituting an offence;
Upon obtaining information from a source other than a police officer or upon his knowledge that such an offence has been committed;
The Chief Judicial Magistrate may delegate authority to any Magistrate of the Second Class to take cognizance of offences for which he is competent to conduct an inquiry or a trial.
Before issuing a process, the Magistrate might analyse and thoroughly evaluate the complaint.
Examination of the complainant
The examination of the complainant is addressed under Section 200 of the Code of Criminal Procedure. After taking cognizance of an offence, the Magistrate must question the complainant and any witnesses present. This examination must be conducted under oath. The Magistrate is also required to record any pertinent information discovered during the examination. The substance of such an examination should be provided in writing and signed by the complainant and witnesses. The Magistrate is not required to perform this examination when:
If the complaint is brought by a public servant acting or appearing to act in the performance of his official responsibilities or by a Court;
If the Magistrate refers the case to another Magistrate for investigation or trial under Section 192.
If the Magistrate in charge examines the case and refers it to another Magistrate for investigation or trial, the later Magistrate does not need to review the cases again. Any Magistrate authorised under Section 190 may order such an investigation, according to Section 156(3) of the CrPC.
Section 156 in The Code Of Criminal Procedure, 1973
The authority of the police officer to look into a cognizable matter is discussed in Section 156. This Section states that:
Any officer in charge of a police station may look into any cognizable matter that a court with jurisdiction over the local area within the borders of that station would have the authority to look into or trial under the requirements of Chapter XIII without the need for a Magistrate’s order.
No police officer’s action in any such instance shall be brought into question at any time because the officer was not authorised to investigate the matter under this Section.
Any Magistrate authorised by Section 190 may order the aforementioned investigation.
The procedure to be followed when a complaint is filed
Section 200 of the CrPC requires the Magistrate to hear a case and question the complainant and any witnesses present under oath for a sufficient amount of time to satisfy himself. The object of this is to determine if the accusations present a prima facie case for the Magistrate to issue process under Section 204 of the Criminal Procedure Code of 1973. If the witnesses are present on the date the complaint is filed, their statements should also be recorded under this provision.
The Magistrate has three alternatives after recording the complainant and witnesses’ testimonies and evidence under Section 200 CrPC, 1973.
He may issue a process under Section 204 of the Criminal Procedure Code of 1973 if a prima facie crime is established and the potential accused resides within the Magistrate’s local jurisdiction.
He may dismiss the complaint under Section 203 of the CrPC, 1973 if no prima facie crime is shown and no reasonable foundation for prosecution exists, or
He may postpone the issuance of the process awaiting further inquiry by himself or investigation by police or any other person as he thinks appropriate under Section 202 of the Criminal Procedure Code of 1973.
As a result, Section 200 of the CrPC 1973 mandates that the complainant and any witnesses present be interrogated. This provision also makes it mandatory for the Magistrate to question the witnesses. In the matter of Rajesh Balchandra Chalke v. State of Maharashtra (2010), the Court concluded that Section 200 applies to the words ‘shall review’ and not ‘may review’. As a result, the method of the evaluation of the complaint on the declaration is mandatory rather than voluntary.
The procedure by a Magistrate who is ineligible to take cognizance of the case (Section 201)
If the complaint is filed with a Magistrate who is unable to take cognizance of the offence, then the Magistrate shall,
If the complaint is submitted in writing, it can be returned to the complainant, and the party can be asked to present the complaint in the competent court.
If the complaint is not submitted in writing, the Magistrate has the authority to refer the complainant to the appropriate Court.
In Ramadhar Singh R.D. Singh v. Smt. Ambika Sahu (2016), the court declared that, without getting into the merits of the case, what must be considered is the appeal and the need for the legislation under which the case has been registered under Section 201 CrPC.
Inquiry or investigation to look into the complainant further
Section 202 of the Code allows for further investigation of the complainant. If the Magistrate believes that additional inquiry is required, the procedure might be postponed. The Magistrate will assess whether there is a valid basis for proceeding. The scope of the investigation under this provision is limited to determining whether the complaint is true or untrue. In S.S. Binu v. State of West Bengal (2018), the court concluded that, in terms of the type of examination, the establishment of Section 202 Crpc has two goals:
First is to empower the Magistrate to analyse exactly the claims stated in the accusation to avoid a person identified as accused from being summoned to confront an irrelevant, flimsy, or meritless complaint.
Secondly, to determine if there is any material to defend the allegations stated in the complaint, or in other words the learned Magistrate engaged is under obligation to decide the commission of the offence after appropriate consideration.
Refusal/ dismissal of the complaint
Section 203 gives the Magistrate the authority to dismiss a case. If the Magistrate believes there are insufficient grounds for continuing, he may dismiss the case. After completing an adequate inquiry or investigation under Section 202, the Magistrate reaches this determination. The Magistrate may also reject the complaint if the processing fee is not properly paid, as specified in Section 204.
In the case ofChimanlal v. Datar Singh (1997), the court ruled that dismissing a complaint is improper if the Magistrate fails to interrogate a material witness under Section 202. The Magistrate has the authority to dismiss the complaint or refuse to issue the procedure when:
The Magistrate determines that no offence was committed when the complaint is put to writing following Section 200;
If the Magistrate doubts the complainant’s assertions;
If the Magistrate believes that more inquiry is required, he may postpone the issuing of the process.
The complainant is not permitted to submit any recall applications under Section 203 CrPC if the court has already issued the process.
The Supreme Court, in another case of Adalat Prasad v. Rooplal Jindal (2004), stated that if the Magistrate did not dismiss the charge and issued the process, the accused could not approach the court under Section 203 CrPC for dismissal of the complaint since the stage of Section 203 had already passed. Similarly, in Santokh Singh v. Geetanjali Woolen Pvt. Ltd. (1993), the Court ruled that just because a complaint has been dismissed by a Magistrate under Section 203, it does not preclude a second complaint based on the same facts and reasons from being heard. However, it should be considered only in exceptional instances.
Magistrate’s authority to reject a private complaint that indicates no offence
The Magistrate has the authority to consider a private complaint under the requirements of clause (a) of Section 190(1) of the CrPC. The complainant’s complaint must contain the facts that establish the offence. If these facts specified in the complaint turn out to be incorrect about the offence, the Magistrate is not compelled to consider such a complaint. He has the authority to dismiss such accusations without further investigation.
The Magistrate has the advantage over the police report, which specifies the significant information linked to the complaints, according to Section 190(1)(b) of the CrPC. Further, Section 190(1)(c) of the CrPC stipulates that the Magistrate has the authority to consider information or knowledge of the commission of an offence acquired from sources other than the police report. However, under Section 190(1)(a), the Magistrate’s only option is to file a complaint. The steps taken by the Magistrate, as prescribed by Section 204, should demonstrate that he has considered the facts and statements and that there is a valid basis for further legal proceedings against such offence by interrogating the accused person against whom the accusations are made concerning the offence committed to appear before the court.
Furthermore, if the grounds for proceeding is met and the facts specified in the complaint constitute an offence, the accused person will be held accountable before the court. When the Magistrate dismisses the complaint, a spoken order must be issued under Section 203 of the CrPC, and the reasons must be explained concisely.
Thus, the above-mentioned Supreme Court decision resolves the issue by finding that a Magistrate may reject a private complaint where the facts provided in such a complaint do not explicitly show any violation without conducting any additional legal inquiry in such a situation.
Magistrate’s Power with respect to Sec 200 CrPC
Power of questioning the Complainant and the Witnesses
Section 200 requires the Magistrate to question both the complainant and the witnesses in attendance. Due to the importance of this requirement, the Magistrate must inquire whether or not a witness is present. The Magistrate shall also note the relevant fact in the order sheet if the witness is missing.
Investigation for further examination of the complaint
Any Magistrate who receives a complaint of an offence for which he is authorised to act or who has been directed under Section 192 of the CrPC may believe that it is appropriate to postpone the issue of proceedings against the accused person, he may either inquire into the case himself or direct an investigation to be conducted by a police officer or any other person he believes is appropriate for determining whether or not there is sufficient evidence for the proceeding.
Power to reject the complaint
Section 203 empowers the Magistrate to reject the complaint made by the complainant in every situation, and he must briefly record his reasons for doing so. This will aid in deciding whether the Magistrate applied his mind to the facts available or used his discretion appropriately or not.
Can an inquiry be conducted under Section 156(3) even if a complaint is filed under Section 200 CrPC
Even though the complaint was submitted under Section 200 as a ‘private complaint’, the Magistrate has full authority to instruct the Police to conduct an inquiry.
It is not the Magistrate’s main obligation to take prompt notice of a complaint submitted under Section 200 only because it is a ‘private complaint’. The Magistrates have the authority to decide whether or not to take cognizance. As Section 200 is a pre-cognizance stage, the Magistrate has the discretion to order an investigation by the Magistrate himself or the police. The Magistrate shall take cognizance based on merits and facts following such inquiry or investigation.
In this circumstance, the Magistrate is authorised to seek an alternative remedy or line of action before taking cognizance.
Investigation under Section 156(3) should be conducive to justice and shall also spare the court’s time from asking into an issue that the police officers should have primarily probed.
Related judicial pronouncements
Chandra Deo Singh v. Prokash Chandra Bose and anr., 1963
The Hon’ble Judge in the case of Chandra Deo Singh v. Prokash Chandra Bose and Anr. (1963) believed that because there is only one offence, namely the murder of Nageswar Singh, there can be only one trial and no further inquiry can be made into the other persons who are being tried for that offence. There were no significant facts on record to explain to the court what happened to the investigation against Asim Mondal and Arun Mondal after the High Court dismissed their move for revision.
The ruling reveals that the commitment procedures against these two individuals will be delayed pending, which resulted in the dismissal of the current appeal by this court. The Court stated that it does not understand the notion that an investigation into a different individual for the same offence cannot be conducted. Section 203 of the Code of Criminal Procedure states that if a Magistrate rejects a complaint because there is no adequate foundation for proceeding with the trial, he must record his reasons for doing so. As previously noted, the Magistrate pursued the inquiring Magistrate’s report and dismissed the allegation. This viewpoint is supported by the court’s reliance on its ruling.
In this decision, the Supreme Court overturned the Magistrate’s dismissal of a complaint at the stage of inquiry under Section 203 by stating that the question was whether there was adequate cause for the procedure rather than whether there was sufficient ground for conviction. The Court further observed that if there is direct evidence, even if the accused has a safeguard that the offence was committed by someone else, the subject must be determined by the right forum at the appropriate moment. The issue of the process cannot be rejected. Unless the Magistrate decides that the evidence put before him is self-contradictory or otherwise untrustworthy, the procedure cannot be denied if it establishes a direct cause.
Gurudas Balkrishna v. Chief Judicial Magistrate Goa, 1992
A complaint was submitted in the case of Gurudas Balkrishna v. Chief Judicial Magistrate Goa (1992) before the learned Magistrate on July 31, 1992, but it was not put on record until August 3, 1992, and nothing transpired until September 25, 1992. According to the Roznamcha, on September 25, certain other issues needed to be dealt with on a priority basis before the Magistrate. Hence, the case was delayed until February 19, 1993.
