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Fraud : Section 17 of Indian Contract Act

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This article has been written by Diva Rai and Ria Verma and further updated by Soumyadutta Shyam. In the article, Section 17 of the Indian Contract Act, 1872 which defines fraud in contracts has been discussed. This article discusses the various facets of fraud along with the remedies available under the Indian Contract Act, 1872 for a contract entered into by fraudulent means. 

Introduction

One of the important stipulations for a valid contract under Indian law is that, the contract should be entered into between two competent parties by free consent. Consent has been elucidated under Section 13 of the Indian Contract Act, 1872 as two or more parties agree upon the same thing in the same sense. As per Section 14 of the aforementioned Act, consent shall be deemed free when it is unaffected by coercion, undue influence, misrepresentation or fraud.

Fraud may be defined as any deceptive act which may result in an unfair advantage or personal gain by the person committing such act. Such deceptive acts are generally considered wrongful in commercial and contractual arrangements as such acts may result in financial loss or damage to the party who has been a victim of such deception.

Definition of fraud under Section 17 of the Indian Contract Act, 1872

Fraud, as elucidated in Section 17 of the Indian Contract Act, 1872,  implies and involves any of the acts mentioned below perpetrated by a contracting party or with his involvement or by his agent with the objective of deceiving or misleading another party or his agent to enter into the agreement. The acts which constitute fraud under this provision are as follows:-

  • The suggestion, as a fact, of something which is not true by someone who does not believe in its truth.
  • The active concealment of a fact by one having knowledge or belief of the fact.
  • A promise without any intent of carrying it out.
  • Any other act which may mislead the other party.
  • An act or omission which the law specifically declares to be fraudulent.

Mere silence in relation to facts which may influence the willingness of a person to enter into a contract is not fraud. However, if the circumstances of the case are such that, having regard to them, it is the duty of the person keeping silent to speak, or unless his silence, is in itself, equivalent to speech, in such circumstances the silence itself may be deemed fraudulent. 

Section 17 explains fraud and mentions the acts that amount to fraud, which are a false suggestion, active concealment, promise lacking any intention of carrying it out, any other deceptive act, or any act declared fraudulent. 

In the English case, Derry vs. Peek (1889), it was said that, “fraud” is proved when it is shown that a false representation has been made:

  • Knowingly, or
  • Without belief in its truth, or
  • Recklessly careless whether it be true or false.

In simple terms, “fraud” refers to deliberate deception perpetrated with the intent to induce another party to act to their detriment. As far as contracts are concerned, fraud can manifest in various forms such as false representations, concealment of facts, deceptive claims etc.

Ingredients of Section 17 of the Indian Contract Act, 1872

Now let’s understand the ingredients of Fraud under Section 17 of the Indian Contract Act, 1873; which are as follows:-

  • False suggestion or assertion without belief in its truth.
  • Active concealment of a fact by one having knowledge of the fact.
  • Promise made without any intention of performing it.
  • Any other act fitted to deceive.
  • Any act or omission declared to be fraudulent by law.

False suggestion or assertion without belief in its truth 

To establish a case of fraud, it must be demonstrated that representations made were deceptive to the knowledge of the party making them. The statement should be false in subject and in fact. To institute fraud, it is important that the statement was made by the person interested in knowledge of its inaccuracy, or without belief in its truth. Ignorance as to the truth or falsehood of material assertion, that, turns out to be false, is also considered equal to the knowledge of its falsehood. 

Take for instance, Mr. Raju is in the business of selling mobiles. Mr. Raju sells a mobile to Mr. Shyam claiming that it is waterproof. Mr. Raju does not believe that the mobile is waterproof, however, he makes a false assertion to Mr. Shyam in order to sell the mobile.  

Representation 

A representation is a statement of fact and is different from an opinion, however a statement of opinion may be deemed as a statement of fact in specific circumstances. In Lilly Kutty vs. Scrutiny Committee, S.C and S.T And Ors.(2005), a false certificate was obtained in order to take unfair advantage. It was held that fraud invalidates every honest act. Fraudulent acts are not encouraged by the courts. Any action by the authorities or by the people claiming a right under the Constitution of India which subverts the constitutional purpose must be treated as a fraud on the Constitution.

False representation denotes the act of making any indication, statement or any other representation with the objective of deceiving the other party. In other words, it is an act of deception by knowingly providing false information. The distinction between innocent misrepresentation and fraudulent misrepresentation is that, while innocent misrepresentation is made inadvertently, fraudulent misrepresentation is made deliberately. We can understand false representation better with the example given below. 

Aman, a vegetable vendor sets a cart and fixes a board on the cart saying “Organic Vegetables”. He knows that the vegetables are not “Organic” and have grown using chemical fertilisers and pesticides. Thus, he makes a false representation to his customers.

In Ram Chandra Singh vs. Savitri Devi And Ors. (2003), the Supreme Court observed that a fraudulent misrepresentation is called deceit and consists in leading a man into damage wilfully or recklessly causing him to believe and act on falsehood. It is fraud, if a party makes representations which he knows to be false, and injury ensues from there.  

In Noorudeen and Ors. vs. Umairathu Beevi And Ors. (1998), the defendant executed the sale deed of the plaintiff’s property by making a false representation that it was a hypothecation deed. The Kerala High Court ruled that it was a case of fraud and misrepresentation. The Court observed that the plaintiff was a vulnerable individual due to his visual impairment, which made him susceptible to fraud. The defendant was the plaintiff’s son, thus, occupying a position of trust, that he betrayed by deceiving his father.