The Hon’ble High Court then stated that engaging the Court in any other task for a day cannot be justified since it is likely to thwart the exact objective for which the criminal charges are being filed. As a consequence, the High Court granted the plea, and the Hon’ble Court asked the Chief Judicial Magistrate, Panaji, to record the testimony of the complainant and his witnesses within a week of its ruling.
Jacob Harold Aranha v. Vera Aranha (1979)
In the well-known case of Jacob Harold Aranha v. Vera Aranha (1979), the Bombay High Court took a hard stance on Section 204 of the Code of 1973. The Court remarked that a Magistrate has a legal responsibility to conduct a careful study of the charges and evidence presented to the court in order to determine whether or not a prima facie case exists. This must be completed prior to the issuance of a summons under Section 204 of the Code of Criminal Procedure. The decision was accepted as a precedent in the case of Roshan Lal v. P. Hemchandran (1995), in which the Rajasthan High Court held that, while issuing summons to the accused is a subjective satisfaction of the Magistrate, it must be done judiciously, in accordance with the law, and on the basis of sound reasoning.
Anam Charan Behera v. State (2001)
In the case of Anam Charan Behera v. State (2001), the Orissa High Court discussed the power granted to Magistrates under Section 205 of the Code of Criminal Procedure, 1973. The Hon’ble High Court assured that Section 205 does not lay down any hard and fast rules that Magistrates must follow when exercising the conferred power, stating that the power is discretionary in nature. The court must exercise this discretionary power after due consideration of relevant circumstances such as the significant inconvenience that can be caused to the accused, his or her profession, and so on. The Magistrate dismissed the petition in the current case, which had been ongoing for over 16 years owing to the absence of the accused, which could not be confirmed despite multiple warrants given to him. It was determined that the Magistrate’s discretion in denying the petition in this matter under Section 205 of the Code was not abused.
Conclusion
We can conclude that when a written complaint is submitted to the court, the Magistrate registers it after reviewing it. Following registration, the complainant’s statement is recorded under Section 200 of the Criminal Procedure Code, 1973, on the same day. The case is set for recording the evidence of witnesses under Section 202 of the Code of Criminal Procedure on any other day. After recording the testimony of the witness or witnesses under Section 202 CrPC, the matter is set for arguments on summons. After hearing the arguments during the hearing, the matter has been scheduled for the next summons. If the Magistrate determines or believes that evidence relevant to the offence is contained in the complaint following Sections 200 and 202 of the Code of Criminal Procedure, then the Magistrate issues the process against the accused under Section 204 of the CrPC.
If, on the other hand, the Magistrate is satisfied after reviewing evidence under Sections 200 and 202 CrPC that no prima facie offence has been shown and that there is no adequate reason for proceeding, then he dismisses the complaint under Section 203 CrPC.
Frequently asked questions (FAQ)
What is the difference between Section 156(3) and Section 200 of CrPC?
Section 156(3) of CrPC indicates the regulations governing a police officer’s ability to investigate a cognizable offence upon receiving orders for the same from the Magistrate under Section 190 of CrPC whereas Section 200 deals with the concept of criminal complaints to the Magistrate.
What is the difference between Section 190 and 200 CrPC?
The major difference with reference to the private complaints is that the competence to take cognizance is found in Section 190 of the CrPC, whereas Section 200 of the CrPC grants the authorities the right to interrogate the complainant under oath for the purpose of verifying the allegation.
Is there a fee or payment to be paid to the police for the registration of an FIR?
Certainly not. The police are not to be paid for registering the FIR and conducting the following investigation. If someone at the police station makes such a demand, a report should be filed immediately with the senior offices.
What happens when a police station receives a report about a non-cognizable offence?
The police station is obligated to record an abstract of such a complaint in the general diary, which is referred to as N.C. and suggest the complainant register the complaint with the appropriate court, as the police are not authorised to take action in such cases without court approval. The complaint may be given a free copy of the record made in the General Diary.
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Enrollment into a desired educational establishment is one of the significant stages of a student’s life. Writing an application essay is among the requirements for students who wish to enter a university or college, apply for a scholarship, or graduate from school. From time to time, the application papers are called admission essays or personal statements depending on the type of paper and the goals of its writing. Many committees that decide on awarding a scholarship or approving the enrollment of students to a specific educational establishment consider an application essay as one of the main criteria to determine the student’s destiny. That is why many students stress out when they get an assignment to write an application essay and seek practical help because they lack skills. One way to ease the writing process is by asking one of your experienced friends who has already applied for the same scholarship program or enrolled in the same educational establishment. However, not all students have such friends and often must deal with complex assignments alone. Consider turning to professionals if you’re looking for help with your application essay. To get practical assistance, you need to choose a reliable application essay service that will help you to deal with difficult papers. Turning to a service that will write a paper for you could make a big difference, and you will understand that it was one of the best decisions. Such services are trustworthy and collaborate with professional writers with vast expertise in creating application essays and other papers for colleges and scholarship programs. Proceed reading to find out how to write an application essay for college, scholarships, and grad school.
A definition of an application essay
Speaking about the main characteristics of an application essay, one must note that such papers are not too volume. Usually, the application essay is up to 800 words. Application essays mostly contain information about the students and briefly introduce the paper’s author explaining his or her motivation to join a scholarship program or a certain college. Application essays present the achievements and goals of students and explain how an applicant fits the requirements of a particular program. Usually, application essays are read by enrollment committees or scholarship committees, who decide what the next steps of an applicant should be.
Find out the requirements
The first stage of writing an application essay for college scholarships and grad schools would be getting the manuals and reading the details provided by a committee. A student will define his or her goals by reading about the requirements and realizing what is obligatory to mention while writing an application essay. If you are running out of time and wish to skip reading the instructions, create a standard paper according to your experience. It could work if your knowledge is enough. However, in most situations, missing reading the instructions from a committee is not a smart move because you are risking miswriting a paper. Usually, the requirements for writing an application essay depending on its aims and on the type of program. Ensure that you understand the tone of voice, the style, the correct name of the committee members, the deadline, the number of words, and the formatting style.
Highlight your main achievements
Proceed with writing an application essay by describing yourself. Positively talk about yourself. Before you start writing, think over what you are your fundamental values and main achievements. Make this information the central part of an essay. Remember to ensure that you clearly understand the requirements and the aims of writing. It would be best to explain why you chose a specific educational establishment or a scholarship program. Most application essays require providing additional information about your achievements in addition to your studying achievements. For example, if you volunteer or professionally attend a sport, you need to mention it.
Organize your thoughts
Effectively arranging your thoughts is an excellent step to writing a good application essay. When you are happy with collecting all the needed materials and information about yourself, including your main achievements, think over the structure of your application essay. Remember that the committee members usually do not have enough time to go through the whole paper, even if it is only 500 words long. So you will need to put the essentials at the beginning of the essay. Consider having at least three or five paragraphs and mentioning all the core information in the first paragraph.
Add some creativeness
Of course, when you write an application essay, a lot depends on your goals, the type of paper, and the program you’re applying to. However, adding creative ideas and showing your ability to think out of the box will make a difference and could become a plus. If appropriate, add some innovative ideas and make your essay stand out to be noticed by application committee members.
Edit an essay
Editing your application essay is an important stage of writing because if you will make mistakes and do not reduce them, it could influence the situation poorly. When committee members read an essay you create, they will consider the content but also note how you can follow the structure and formatting requirements and if you understood the writing instructions correctly. Remember to use specific tools that help reduce grammar and punctuation mistakes, like Grammarly. Reading your application is safe from the beginning. You can think over the content, add something or exclude some insignificant and unnecessary points from your paper.
After reading our article, we hope you know how to write application essays for college scholarships and grad school. Always start by defining the requirements and goals of writing. Highlight your main achievements and arrange your thoughts to make the essential information visible. Put the most valuable facts in the first paragraph. Do not hesitate to add creative ideas to make your paper stand out. Always spend enough time editing your application essay and reducing all mistakes. We wish you good luck!
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This article has been written by Taniya Yadav, a law student at Allahabad University. This article talks about the difference between mediation and arbitration and various other aspects of alternative dispute mechanisms.
It has been published by Rachit Garg.
Table of Contents
Introduction
The Indian judicial system is one of the oldest judicial systems in the world. It is no secret that a judicial system in a country with a population of 1.4 billion people has to deal with an enormous number of cases. In the 2022 monsoon session of Rajya Sabha, it was informed by the Union Minister of Law and Justice that 4.7 crore cases are pending in various courts of the country, out of which 71,000 are pending in the Supreme Court, 42 lakhs are pending in various High Courts, and 2.7 crores are pending in the subordinate courts.
The inefficiencies in the judicial system are leading to the pendency of cases, because of which the judiciary is becoming overburdened with cases. To reduce the burden on the judicial system, an alternate dispute resolution mechanism was introduced. Arbitration and mediation are two such mechanisms. They appear to be similar at face value, but there are a lot of differences between them. This article is an attempt to simplify the concepts of mediation and arbitration and the differences that make them different.
Alternate dispute resolution mechanism
Alternate dispute resolution mechanisms are an alternate method of solving disputes. It involves arbitration, mediation, conciliation, Lok Adalat, judicial settlement, and any other process that involves settling disputes through negotiation and not through the traditional form of litigation.
Even though these mechanisms were prevalent in India in the form of panchayats for a long time, they got legal authority only after the arrival of the British.
Alternate Dispute Resolution Mechanism system came into existence for primarily promoting out-of-court settlements but there are a few more objectives which it tries to achieve along the way:
Affordable and speedy trial with less procedure involved.
Settlement of disputes through compromise, negotiation, or fair offers.
Enables the parties to have a better understanding of each other’s views, so that they can go for an amicable settlement.
Works on the principle of diplomacy, a win-win situation for both parties.
Creates pre-dispute guidelines to prevent future issues and give a systematic framework.
Arbitration
“I can imagine no society which does not embody some method of arbitration.” – Herbert Read
According to the Oxford Dictionary, “arbitration” means the settlement of a question at issue by one to whom the parties agree to refer their claims to obtain an equitable decision.
The Arbitration and Conciliation Act, 1996, came into existence to make arbitration, domestic and international, simpler in India. This Act is based on the UNCITRAL Model Law on International Commercial Arbitration, 1985. Arbitration can be classified into two categories: (1) domestic arbitration and (2) international arbitration.
International commercial arbitration is defined in Section 2(1)(f) of the Arbitration and Conciliation Act, 1996.
The UNCITRAL Model Law is developed for international arbitration. Redfern and Hunter’s leading commentary on the subject of international arbitration has provided three approaches to dealing with the word “international” in the context of arbitration. The three approaches are the nature of the dispute, the nationality of the parties, and the blend of the first two in addition to a chosen place for arbitration. Indian law has adopted nationality as the subject matter to define international arbitration.
The Act does not mention the word “domestic,” but it means that both parties are from India.
Arbitration and Conciliation (Amendment) Act, 2021
This Act was last amended in the year 2021. The Amendment provided for the following changes:
Unconditional stay on the enforcement of arbitral award of an India seated arbitration award until the challenge to the award is determined.
Deletion of qualifications and rules for accreditation of arbitrators provided in the Eighth Schedule of the Arbitration Act, 1996.
The enforcement of an award in an arbitration induced by fraud or corruption has been given retrospective application.
How does arbitration take place
Every case that goes to arbitration has unique circumstances, but more or less all of them follow the given arbitration procedure.
Initiation stage: The parties are notified by the arbitration centre that the case has been registered. The parties are also informed about the arbitration process, the due date to file the responses, the documents which need to be submitted and fees (if any) to be paid before the process starts.
Invitation stage: Depending upon the rules which govern the arbitration of the parties, the arbitration centre arbitrator or arbitrators serve on the case. The arbitrator reviews the documents, studies the dispute and returns a signed oath document with any needed disclosure.
Appointment stage: The parties are notified about the appointment of the arbitrator and provided with the opportunity to raise any objection regarding the same. If any objection is raised before the due date, the arbitration centre decides whether to replace the arbitrator or not. If the arbitrator is removed, then the case goes back to the invitation stage and if the arbitrator is not removed then the case moves to the next stage.
Preliminary hearing and information exchange stage: After an arbitrator is confirmed for the case, a preliminary meeting is scheduled and held with the parties and the arbitrators. During this meeting, issues of both parties are addressed, information is exchanged between the parties and a hearing date is scheduled.
Hearing stage: Both parties present their case to the arbitrator. This stage can take place either in-person or through the medium desirable by the parties. The arbitration agreement and the rules governing the case will govern the proceedings.
Award stage: When the arbitrator has heard all the points of both parties and is satisfied that the parties don’t have any new evidence to submit, the hearing is closed and a date is scheduled for announcing the award. The arbitrator provides the parties with the written award with which the case comes to an end and the file is closed by the arbitration centre.
Mediation
“An ounce of mediation is worth a pound of arbitration and a ton of litigation”. – Joseph Grynbaum
Mediation is a voluntary, binding process in which an impartial and neutral mediator helps the disputing parties arrive at a settlement. A mediator does not impose a solution but creates a conducive environment in which disputing parties can resolve all their disputes.
Mediation was traditionally used to resolve family disputes arising between husband and wife or between brothers. In recent years, it has also been used for resolving disputes of a commercial nature.
The Mediation Bill, 2021, is a step towards the creation of a specific statute for mediation in India.
The features of the bill are as follows:
Regulation and promotion of mediation in the country.
It obligates the parties to opt for mediation before going for litigation.
It protects the interest of the parties who approach the courts for immediate relief.
It provides for the secrecy of the process and restricts disclosure in certain cases.
The outcome of mediation that is Mediation Settlement Agreement (MSA) will be legally enforceable and registrable with the State/district/taluk legal authorities within 90 days to bring the settlement on record
It provides for the establishment of the Mediation Council of India.
Orders and directions of the courts cannot override statutory provisions of the Constitution. Therefore, Clause 26 of the Bill is violative of the Constitution.
The Bill is unclear on the enforceability of international settlements and international obligations.
This bill is a right step in the right direction, but it is also giving birth to a few challenges that need to be taken care of to accelerate the usage of this mechanism in the country.
How does mediation take place
Mediation appears to be a less formal process than other modes of dispute resolution mechanisms, but that’s not the reality. Mediation involves a multi-stage process to arrive at a desired solution.
The mediation proceeding takes place in the following order:
Commencement of mediation: The process of mediation begins when one of the parties submits the dispute to the mediation centre and requests that mediation proceedings take place. The submission contains the details of the dispute and information regarding the parties.
Appointment of mediator: After receiving the request the mediation centre will start the process of appointing a mediator following the circumstances of the dispute. The mediator is appointed after consulting both parties.
Pre-mediation communications: After the appointment of a mediator, he communicates with the parties through telephone or any other means of communication to finalise the schedule of the mediation. He also informs the parties to provide him with documents related to disputes before the first meeting and the deadline to submit those documents.
First meeting: At the first meeting, the mediator introduces everyone and explains the objective of the meeting, and the rules to be followed during the whole procedure and encourages the parties to communicate to settle the dispute amicably. Both parties are asked to explain their reason for the dispute and the repercussions it is going to have on them. The mediator encourages the parties to respond to each other’s questions to help them communicate their points.
Private meetings: The private meeting is an opportunity for both parties to separately meet the mediator. Each party is placed in a separate room. The mediator goes between the two rooms to discuss the strengths and weaknesses of each party and to exchange offers.
Joint negotiation:After a private meeting, the mediator brings the parties to negotiate directly, but this rarely happens. The mediator brings the parties back together only when a settlement has been reached or the time allotted for the mediation expires.
Final decision:When parties arrive at a unanimous decision, the mediator puts it in writing and asks both parties to sign the written document of the settlement. When they don’t agree with the final decision, the mediator suggests the parties either once again meet for further discussion or to go for other modes of dispute resolution.
Differences between mediation and arbitration
Point of differences
Mediation
Arbitration
Costs
Economical Process
Expensive Process
Neutral third party
The mediator acts as a facilitator.
The arbitrator acts as an adjudicator.
Nature of the proceeding
The proceedings are not governed by any specific statute and therefore are flexible.
The proceedings are governed by the provisions of the Arbitration and Conciliation Act, 1996, and are rigid.
Nature of decision
A settlement is binding only when it is mutually agreed upon by both parties.
The award given in an arbitration proceeding is binding on the parties and can be challenged only on some specific grounds.
Level of formality
An informal proceeding is held in private with flexible procedural stages.
A formal proceeding is held in secret and consists of strict procedural stages.
Communication between parties
Parties communicate with each other in the presence of a mediator.
Parties do not communicate with each other.
Court Fees
Court fees are refundable in cases of settlement where the court has annexed mediation.
There are no court fees.
What is a preferable option between mediation and arbitration and why
Mediation is the preferred option between the two as it is a more flexible process. The flexibility of the mediation proceedings is not the only reason to make them more favourable. The other reason is the confidentiality of the process. For instance, many times the public revelation of disputes causes non-reversible harm to the reputation of the parties, which can be easily avoided as long as the mediation proceedings are kept between the two parties and the mediator.
In addition to confidentiality, with economies facing uncertain times, the players in the business are opting for mediation to resolve disputes over any other dispute resolution mechanism, as it enables the parties to arrive at solutions that are beneficial for both parties through proper communication facilitated by the mediator.
Furthermore, it is a more preferable option in comparison to other modes of dispute resolution because it involves minimum cost and there is much scope for the production of evidence that would not have been considered otherwise.
Another reason for parties going to mediation is that the mediator helps the parties find better solutions but doesn’t force them to attend mediation or choose suggestions from the mediator if they are not interested. Moreover, the concluding solution is non-binding and ultimately depends on the discretion of the parties to accept or reject it.
Looking forward to the developments in arbitration and mediation
A specific law on mediation is still missing from the Indian scenario, but with the Singapore Convention coming into effect and the Mediation Bill, 2021, being implemented after due diligence, we can expect a better scenario for mediation in India in the years to come.
The Singapore Convention seeks to unite global efforts and accelerate the adoption of mediation in commercial disputes.
India is one of the original signatories to the New York Convention, but it has failed to maintain international standards. However, parties constantly opt for arbitration with the pro-arbitration approach of courts and the 2015, 2019 and 2021 amendments in the Arbitration and Conciliation Act, 1996 are improving India’s position on the international level.
Conclusion
India has become the fifth largest economy in terms of size in the world, replacing the United Kingdom in the year 2022. India, to sustain this position and move forward, needs a robust dispute resolution mechanism to be able to attract foreign investment. With so many cases pending before the courts in India, the first preference for businesses involved in India as well as abroad is to resolve disputes through arbitration or mediation.
The concept of arbitration and mediation has been present in India for many years, and the recent developments in these areas are going to further strengthen their legitimacy.
In the last five years, India has witnessed constant positive changes in the approaches of courts and legislators towards alternative dispute mechanisms such as arbitration and mediation. These changes will surely bring India on par with international standards of alternative dispute resolution.
Frequently Asked Questions (FAQs)
What is the key advantage of mediation over arbitration?
Mediation is cheaper and involves fewer formal procedures than arbitration when it comes to dispute resolution.
What is the difference between the roles of arbitrators and mediators?
Mediators assist the parties in resolving the dispute by facilitating a dialogue between them whereas, arbitrators give a fair judgement after examining the dispute
In what situations arbitration can be used over mediation?
Arbitration comes with a prescribed procedure and can be used when the parties have grave disagreements and the matter involves a serious issue to be resolved.
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The article is written by Tushar Singh Samota, a law student from the University Five Year Law College, Rajasthan University. It gives a detailed description of the term “bail” and its types by discussing each type in-depth, along with its legal status and its cancellation.
“Every criminal offence is an offence against the state; thus, society has a crucial stake in whether bail is granted or denied. The sanctity of individual liberty and the interests of society must be perfectly balanced in the decision on whether to grant or deny bail.”
The term “bail” may be traced back to the old French word “Baillier”. Its true meaning is to deliver or hand over. The term “bail” is not defined in India’s Criminal Procedure Code, 1973 (CrPC). Black’s Law Dictionary describes bail as a security such as money or bond, especially required by a court for the release of a prisoner who must appear at a future date. In the case of Kamlapati v. State of West Bengal (1978), the Supreme Court defined bail as a mechanism that is established for attaining the synthesis of two essential conceptions of human worth, namely, the right of an accused to personal freedom and the public interest in which a person’s release is conditional on the surety producing the accused person in court to stand trial.
As such, “bail” refers to the release of a person from legal custody. The law’s policy is to allow bail rather than prohibit it by the usual methods. Thus, bail is granted as a norm, while rejection is an exception, as held in the Satender Kumar Antil v. Central Bureau of Investigation (2022) (CBI) case. In this article, the author has discussed the concept of bail and its types. The article will also touch upon the classification of offences for bail purposes as well as the concept of cancellation of bail.
The legal status of bail
Bailhas obtained its legal status from the following sources:
Article 21 of the Indian constitution:Article 21 gives everyone the right to life and personal liberty. It provides the fundamental right to live with human dignity and personal freedom, which entitles us to seek bail when detained by any law enforcement entity.
Section 438 of Code of Criminal Procedure, 1973:Section 438 of the CrPC clearly states that anticipatory bail is only granted in case of non-bailable offences. The term bail is not defined in the CrPC. Section 2(a) only defines the terms “Bailable Offence” and “Non-Bailable Offence”. It is based on the proposal of the Law Commission of India in its 41st Report, which suggested the inclusion of an anticipatory bail provision.
Article 11 of the Universal Declaration of Human Rights: Bail, particularly anticipatory bail, is founded on the legal concept of presumption of innocence, which states that everyone accused of a crime is presumed innocent until proven guilty. This is a fundamental value established in Article 11 of the Universal Declaration of Human Rights.
Classification of offences for bail purposes
The following offences are classified for the purpose of bail:
Bailable Offence: Section 2(a) of the Code of Criminal Procedure defines bailable offences. An offence that is categorised as bailable is referred to as a bailable offence. In the event of such an offence, bail can be awarded as a matter of law under Section 436 of the CrPC when such prerequisites have been satisfied. In the case of bailable offences, the police may grant bail to the offender at the moment of arrest or detention.
Non-Bailable: A non-bailable offence is one in which bail cannot be granted as a matter of right unless ordered by a competent court. In such instances, the accused may seek bail under Sections 437 and Section 439 of the Criminal Procedure Code of 1973. These are serious offences, as opposed to bailable offences. In the event of non-bailable offences, the penalty is three years or more.
It should be noted that the Court’s judicial discretion governs the issue of bail for non-bailable offences.
Classification of bail
Depending on the stage of the criminal proceeding, a person may ask for one of four types of bail in India:
Regular Bail: Regular bail is frequently issued to an individual who has previously been arrested and detained by police. The accused has the right to be freed from such confinement under Section 437 and Section 439 of the CrPC. So, a regular bail is simply the release of an accused from jail to ensure his attendance at the trial.
Interim Bail: Interim bail is bail issued for a short period. Interim bail is granted to an accused before the hearing for regular or anticipatory bail.
Anticipatory Bail: If a person suspects that he may be arrested for a non-bailable offence, he may petition for anticipatory bail. In recent years, this has become an important problem because corporate competitors and other prominent persons sometimes seek to frame their opponents with fake charges. It’s similar to obtaining advance bail under Section 438 of the CrPC. A bail under Section 438 may be bail before arrest, and an individual cannot be arrested by the police if the court has granted anticipatory bail.
Statutory Bail: The remedy of statutory bail, also known as default bail, is distinct from bail obtained in the ordinary procedure under CrPC Sections 437, 438, and 439. As the name implies, statutory bail is given when the police or investigating agency fails to file its report/complaint within a certain time frame.
How to apply for bail
To apply for bail, the accused must sign a bail bond, which is a legal instrument, and provide the sum stated in the bail bond. There must also be two sureties who take the accused’s promise that the accused will appear in court or at the police station whenever he is required to be present for the investigation of the court proceedings.
Bail bond
A bail bond is an agreement made by the accused to appear in court and cooperate with the investigation in exchange for a fee. Other limitations, such as the person’s inability to leave the country while on bail, are included in the bail bond. If the individual fails to comply with the bail bond, a warrant for his or her arrest might be issued.
Regular bail
Regular bail is the legal mechanism by which a court can order the release of someone in detention on suspicion of committing an offence, generally on the condition that the person does not leave or otherwise hinder the course of justice. These requirements may require the execution of a “personal bond” or a court may compel the execution of a bond with sureties. When a person is detained on suspicion of committing a bailable offence, bail becomes a right, and the person may be released in accordance with the procedures outlined in Section 436 CrPC. Whereas when a person is taken to prison on suspicion of committing a non-bailable offence, bail is discretionary, and the individual may be freed only if a good case is made out.
Section 437 applies to bail petitions submitted in magistrates’ courts, whereas Section 439 applies to bail applications filed in courts of Session or a High Court. The granting or rejection of ordinary bail is an exercise of judicial discretion governed mostly by norms and a few bright-line regulations, as provided in Section 437 of the CrPC.
Factors taken into account while granting bail in non-bailable offences
The court has the discretion to grant bail in the case of a non-bailable offence; hence, an accused individual is not necessarily entitled to be released on bail upon the filing of sureties and a bond. The court and police officers must decide whether to release them. When determining how far this discretion extends, the following factors must be considered:
The gravity of the crime; for example, if the offence is serious and punished by death or life in prison, the chances of securing bail are lower.
The nature of the charge, such as whether it is serious, trustworthy, or frivolous;
The penalty’s harshness, the duration of the term, and the possibility of the death penalty.
The credibility of the evidence, whether it is reliable or not;
The risk of the accused fleeing or running away if freed;
Prolonged trials that go above and beyond what is required;
Allowing the petitioner to prepare his defence;
The accused’s health, age, and gender; for example, a person under the age of 16, a woman, or someone who is ill or infirm may be freed.
The nature and gravity of the circumstances surrounding the crime;
The accused’s position and social standing in regard to the witnesses, particularly if the accused will have the capacity to manipulate witnesses after release;
The public’s interest and the possibility of continued criminal action following dissemination.
Authorities empowered under Section 437 CrPC to grant bail
Section 437 empowers the court and the officer-in-charge of the police station who arrests or detains someone without a warrant or the person who was charged with or suspected of committing a non-bailable offence the authority to determine whether or not to grant bail. Although this Section covers the power or discretion of a court and a police officer in charge of a police station to issue bail in non-bailable offences, it also limits a police officer’s ability to issue bail and defines specific rights of an accused person to get bail when he is being tried by a magistrate.
According to Section 437 of the CrPC, the trial court and the magistrate have the authority to grant or reject bail to anybody who has been charged with or accused of committing a crime for which no bond is available. Only one type of police official, i.e., the officer-in-charge of the police station, is authorised under Section 437(1) to release a person accused of a non-bailable offence on bail. Given the risk and stakes involved, the decision to issue bail must be utilised with extreme caution because it is permissive rather than mandated. Before acting, a police station officer should be convinced that using his power would not jeopardise the prosecution’s ability to establish that the accused is guilty. The officer-in-charge must maintain the bail bonds until they are released, either by the accused appearing in court or by a competent court decision, and must record the reasons or extraordinary grounds for releasing the accused in the case notebook.
For the purpose of bail, the legislation has classified non-bailable offences into two categories:
Those punished by death or life imprisonment; and
Those who aren’t.
If a police station officer has reasonable grounds to believe that a person has committed an offence punishable by death or life imprisonment, the offender cannot be released on bail. When assessing whether to grant bail, a police officer is not allowed to consider the accused’s age, gender, disease, or handicap. These problems can only be considered by a court. The officer-in-charge of the police station may issue bail only where there are no reasonable grounds to assume that the accused has committed a non-bailable criminal offence or when the non-bailable offence is not punishable by death or life imprisonment.
Power of High Court or Sessions Court under Section 439 CrPC
Section 439 CrPC empowers the High Court or Sessions Court to grant bail. Section 437 of the CrPC prohibits the grant of bail in situations of offences punishable by death or life imprisonment unless it is beyond doubt that the accused is guilty; however, Section 439 permits the Sessions Court or High Court to grant bail even in such cases. When it comes to bailing out someone who has been accused of an offence and is in detention, the High Court and Sessions Court have some specific authorities under Section 439 of the CrPC, 1973. If a Magistrate declines to provide bail to an accused individual, the High Court or the Court of Session may grant bail in proper instances. According to Section 439(1) of the CrPC, a High Court or Court of Sessions may order the following:
That anyone detained after being charged with a crime is released on bail;
That if the offence is of the kind listed in Section 437(3), any restriction imposed by a magistrate while releasing a person on bail be overturned or changed.
However, before granting bail to someone accused of a crime that can only be prosecuted by the Court of Sessions or, even if it can, entails a life sentence, the High Court or Court of Sessions must notify the public prosecutor of the application. This is correct unless the High Court or the Court of Sessions deems that doing so is unfeasible for reasons that must be documented in writing. A High Court or Court of Sessions can decide that a person who was released on bail under Chapter XXXIII (regarding bail) be arrested and put to jail under Section 439(2) of the CrPC. Even though the High Court has extensive discretion to issue bail, a variety of conditions must be considered in situations involving non-bailable offences.
Scope of Section 439 CrPC
The marginal note to Section 439 clearly demonstrates that the phrase “special power” is used in the Section, which in a sense implies “special or greater,” which means that these courts, notably the High Court and the Court of Sessions, have a greater ability to grant and cancel the bail. They have the authority to change the conditions of bail and impose any additional restriction imposed by a magistrate under Section 437. The marginal note to Section 439 also shows that the bail clause allows for concurrent jurisdiction. This does not, however, mean that the accused can file an application in both courts at the same time. As a result, in most circumstances, an application should be submitted first to the Court of Sessions and then to the High Court in case the Court of Sessions denies it.
Section 439’s powers are unrestrained by any constraint other than that which governs all discretionary powers bestowed by a court. Though Section 439’s discretion is unfettered in certain aspects and broad enough to provide bail in the case of the most serious non-bailable offence, it must be applied judicially in conformity with well-established standards. The Court remarked inKanwar Singh Meena v. the State of Rajasthan and Others (2012) that, while Section 439 of the Code provides the Court of Session and the High Court additional jurisdiction in granting and cancelling bail, these Courts also follow the same factors, namely
the accused’s character, proof, position, and standing.
the seriousness of the offence,
the possibility of the accused evading justice and
the possibility of tampering with evidence and manipulating witnesses and among other things.
The Court further observed that each criminal case provides a unique factual scenario that determines the court’s bail judgement.
Concurrent jurisdiction
It is now well recognised that there is no legal obstacle to a party submitting an application for ordinary bail under Section 439 CrPC to the High Court or the Sessions Court. This Section confers independent authority on the High Court or the Sessions Court, and when the High Court uses such power, it does not exercise any revisional jurisdiction but rather its original jurisdiction to issue bail. As a result, even though the High Court and Sessions Court have concurrent jurisdiction under this provision, the fact that the Sessions Court denied bail under this Section does not bar the High Court from considering a comparable application based on the same facts and for the same charge.
However, if the party elected to approach the High Court first and the High Court dismissed the application, the case would be dismissed if the Sessions Court is approached with a comparable application based on the same circumstances. The accused may not apply for bail in both the Sessions Court and the High Court at the same time.
Statutory bail
This type of bail is also known as mandatory bail or default bail. This is a right to bail that arises when the police fail to finish an investigation in respect of a person in judicial custody within a certain time frame. It is codified in Section 167(2) of the CrPC. In Bikramjit Singh v. State of Punjab (2020), the Supreme Court held that an accused has an inalienable right to “default bail” if he applies after the stipulated term for investigation of an offence has expired but before a charge sheet is submitted. The right to default bail under Section 167(2) of the CrPC is not just a legislative right; it is also part of the legal system created under Article 21. In general, the right to bail on the investigative agency’s default is regarded as an “unalienable right,” although it must be used at the appropriate moment.
Regardless of the nature of the offence, default bail is a legal entitlement. The time limit for filing the charge sheet begins on the day the accused is detained for the first time. Section 173 of the CrPC requires a police officer to file a report after completing the appropriate investigation of an offence. In common usage, this report is known as the “Charge Sheet”.
Provision for statutory bail
Section 167(2)(a) CrPC contains a provision concerning statutory bail. It states that the Magistrate may permit the accused person’s detention other than in police custody for a period of up to 15 days, but not exceeding the period of 90 days if the inquiry relates to an offence punishable by death, life imprisonment, or more than ten years in prison, and 60 days if the inquiry is about anything else. If the investigation has not been finished after 90 or 60 days, the accused should be released on bail. Nevertheless, the court may set such restrictions when granting bail as the court deems necessary.
Where statutory bail shall lie
According to Section 190 of the CrPC, although the offences may be triable in different courts, no court other than a Magistrate of the First Class and a Magistrate of the Second Class particularly empowered shall take cognizance of the crime. The lower court shall submit the case to the Court of Sessions after taking cognizance of the offence on any complaint, police report, or suo moto. As it is the court of the Magistrate of the First Class and the Magistrate of the Second Class who shall take cognizance of the offence and exercise all the powers to remand the accused in police or judicial custody during the pendency of the investigation, these courts have only the power to grant default bail under Section 167 (2)(a).
When the accused is able to use his right to statutory bail
When a person is detained without a warrant, the police are obligated to bring him before a magistrate if the inquiry is not concluded within 24 hours and to complete the investigation without undue delay. Although there is no time restriction specified in the law in which the inquiry must be completed, except in situations involving child rape as specified in Section 173(1A) of the CrPC, it is specified in Section 167(2)(a) of the CrPC that if the investigation is not concluded within 90 or 60 days, depending on the circumstances, the accused person shall be freed on a bond if he prepares and furnishes the bail. It is therefore at the conclusion of the period of 90 days or 60 days, as the case may be, that the accused gains the right to default bail.
Although it is evident from a plain reading of Section 167 that the accused has a basic right to be freed on bail if the inquiry is not completed after a period of 90 or 60 days, the question of whether the right has accrued in favour of the accused arises in the following circumstances firstly, when the investigation report is received after the expiration of 60 or 90 days, depending on the case, but on the same day that the accused makes an application for default bail. In such a case, the accused’s rights shall not be revoked. Once the right has accrued, it is unassailable, and the investigating agency’s submission of the investigation report will not prevent the accused from exercising his right to default bail.
Another issue arises when, despite the fact that the accused has the right to default bail, he does not seek it. In such a case, Section 167 unequivocally states that the accused shall not be freed from jail so long as he does not furnish the bail. However, no written application is required, and an oral statement is sufficient to exercise the privilege under Section 167. The issue also arises when the accused diligently exercises his right to default bail and makes an application for it, but the application is refused, and If the accused files an appeal with the appellate court and the charge sheet is completed during the pendency of the case, the accused forfeits his right to default bail because the petition to the appellate court is only a continuation of the action before the higher court.
Anticipatory bail
Section 438 of the Criminal Procedure Code of 1973 provides for anticipatory bail in Indian criminal law. The Law Commission of India, in its 41st Report, brought out the importance of adopting a provision in the Code of Criminal Procedure enabling the High Court and the Court of Sessions to give “anticipatory bail.” This Section permits a person to request bail in advance of an arrest on suspicion of a non-bailable offence. The primary goal of including this Section was to ensure that no one was imprisoned in any form until and unless found guilty.
Anticipatory bail under the CrPC
If a person has reason to believe that he may be arrested on suspicion of committing a non-bailable offence, he may apply to the High Court or the Court of Session for a direction under this Section that, in the event of such an arrest, he shall be released on bail, and the court shall grant him anticipatory bail. Section 438(1A) of the Criminal Procedure (Amendment) Act, 2005, addresses the following elements that the court takes into account before granting anticipatory bail:
The nature and seriousness of the charge.
The applicant’s background, particularly whether he has ever served time in jail following a court conviction for any cognizable offence.
The applicant’s ability to flee from justice.
If the charge is made with the intent to injure or humiliate the applicant by having him arrested, either reject the application immediately or give an interim order granting anticipatory bail.
If the High Court or Court of Session grants interim bail to the applicant, the court shall immediately issue a show cause notice, attested with a copy of the order, to the Public Prosecutor and the Superintendent of Police in order to provide the Public Prosecutor with a reasonable opportunity to be heard when the application is finally heard by the court. The applicant seeking anticipatory bail must be present at the final hearing of the application and the issuance of the final order by the court.
Eligibility to obtain anticipatory bail
When any person has grounds to suspect that he will be arrested on false or trumped-up accusations because of enmity with someone or because he worries that a false case would be set up against him, he has the right to petition the Court of Session or the High Court under Section 438 of the CrPC for the grant of bail, and the court may if it sees proper, direct that he be released on bail. As stated in the case of State of M.P. v. Pradeep Sharma (2013), an accused who has been designated an absconder/proclaimed offender under Section 82 of the CrPC and who has not cooperated with the investigation shall not be granted anticipatory release. Thus, the following conditions must be met in order to get anticipatory bail:
A requirement that the individual makes himself accessible for questioning by a police officer as needed;
A condition that the person not, directly or indirectly, provide any enticement, threat, or promise to any person familiar with the facts of the case in order to persuade him not to disclose such details to the court or any police officer;
A requirement that the individual should not depart India without the court’s prior approval.
Apart from this, the Supreme Court in the case of Gurbaksh Singh Sibbia v. State of Punjab (1980) stated that the contrast between an ordinary order of relief and an order of anticipatory bail is that where the former is provided after arrest and consequently signifies release from the custody of the police, the latter is issued in advance of arrest and is, therefore, effective at the same moment of arrest. In another case, Rukmani Mahato v. the State of Jharkhand (2017), the Hon’ble Supreme Court advised the Trial Courts not to issue regular bail to an accused if he/she has already received interim anticipatory bail from a superior court and the matter is still pending before the higher court.
Interim bail
Interim bail is a temporary bail issued by the court while any application is ongoing or until an anticipatory bail or regular bail application is heard by the court. It is issued as per the requirements of the case. The interim bail time can be prolonged, but if the accused person fails to pay the court for confirmation and/or continuation of the interim bail, his freedom will be lost, and he will be put in jail, or a warrant will be issued against him.
This is not the same as anticipatory bail, which is given while the bail application is pending. Interim bail can only aid accused people who believe they have been falsely accused of a crime and wish to get out of jail or on bail as quickly as feasible. Interim bail does not have a separate Section in CrPC, but the same restrictions apply in this instance as well.
Interim bail – court’s inherent power
When a person asks for normal bail or a regular bail, the court usually schedules the application after a few days so that it may review the case diary, which must be received from the police authorities, and the applicant must remain in jail in the interim or following period. Even if the applicant is later freed on bond, his image in society may be irreversibly harmed. A person’s reputation is a valued asset and a component of his right under Article 21 of the Constitution.
As a result, it can be concluded that the authority to grant bail includes the inherent jurisdiction of the concerned court to grant interim release to a person until the ultimate disposition of the bail application. Although granting interim bail is at the discretion of the court, the option exists.
Essentials/ characteristics of interim bail
Interim bail has the following characteristics:
It is offered only temporarily or for a short period.
It is issued while an application for an anticipatory bail or regular bail is pending in Court.
Once the bail term expires, the offender will be arrested without a warrant.
There is no set procedure for cancelling Interim Bail.
Concept and scope of interim bail
As previously stated, the interim release is given for a limited time while anticipatory and regular bail hearings are ongoing in court. Section 438 refers to the court’s authority to issue an interim order in the context of a pending anticipatory bail hearing. Although interim bail is not specified anywhere in the CrPC, the courts have frequently attempted to interpret the meaning and extent of interim bail through their decisions. Interim bail was characterised in the case of Sukhwant Singh & Ors v. State of Punjab (1995) as a measure of protecting the accused’s image. The Supreme Court concluded in this case that the authority of the courts to give interim relief is inherent in their power to grant bail. The idea of interim bail is significant because an accused may risk arrest even before the verdict on his bail is issued. Interim bail is therefore granted when the court is persuaded that it is necessary to safeguard the accused from being wrongfully arrested or imprisoned. In Lal Kamlendra Pratap Singh v. the State of U.P. and Ors (2009), the Court ruled that interim bail should be granted in appropriate circumstances while awaiting the outcome of the final bail application because arrest and imprisonment could do irreparable harm to a person’s reputation.
When there is no chance that the accused will escape prosecution; and
When there is no chance that the defendant will tamper with the evidence.
When there is no justification for constrained questioning, and
When the anticipatory bail hearing must be rescheduled.
It is essential for Sessions Judges and Additional Sessions Judges to be cautious in directing the release of the accused in appropriate cases where specific directions have been issued by the High Court for releasing the accused on interim bail. In such circumstances, the Sessions Judges/Additional Sessions Judges must invariably state in their orders that the accused people must be freed as soon as possible and should not be kept only to verify sureties.
Significant bail provisions in the CrPC
Sections
Provisions
436
Under what circumstances should bail be granted
436A
Maximum time of incarceration for pre-trial prisoners
437
Bail if the offence is not bailable
438
Direction for granting bail to individual facing arrest (Anticipatory bail)
439
Special bail powers of the High Court or Court of Session
446A
Bond cancellation and bail bond
Cancellation of Bail
The CrPC provides that the accused, public prosecutor, complainant, or any other aggrieved person may use the power to terminate or cancel the bail. Along with it, the High Court, Court of Session, and various lower courts, including Magistrates, have the authority to cancel previously granted bail. Courts other than the High Court and the Court of Session, on the other hand, can only cancel the bail granted by them. The High Court and Court of Session have greater cancellation powers, and they can even cancel bail issued by lower courts. The lower courts, including Magistrates, have the authority to cancel bail under Section 437(5) of the Code, whereas the High Court and Court of Session have the authority under Section 439(2) of the Code.
The jurisdiction of the Court of Session and the High Court is concurrent under Section 439(2) of the CrPC. The offended party may submit an application for cancellation of the magistrate’s bail before the Court of Session or the High Court. It would not be a breach of judicial decorum if such a petition was submitted before the Supreme Court instead of the Court of Session, as held in the case of Rubina Zahir Ansari v. Sharif Altaf Furniturewala (2014).
The Supreme Court has unequivocally held in Mahipal v. Rajesh Kumar @ Polia and another (2019) that if the decision in issue is wholly irrational and wholly unjustified, the court may employ its authority under Section 439(2) of the CrPC to revoke the bail granted in favour of the respondent. Aside from these, the power of bail cancellation may be used in the following circumstances:
On the merits of a case, especially on the grounds that the order granting bail was perverse, granted without proper thought, or in breach of any substantive or procedural law; and
On the basis of misuse of liberty following the issuance of bail or other supervising circumstances.
Thus, if the cancellation of bail is requested on the basis of a supervening event or a fact unknown to the prosecution and the court when bail was granted, the petition under Section 439(2) or Section 437(5) might be submitted before the same court. However, if the constitutionality of the ruling granting bail is challenged through a petition under Section 439(2), the petition must be filed before a court higher in the judicial hierarchy. That is, if a magistrate’s order permits bail, a petition under Section 439(2) may be submitted before the Court of Session or the High Court. However, if the bail order was issued by the Court of Session, its legitimacy may only be questioned in the High Court. If the High Court grants bail, the constitutionality of such a ruling can only be appealed before the Supreme Court. Even the Supreme Court, which has immense powers, is guided by the same criteria that would bind lower courts when evaluating applications under CrPC Sections 437(5) or 439(2).
Grounds for cancellation
It is now widely accepted that cancellation of bail is an order that infringes on an individual’s liberty. As a result, it should not be used casually. It stands on a different foundation than bail refusal, and hence the standards used in both circumstances are different. In Aslam Babalal Desai v. State of Maharashtra (1992), the Supreme Court made a distinction between a bailable and a non-bailable offence. According to the court, it is easier to deny a bail application in a non-bailable matter than it is to rescind a bail that has already been granted. This is because cancelling bail interferes with the accused’s liberty, which has already been guaranteed by the court’s discretion or by the force of law.
More precisely, the authority to re-arrest an accused who has been released on bail must be utilised with caution and prudence. The Supreme Court has recognised and spelt out a list of supervening factors in a multiplicity of rulings that might necessitate an order from the court resulting in bail cancellation, but this list is illustrative and not exhaustive, as held in the case of Mohd Abdul Kadir Chaudhary v. Abdul Basit (2013). The following are the general grounds for bail cancellation:
The accused abuses his freedom by engaging in similar illegal action,
Obstructs the investigation’s progress,
Tampering with evidence or witnesses.
Threatens witnesses or engages in similar acts that might impede an efficient investigation,
The possibility of his escaping to another nation exists.
Tries to avoid detection by going underground or being inaccessible to the investigating agency.
Tries to put himself outside the reach of his surety, and so on.
The Law Commission of India referred to this list in its 268th Report as well. The above list is typical of the reasons for which an order for cancellation is frequently issued. These mostly deal with subsequent occurrences or incidents that occurred after the bail was granted. However, judicial decisions have expanded the boundaries of the court’s jurisdiction under Section 439(2).
It is now clear that an order granting bail that is tainted by obvious illegality or perversity and does not provide grounds for the ruling can be overturned in a proceeding under the aforementioned Section. Under the same clause, an order granting bail based on irrelevant evidence or an order that does not take relevant material into account might be revoked. In Prakash Kadam v. Ram Prasad Vishwanath Gupta (2011), the court ruled that if the accused faces significant charges, his bail may be revoked even though he has not exploited the bail given to him. The Supreme Court has even gone so far as to rule that the illegality or perversity of the decision granting bail is an “independent ground” for bail cancellation. Similarly, if the prosecution cures its defects/default by submitting a charge sheet or otherwise, the Court of Session and the High Court have the authority to terminate the bail and take the accused into jail under Section 167(2) of the Code.
It is obvious from the preceding discussion that in instances where the legitimacy of the bail order is being challenged, an application for bail cancellation must be submitted to a court higher than the one that granted release. However, the higher court does not hear appeals from bail orders, particularly when there is no accusation of the accused interfering with the inquiry or tampering with witnesses/evidence. The petitioner must provide compelling and overwhelming reasons for bail cancellation. In the matter of State v. Imran Khan (2017), the state petitioned the Bombay High Court to vacate a bail decision obtained by the Special Court due to jurisdictional issues. The High Court refused to hear the petition, citing the delay in submitting it as well as the absence of compelling and overwhelming reasons justifying such cancellation. It also appears that if the judge who granted bail did not examine some pertinent information while granting bail, this would weigh against the accused’s apparent compliance with the bail requirements. When it comes to filing a cancellation case in court, the courts have granted the prosecution some flexibility.
The facts creating the aforementioned grounds for cancellation do not have to be established beyond a reasonable doubt.
Conclusion
In conclusion, the right to life and personal liberty is just too important to be ignored. The Indian judicial and legal systems have frequently emphasised the significance of such unalienable rights of persons, notably in the circumstances of bail approval and denial. The courts must be mindful, though, that dishonest litigants and people must be dealt with brutally when they exploit and abuse judicial tools. The law unquestionably helps and supports the upright, but it cannot be employed to further or carry out a deceptive plot.
There is also a significant desire for a comprehensive reform of the bail system that takes into account the socioeconomic status of the bulk of our population. When granting bail, the court must consider the accused’s socioeconomic situation and be empathetic toward them. A thorough investigation may be conducted to discover whether the accused has roots in the community that would dissuade him from escaping the court.
Frequently asked questions(FAQ)
Can anticipatory bail be revoked?
Yes, When granting anticipatory bail, the court sets various terms and restrictions that, if violated, may result in the cancellation of such anticipatory bail. Second, if the court receives an application from either the complainant or the prosecution, the anticipatory bail may be terminated.
What is the maximum term of detention for an undertrial prisoner?
According to Section 436A of the CrPC, a trial prisoner must be freed on bail by the court if he has served one-half of the maximum length of imprisonment that such a person would have spent as punishment if convicted.
When may a court deny bail?
An accused person should not be freed if there are reasonable grounds to believe that he is guilty of an offence punishable by death or life imprisonment. A person may not be freed if the offence is cognizable and he has previously been convicted of an offence punishable by death, life imprisonment, or imprisonment for seven years or more or if he has previously been convicted two or more times.
Can a person be granted bail if he is charged with a non-bailable offence?
Yes. An accused may be granted bail for a non-bailable offence. Bail can be granted from the Sessions Court or the High Court, depending on the gravity of the offence and the discretion of the court.
Is it necessary for the individual to obtain regular bail while he already has anticipatory bail?
No, the individual does not need to post regular bail since his/her anticipatory bail will be valid until the trial procedure is completed unless the judge cancels it. In such circumstances, anticipatory bail is converted to regular bail at the court’s request.
What is the concept of cancellation of bail?
The court has the authority to revoke bail at any time. The court has this authority under CrPC Sections 437(5) and 439(2). The court can cancel the bail granted by it and ask the police to arrest the individual by documenting their reasons.
Janak Raj Jai, Bail Law and Procedures, Universal Law Publishing, 6th edition, 2015
Asim Pandey, Law of Practice and Procedure, Second Edition, 2015, LexisNexis.
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This article is written by Ritika Sharma, a law graduate from the University Institute of Legal Studies, Panjab University. The article is an in-depth analysis of Section 54 of the Transfer of Property Act of 1882. It provides insights into the significant elements and ingredients of sale under Section 54, along with an explanation of various important terms related to this provision.
It has been published by Rachit Garg.
Table of Contents
Introduction
According to the Merriam-Webster Dictionary, ‘sale’ refers to “the act of selling, specifically the transfer of ownership of and title to property from one person to another for a price.” It can be both movable and immovable property. According to the Constitution of India of 1950, ‘land’ is the subject matter of the State List, while ‘contracts, including partnership, agency, carriage contracts, and other special forms of contracts, but not including contracts relating to agricultural land’ are part of the Concurrent List. Therefore, both the state and the central government have the power to formulate laws on real estate. Before 1882, the transfer of property was regulated by personal laws, i.e., Hindu and Muslim laws, or the orders under the Civil Procedure Code, 1908, or the Indian Contract Act, 1872; there was not a separate law for the transfer of immovable properties. This need was fulfilled with the introduction of the Transfer of Property Act, 1882.
The Transfer of Property Act, 1882, is the central law that lays down the provisions concerning the sale, exchange, lease, mortgage, and gift of property. It contains certain principles that act as a mandatory framework for the transfer of property in Indian states. The law related to the sale of the property is embedded in Section 54 of the Transfer of Property Act, 1882.
Explanation of Section 54 of Transfer of Property Act
Section 54 of the Transfer of Property Act contains provisions with respect to the sale of immovable property. The section is divided into the following three parts:
Definition of sale;
Execution of sale; and
Contract for sale
These are briefly discussed below:
Definition of sale
Under Section 54, ‘sale’ has been defined as the “transfer of ownership in exchange for a price paid, or promised, or part-paid and part-promised”. This implies that a transaction amounts to a sale when one party transfers ownership to the other and the other party pays some amount or promises to pay some amount in return. Therefore, the two basic elements that constitute a sale under Section 54 are the transfer of ownership and money consideration.
Transfer of ownership
Ownership refers to the bundle of rights and liabilities attached to a property. Therefore, in the transfer of ownership, all the rights with respect to the property in question are transferred to the buyer by the seller. In the sale of immovable property, absolute interest is created and transferred to the buyer. A transfer of limited interest does not amount to a sale. For example, in the cases of a lease or mortgage, there is a transfer of only partial interest; thus, these are not covered within the ambit of Section 54.
Money consideration
Consideration is the second element necessary to constitute a sale under Section 54. The seller must receive consideration or payment for transferring the property into the name of another person. It is also pertinent to note that the adequacy of money is not a relevant factor for the sale of immovable property.
Execution of sale
Section 54 highlights that the sale of tangible immovable property cannot be completed without a registered document unless it is of a value less than Rs 100. In the case of tangible immovable property of a value less than Rs 100, the sale can be effected either by a registered document or by delivery of the property.
Contract for sale
A contract for the sale of immovable property stipulates the terms of the sale. In other words, it is based upon the agreed terms between the seller and the buyer and does not create any interest or charge in favour of any party.
Essentials of a valid sale under Section 54
According to Section 54, a valid sale consists of the following essentials:
Parties must be competent to contract.
The subject matter of sale must be immovable property.
There should be a fixed consideration or price for transferring the property.
The mode of transfer must be either registration or delivery of possession, depending upon the kind of property.
Let’s discuss these essentials in detail.
Parties must be competent to contract
The first point that is to be taken into consideration before entering into an agreement is that both the buyer and the seller should be competent to enter into a contract.
Competency of the buyer
The buyer/transferor/vendee will be competent to contract if he/she conforms to the following:
Firstly, the buyer must not be disqualified from purchasing a property under any Indian law. For example, under the Transfer of Property Act, 1882, an official of a Court is not qualified to purchase actionable claims.
Secondly, the buyer must be a natural or juristic person. This implies that the sale includes the property sold by a corporation or a firm.
Competency of seller
The seller/transferee/vendor will be competent to contract if he/she conforms to the following:
Firstly, the seller must have the competency or legal right to sell the property. In the case of V. Ethiraj v. Smt. S. Sridevi (2014), a person purchased the property knowing that the seller has only partial rights to the said property. This breached the competency rule, and the Karnataka High Court held it to be an invalid sale of the property.
Secondly, the seller should have ownership of the property.
Thirdly, the seller must not be disqualified from purchasing a property under any Indian law.
Fourthly, the seller must not be a minor or of unsound mind.
Fifthly, the seller must be a natural or juristic person.
The subject matter of sale must be an immovable property
The Transfer of Property Act, 1882, deals with the sale of immovable property. Therefore, it is another essential ingredient to constitute a sale under Section 54 of the Transfer of Property Act, 1882. Immovable property can be tangible as well as intangible. A detailed explanation as to what constitutes immovable property is provided under Section 3 of the Transfer of Property Act. It includes things attached to the earth and excludes standing timber, growing crops, and grass. Furthermore, examples of intangible immovable property are rights of fisheries, the right to extract minerals, reversion, etc.
The immovable property must exist at the time when the sale is to be executed.
Fixed consideration
As already discussed, price or money consideration is an important element of the sale. It includes any form of money, for example, currency notes, cheques, coins, etc. However, everything that has value does not constitute money. For example, work done on land, such as cleaning or digging a well, cannot be considered a price within the scope of this provision.
Although it is not necessary that the price be adequate, it should be fixed at the time of execution of the sale deed. In the case of Hakim Singh v. Ram Sanehi and Others (2001), the validity of a sale deed was in question since the price fixed was very low compared to the market value of the property. However, the Allahabad High Court declared the sale to be valid. Moreover, it is not relevant that the payment of money has actually been made at the time of execution. The consideration could be either paid or promised, or partly paid and partly promised.
The Karnataka High Court, in the case of Smt. Rathnamma v. Smt. Shanthamma (2019), observed that the statement “you shall execute the sale deed when we pay sale consideration” qualifies the essential element of the presence of money consideration in the sale deed, and no actual payment is required for proving the validity of the sale deed.
Conveyance
The mode of transfer is confirmed in the following two ways:
Delivery of possession; or
Registration of sale deed.
It depends on the nature and price of the property. The second part of Section 54 stipulates that unless the property in question is a tangible immovable property of a value less than Rs. 100, the sale is valid only through the registration of the sale deed.
How is sale affected under Section 54
As discussed above, conveyance, or mode of transfer, is one of the essentials of sale under Section 54. Therefore, a sale can be effected only by a registered sale deed or delivery of possession, as the case may be. This can be understood with the help of the following discussion:
Delivery of possession
In a tangible immovable property worth less than Rs. 100, the sale can be executed without registration, i.e., by mere delivery of possession of the property. The delivery of possession can be proved by any act that reflects that the property has been transferred. As the immovable property cannot be handed over to another person, therefore, the acts, such as handing over the keys to the house, or residing at such a property are some instances where transfer of possession can be proven.
An important observation with regard to the delivery of possession was made by the Delhi High Court in the case of Karan Madaan and Others v. Nageshwar Pandey (2014). In this case, there was no actual delivery of possession; however, it was mentioned in the sale deed that the possession had been delivered. It was held by the Delhi High Court that in the case of an executed sale deed, it is not required to look into the facts to determine whether there was a delivery of possession or not.
Registration of sale deed
Registration of the sale deed is essential in all kinds of transactions except those where tangible immovable property of value less than Rs. 100 is to be transferred. In the case of Subramaniyan (Died) v. Venkatachalam Pillai (2011), it was noted by the Madras High Court that the sale price of the transferred property exceeded Rs. 100, however, there was no registration of documents. It was an oral sale, and no mandate under Section 54 was followed, thus, the Court held it to be an invalid sale. Thus, registration is required in the following cases:
Where the property in question is an intangible immovable property.
Where the value of the tangible immovable property is less than Rs. 100.
With respect to the registration of the sale deed, the following points must be taken into consideration:
In case of the transfer of the right to catch fish or extract minerals, registration is necessary, as these rights amount to intangible immovable property.
Another point to be noted is that when a movable property and an intangible immovable property of price greater than Rs.100 are to be sold in the same transaction, it is essential to register the sale, otherwise, it will not amount to a valid sale.
The title or right in property is transferred on the date of execution of the registered sale deed and not on the date of registration of the sale deed.
With respect to the transfer of title or ownership of property, another point to be marked is that if the registered sale deed contains some terms and conditions for the transfer of ownership, then it will be transferred according to them and not on the date of execution of the registered sale deed. For example, the terms may stipulate that there will be a transfer of ownership after the payment of the full price of the property. Thus, it completely lies in the intention of the parties.
By way of a registered sale deed or sale under Section 54, all the rights and privileges related to the sold property are also transferred. Also, the right of reconveyance is transferred by the vendor to the vendee.
The sale by a registered sale deed is absolute and cannot be divested by a unilateral deed of cancellation. The remedy lies only under Section 31 of the Specific Relief Act, 1963, where the court can order the cancellation of the sale deed.
Section 49 of the Registration Act, 1908, lays down the effect of non-registration of documents that must be registered according to law. According to this provision, any unregistered document cannot be used as a piece of evidence in any case related to the said unregistered property. In the case of Shesh Mal And Ors. v. Harak Chand And Ors. (1982), the plaintiff contended that the defendants cannot use an unregistered document as evidence. The Rajasthan High Court affirmed this and held that the sale was not effected in accordance with Section 54 of the Transfer of Property Act, 1882, therefore, following Section 54 of the Transfer of Property Act, read with Section 49 of the Registration Act, the unregistered document cannot be used as evidence.
In the recent case of Ravipudi Lakshminarayana v. Parvathareddy Sreedhar Anand (2021), the Andhra Pradesh High Court reiterated that any immovable property of value more than Rs 100 is to be compulsorily registered. Also, it was highlighted that in order to fulfil the mandate of Section 54, the document is to be registered under Section 17(1) of the Registration Act, 1908.
Contract for sale of immovable property
Contract for sale of immovable property specifies the terms under which the sale is to be carried out. The sale is executed in accordance with the terms stipulated in the contract for sale. A contract for sale reflects the intention of the parties and, thus, can be created without executing the sale deed. It may contain the terms agreed upon by the parties for a future transaction.
The statement “it ( i.e., the contract for sale) does not, of itself create any interest in, or charge on, such property” under Section 54 clearly reflects that no interest or charge is created with a sale deed in favour of any party. This implies that the delivery of property or the payment of consideration will not constitute a valid sale, even if there is a contract for sale. A registered sale deed is necessary. The following points specify the remedies available to the parties who form a contract for sale with the intention of executing the actual sale without a registered sale deed:
The buyer can file a case under the Specific Relief Act, 1963 to compel the seller to execute a sale deed.
In the cases where the buyer has paid some amount for the transfer of property, he/she can take a charge of the property to compel the seller to return the same.
The following table highlights the differences between a sale and a contract for sale:
Basis
Sale
Contract for sale
Definition
Sale under Section 54 of the Transfer of Property Act, 1882, refers to the transfer of immovable property in exchange for a price or money consideration.
Contract for sale can be defined as the terms settled between the buyer and the seller for the purpose of sale of the property.
Creation of interest or charge
In a sale, there is a transfer of the title or ownership of property from the seller to the buyer.
It has been expressly specified under Section 54 that a contract for sale does not create any interest or charge on the property to be sold.
Precedes or accedes
Sale is executed after the formation of a contract for sale.
A contract for sale always precedes the actual sale of the property.
The Andhra Pradesh High Court in the case of Reddi Demudu v. Kannuru Demudamma (1996) examined the differences between sale and contract for sale. The Court stated that “they are disjunctive and not conjunctive. Both are separately defined and dealt with”. A contract for sale merely lays down the terms of the agreement, while the sale is effected only after the satisfaction of all the ingredients specified under Section 54.
A ‘contract of sale’ is also different from a ‘contract for sale’. The former is a contract that contains all the agreed terms of the sale, and the parties are ready to execute the sale deed. However, the contract for sale is not a complete contract and merely contains the intention of the parties to carry out actual transactions in the future.
How is transfer of property under the Transfer of Property Act different from the Indian Contract Act
The purpose of the Transfer of Property Act, 1882, is to provide a law regarding the transfer of immovable property. However, the Indian Contract Act, 1872, also has the same object of forming an agreement between the parties for the sale of property or other transactions. However, both statutes are different from each other. In fact, the Transfer of Property Act, 1882, completes the Indian Contract Act, 1872, in laying down the law on the transfer of immovable property. Let us understand how!
With respect to the transfer of property, the Indian Contract Act aims at transferring the property rights to the other person; however, the motive of the transaction is not fulfilled unless the property in question actually gets transferred. The Transfer of Property Act is a provision that fills this gap in the Indian Contract Act. Therefore, it can be said that until 1882, the laws regarding the transfer of property were not sufficient, and the Transfer of Property Act, 1882 acts as a complete code. Similarly, this statute of 1882 made a law with respect to the testamentary and inter-vivos transfer of property that was previously guided by personal laws.
What are the differences between sale, mortgage, exchange and lease
Sale, exchange, mortgage, and lease are different modes of transfer of property. The similarity among all of them is that in all these transactions, the property or interest in the property is transferred from one party to the other. On the contrary, they differ from each other on several grounds. The following table illuminates the differences between sale, mortgage,exchange, and lease:
Basis
Sale
Mortgage
Exchange
Lease
Definition
Sale refers to the transfer of ownership in property in exchange for money.
Mortgage refers to the transfer of an interest in immovable property as a security in exchange for some loan granted or an existing or future debt or liability.
Exchange can be defined as the mutual transfer of ownership from one person to the other. In simple terms, it is known as ‘barter’.
Lease can be defined as a transfer of rights in a property for the purpose of enjoyment or benefits attached to it. It is for a certain time period and works on the basis of the terms agreed between the parties.
The relevant provisions under the Transfer of Property Act
It is defined under Section 54.
It is defined under Section 58
It is defined under Section 118.
It is defined under Section 105.
Parties
The transferor and transferee are commonly known as seller/vendor and buyer/vendee respectively.
The transferor and transferee are commonly known as ‘mortgagor’ and ‘mortgagee’ respectively.
Since the property of one party is ‘changed’ with the property of another party, they are both transferors and transferees at the same time.
The transferor and transferee are commonly known as ‘lessor’ and ‘lessee’ respectively.
Consideration
Sale is considered a valid sale when one of the parties pays or promises to pay some consideration.
A mortgage does not require any consideration. It gives rise to the interest in specific property of the mortgagor when he/she owes something to the mortgagee.
There is no involvement of money consideration in the transfer via exchange.
There might be involvement of money consideration in a lease, however, a lease agreement is valid even without consideration, for example when a share of crops is agreed to be transferred by the lessee to the lessor. It completely depends upon the terms of the agreement.
Mode of transfer
Sale is affected via a sale deed.
This mode of transfer is completed with a mortgage deed.
The mode of transfer in case of exchange is the same as that of sale under Section 54, therefore, it is effected with a sale deed.
A lease deed contains the terms and conditions with respect to the lease.
Conclusion
It is apparent that for the transfer of immovable property under Section 54 of the Transfer of Property Act, 1882, transfer of ownership and money consideration are important elements. The sale is not valid if the parties are not competent to contract or if there is no reference to the price to be paid by the buyer to the seller in the sale deed. Furthermore, the sale is effected by a registration deed unless the property to be transferred is a tangible immovable property of a value less than Rs. 100. Therefore, according to the Transfer of Property Act, the mandate of a registration deed depends upon the price and kind of immovable property.
Frequently Asked Questions (FAQs)
Does Section 54 of the Transfer of Property Act, 1886 apply to the whole of India?
The Transfer of Property Act, 1882, is not applicable in all Indian states. When it was enforced, it was not made applicable to Bombay, Delhi, and Punjab because of their own property laws. For example, it is not applicable in the state of Punjab. However, since 1955, the second and third parts of Section 54 of the Transfer of Property Act, 1882, are applicable in Punjab. Thus, unlike before, the sale of intangible and tangible immovable properties of value greater than Rs. 100 is now valid only by a registered sale deed.
How is the sale of immovable property different from the gift of immovable property?
The definition of gift is provided under Section 122 of the Transfer of Property Act, 1882. It is a voluntary transfer of property from one party to the other, without consideration. Clearly, the primary distinction between the transfer of property by sale and gift is that the latter must not involve consideration, while consideration is an essential element of the former.
What changes were made by the Uttar Pradesh Civil Laws (Reforms and Amendment) Act, 1976 in Section 54 of the Transfer of Property Act, 1882?
Section 30 of the Uttar Pradesh Civil Laws (Reforms and Amendment) Act, 1976, omitted the phrase ‘value of one hundred rupees and upwards’ in Section 54 of the Transfer of Property Act, thereby making the registration of intangible immovable property mandatory, even if it values less than Rs. 100.
Do hire-purchase agreements constitute sale?
No, the hire-purchase agreements cannot be called a sale because the property is not transferred. In these agreements, possession of the property is transferred, and money is to be paid in instalments. However, unlike in a sale executed under Section 54 of the Transfer of Property Act, the vendee can refuse the transaction anytime before all the instalments are paid.
This question was taken up by the Supreme Court in the case of K.L. Jauhar and Company v. Deputy Commercial Tax Officer (1965). In this case, there was a contract of sale of the house under which it was agreed that the buyer would pay some amount every month to the seller. However, he could not pay the monthly instalments in time. The Apex Court declared that the seller can repudiate this contract as this contract of sale amounts to a hire-purchase agreement.
Therefore, in the hire-purchase agreements, the parties have the right to terminate the contract since the payment is made in instalments.
References
Sinha, R.K. (2019) The Transfer of Property Act, Allahabad, Central Law Agency.
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This article is written by Gautam Badlani, a student at Chanakya National Law University, Patna. This article examines the various tax benefits that can be claimed with respect to a home loan. The article thereby provides an overview of the relevant provisions of the Income Tax Act and analyses the landmark judicial pronouncements concerning them. It further analyses the benefits of the Pradhan Mantri Awas Yojana.
A lot of people have dreams of having their own homes where they can enjoy life and enjoy life with their loved ones. However, buying a home is an expensive affair, particularly in today’s age of skyrocketing property and land costs. As a result, many people have to take out home loans from banks and other financial institutions. A home loan can be taken from a public or private bank, cooperative bank, friends and relatives, non-banking financial companies, housing finance companies, etc.
The government often encourages people to invest in homes and makes home loans easily accessible. The government also offers various tax benefits on home loans. This article explains the tax benefits that can be gained from home loans and explains the legal provisions that deal with home loans. The article also deals with some landmark judicial pronouncements concerning the tax benefits of home loans.
What is a home loan
A home loan is defined as a secured loan that is provided by banks and financial institutions. This loan is availed to purchase a property, and such property is pledged as collateral. A home loan is provided for a long period and is repaid in Equated Monthly Instalments (EMIs).
A home loan consists of the principal amount, which is borrowed from the financial institutions, and the interest that is to be paid on the principal amount. The tax benefits are provided on the principal amount as well as the interest that is paid on the principal amount.
A tax deduction is the most common type of tax benefit that is available on home loans. There are numerous provisions in the Income Tax Act, 1961, which allow for the deduction of the interest payable on a home loan from the total income of an individual.
Pradhan Mantri Awas Yojana
This mission was launched in 2015 and aimed to provide housing for all by 2022. Subsequently, the government decided to continue the scheme until 2024.
In view of this mission, the government took several steps to make home loans accessible and affordable. The government offers subsidised home loans under this scheme. The rate of interest payable on the loans availed under this scheme is 6.5% per annum, and the loan can be availed for a maximum period of 20 years.
Section 24(b) of the Income Tax Act, 1961
Section 24(b) of the Income Tax Act, 1961, provides that where a housing property has been purchased, reconstructed, prepared, renewed, or constructed using funds from borrowed capital, in such a scenario, the interest payable on the borrowed funds can be claimed as a deduction while computing the total income.
If the owner of the property or his family resides in the property, then the maximum deduction that can be claimed under the Section is Rs 2 lakhs. In case a person has two homes, then the deduction claimed in respect of the two houses combined should not exceed Rs 2 lakh.
However, where the property is being rented, then the entire interest can be waived as a deduction.
Abeezar Faizullabhoy v. CIT (2021)
In the case of Abeezar Faizullabhoy v. CIT (2021), the assessee claimed a deduction of interest that he had paid on the borrowed capital of Rs 2 lakhs. He had borrowed the amount to purchase a residential property. However, he had not taken possession of the concerned property, and hence, his deduction under Section 24(b) was refused. The assessee then challenged the assessment before the Commissioner of Income Tax (CIT), but the Commissioner upheld the decision of the assessing authority. The CIT was of the view that since the assessee had not taken possession of the property, he could not derive any income from the same, and hence no deduction could be claimed under the heading ‘income from house property’.
Thereafter, the assessee filed an appeal before the Income Tax Appellate Tribunal.
The Tribunal was of the opinion that Section 24(b) does not contemplate any pre-condition that the assessee should have taken possession of the concerned residential property in order to claim the tax benefit. The two provisions of the Section only prescribe an upper limit on the benefits that can be claimed under the said provision and do not otherwise affect the right of the assessee to claim tax benefits. Thus, the Tribunal allowed the appeal filed by the assessee and approved the deduction claimed by him with respect to the interest paid on the home loan taken by him.
Section 80EE of Income Tax Act, 1961
Section 80EE provides that, while calculating the taxable income of any assessee, the interest payable by the concerned assessee on a loan taken for the purpose of any residential property from any financial institution shall be deducted.
Such a deduction is only applicable for the assessment years beginning 1st April, 2022. The maximum permissible deduction is Rs 50,000. It is pertinent to note that the benefits available under this Section are available only to individuals and cannot be claimed by companies, Hindu Undivided Family or any other type of taxpayer. However, since the Section does not provide that this benefit can be claimed only by residents of India, it can be implied that even non-residents can claim the benefit under this Section.
Moreover, it is not necessary for the beneficiary to stay in the concerned residential property for the purpose of availing the benefit under the Section.
Sub-section 3 of Section 80EE provides the conditions that need to be fulfilled in order to claim the benefit under the Section. The prerequisites are:
The value of the residential property should be below or equal to 50 lakh rupees.
The amount of home loan sanctioned should be below or equal to 35 lakh rupees.
The beneficiary should not own any other property on the date of availing the loan.
This benefit can be claimed only in respect of such loans which are sanctioned between the period 1st April, 2016 and 31st March, 2017.
This provision was earlier introduced in the financial year 2013-2014 and was only applicable to the financial years 2013-14 and 2014-15. Thereafter, this provision was reintroduced with applicability beginning with the financial year 2017-18.
Section 80 EEA of Income Tax Act, 1961
Under Section 80 EEA, first-time home buyers can avail of an income tax exemption of up to Rs 1.5 lakh. The benefit of this provision could earlier be claimed only with respect to a home loan that had been applied between 1st April 2019 to 31st March 2021. However, subsequently, this benefit was extended to home loans applied till 31st March, 2022.
Thus, if the home buyers fulfill the requirements provided under Section 80 EEA, they can claim a total benefit of up to Rs 3,50,000 under Section 24 and 80 EEA.
Section 80C of the Income Tax Act, 1961
The benefit under Section 80C can be claimed with regard to the home loan taken for a self-occupied residential property. Where the repayment of the loan is to be made in monthly installments or part payments, the principal amount paid back through EMIs can be claimed as a deduction under the Section.
It is pertinent to note here that the tax benefits under this Section can be claimed only when the construction or repair of the house is completed. The benefits cannot be claimed with respect to a partially completed house. The completion certificate has to be obtained in order to claim the benefits under Section 80C.
The deduction can also be claimed with respect to the stamp charges and registration fees paid on the concerned residential property. However, this deduction would also be subject to the maximum limit of Rs. 1.5 lakh. The 1.5 lakh limit includes all the expenditures which qualify as a deduction under Section 80C such as Employees Provident Fund, Public Provident Fund, etc.
Tax benefits on second home loan
A second home can also be treated as a self-occupied property for the purpose of availing of the tax benefits provided under Sections 24 and 80C. However, the available deductions would be subject to the maximum ceiling prescribed by the concerned sections.
A second home that is left empty or is occupied by the parents of the assessee will also fall under the category of a self-occupied home for the purpose of Section 80C. The tax deduction can be claimed in respect of installments paid on loans taken for both houses. The maximum deduction that can be claimed under this Section is Rs. 1.5 lakh.
Essentials to claim tax benefits
If you want to claim the aforementioned tax benefits, the following requirements should be fulfilled:
The house should be registered in the name of the person who is claiming the tax benefits. If the house is jointly owned then the name of the beneficiary should be registered as a joint owner.
The loan must be availed in the name of the owner of the concerned residential property. In case there are joint owners of the residential property and all the joint owners want to claim the tax benefits with respect to the home loan, then, in such a scenario, the loan must be taken jointly in the name of all the homeowners.
A certificate must be obtained from the bank or any other financial institution from which the loan is taken specifying the principal amount of the loan and the interest payable thereon.
How to claim tax benefits on home loans
The very first step in claiming home loan tax benefits is to ensure that the concerned residential property is registered in the name of the beneficiary.
The second step is to calculate the tax benefit that can be claimed on the home loan. This saves time, and the beneficiary can approach the bank in case he needs help calculating the tax benefit.
The loan sanction letter and the home loan interest certificate must be submitted to the employer of the beneficiary. The employer would adjust the TDS accordingly.
Alternatively, the homeowner may claim the tax benefit on their income tax return.
How to calculate tax benefits on home loan
The calculation of interest can be divided into two parts: first, where the property is under construction and the beneficiary does not have the position of the property, and second, where the property is self-occupied and the beneficiary position has the possession of the constructed property.
The interest paid at the pre-construction stage is added and can be claimed as a deduction in 5 equal installments in the 5 years subsequent to the financial year in which the construction of the property was completed.
The interest paid after the construction is completed and the owner gets possession of the property can be claimed as a regular deduction in the financial year in which the interest is paid.
However, the deduction would be subject to the Rs. 2 lakh cap prescribed by Section 24. However, if the property is given on rent and not self-occupied by the homeowner, then the entire interest can be claimed as a deduction, irrespective of the Rs. 2 lahks maximum limit.
In the case of joint ownership, both joint owners can claim a deduction of up to Rs. 1.5 lakh under Section 80C.
Conclusion
To have a home is a dream that everyone has. The government has taken several steps to make home loans accessible to the poor and has brought about several amendments to exempt the interest payable on these loans from the computation of income tax. Section 24(b) and Section 80EEA of the Income Tax Act provides for the deduction of the interest payable on the home loans, and Section 80C provides for the deduction of the principal repayment. Thus, deductions can be claimed in respect of both the principal amount of the home loan as well as the interest payable on the home loan.
Home loans can thus be regarded as a prudent investment if one knows the tax benefits that come with them. Moreover, one must be aware of the types of home loans that qualify for tax benefits.
Frequently Asked Questions (FAQs)
Can joint homeowners claim tax benefits under Sections 24(b) and 80C?
Where there are two or more joint homeowners, each of them can claim the tax benefits contemplated under Sections 24(b) and 80C. Both of them can claim a deduction of interest paid on the loan up to a maximum of Rs. 2 lakhs and a deduction of principal repayment up to a maximum of Rs. 1.5 lakh. However, it is necessary that the house be registered jointly in their names and that the loan be taken jointly by the concerned homeowners.
What is a top-up home loan?
When the same lender offers a subsequent loan to the existing home loan customers, it is not a top-up home loan. A peculiar feature of the top-up home loan is that it is available at a much lower interest rate as compared to other loans. The tenures of top-up home loans are generally more flexible as compared to other types of loans.
The tax benefits contemplated under Sections 24(b) and 80C can also be claimed with respect to a top-up home loan.
Can tax deductions be claimed on home loan protection insurance?
Yes, the deduction stipulated under Section 80C can be claimed on the premium paid on home loan protection insurance.
Can tax benefits be claimed on private home loans?
Private home loans refer to the capital that is borrowed from friends and relatives. Often these private loans help individuals in their difficult times. However, these loans are not covered within the scope of Section 80C for the purpose of availing the tax benefits. If the home loan is taken from any such lender who is not legally notified, then the tax benefits cannot be claimed with respect to such a home loan. Thus, a taxpayer cannot claim a deduction with respect to the repayment of the principal amount of a private home loan.
Under what conditions can the tax benefits be reversed?
The tax benefits can be reversed if the concerned residential property is sold within 5 years of getting possession of the property. The period of 5 years is calculated from the end of 5 years in which the possession of the property is taken by the concerned homeowner.
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