Reckless statements

Proof of absence of genuine belief is all that is required to indicate the presence of fraud, whether the representation is made recklessly or intentionally. Even ignorance or negligence on part of the representor as to the truth or inaccuracy of the representation may amount to fraud in certain circumstances. Statements made without belief in the truth would include statements made recklessly. Misrepresentation as to title made by vendors recklessly or with gross negligence cannot escape the charge of fraudulent misrepresentation. 

For example, A man selling a herbal remedy called “Stanley’s Tincture” claiming that it cures all diseases, without testing its efficacy. Such a statement has been made recklessly.

Ambiguous statements

Where the representer makes an ambiguous statement, the person to whom it is made must prove that he understood that statement in the sense that it was in fact false. The representor will be guilty of fraud if he meant the statement to be comprehended in that sense, and not if he honestly believes it to be true, but the person relying on it understands it in a different sense. Once it is held that the representation was fraudulent under this clause, the exception in Section 19 of the Indian Contract Act, 1872  is of no use, and the question whether the person alleging fraud had or had not the means of finding out the truth with common diligence, is irrelevant.

For example, a person selling a laptop computer tells the other that it has a lot of memory space, without mentioning the specifics. Such a statement can be considered as ambiguous.

Active concealment

Active concealment is distinct from just passive concealment. Passive concealment denotes only silence as to material facts, whereas active concealment of a material fact is a fraud. Active concealment, in this context, means deliberately hiding or concealing a material fact relating to the contract. It is an intentional act to stop the other party from finding the truth. For example, if a husband persuades his illiterate wife to sign on a sale deed for a property belonging to her, by telling her that it is a loan agreement, it would amount to active concealment.

Just non-disclosure of some minor facts would not actually afford a right to recission until it is further revealed that the consent has been obtained by using some deception. If a seller sold property already sold by him to a third person, his behaviour amounted to active concealment and fraud, and the buyer could recover the price despite the agreement that the seller could not be responsible for a defect in title.

Promise without intention of performing it

To bind a party to a promise without any intent of performing one’s own part and with the intent of just stopping the other party from dealing with others, is an instance of performing it. To constitute fraud under this clause the guilty party must know that they will not be able to perform it.

Making a promise devoid of any intention of carrying it out is fraud, though not so under the English law. To bring the case under the purview of this clause, it must be established that the promisor had no desire of performing the promise at the time of making it, and any subsequent conduct or representation is not accounted for this purpose.

Any other act fitted to deceive

Another type of fraud recognised under Section 17 is any other kind of act which may deceive the other party. The expression “Any other act fitted to deceive” can be interpreted as any act which is done with the apparent objective of committing fraud. It mentions other fraudulent acts not expressly mentioned under this provision. Under this Section two types of fraud are mentioned:

  • Actual or positive fraud which comprises cases of intentional or deliberate use of any misleading or deceptive means to cheat or defraud the other party.
  • Constructive or legal fraud comprises such contracts or acts although not originating in any actual wrong intention or plan to commit a fraud, but, by their likelihood to deceive or misinform others, or to infringe private or public trust are forbidden by law.

Any act or omission declared to be fraudulent by law

The last category includes cases where the law expressly declares an act or omission to be fraudulent. For instance, the Insolvency and Bankruptcy Act, 2016 and Companies Act, 2013 declare some types of transfer to be fraudulent in nature. 

The purpose of this clause is to include all acts which under any other law are deemed fraudulent. For instance, in Insolvency law there is the concept of fraudulent preference and under the Transfer of Property Act, there is the concept of fraudulent transfer. The words used in the clause are for the purpose of ensuring that all types of intentional cheating are covered.

Mere silence is not fraud

False impressions are generally made through intentional misrepresentation of facts. However, it is also committed through active concealment. Generally, only silence is not fraud, even though its outcome is the concealment of facts to enter into a contract. A contracting party has no obligation to reveal the full truth to the other party or to provide the other party full information in his possession influencing the substance of the contract.

Silence about facts is not fraud per se. Unless there is an obligation to talk or if it is equal to expression, mere silence is not fraud. This rule has two skills. First, suppressing portions of the relevant facts may mislead the assertion of the remainder, although actually true as far as it goes. In such a case, the declaration is substantially incorrect, and fraudulent is the willing rejection that makes it so. Secondly, commercial use may impose an obligation to disclose specific flaws in products sold or the like. In such a situation, failure to mention such a defect is equal to a statement that there is no such defect.

Silence usually does not support a fraudulent action. Although, when silence is taken into account with the facts of a specific case, it may constitute misrepresentation. While courts are willing to engage with various factual circumstances to ensure that parties’ intentions are upheld, prudence is always key to reducing the commercial risks and potential litigation in the formulation of contracts. 

Just silence or suppression of facts would not amount to a wrongful act except when the defendant is under a duty to talk and hide the facts of a specific transaction or trade. Therefore, mere silence amounts to fraud, when the facts of the case are such that the individual has an obligation to speak and inform the other party of the facts, but they remain silent or the party’s silence is equivalent to expression. The other party to the contract is misled and suffers damages as a consequence. 

Circumstances when silence amounts to fraud

There are some circumstances where the silence, i.e, the non-disclosure of facts is deemed to be significant to the contract and the act of hiding or not revealing the substantial facts is misrepresentation. The more genuine the defect, the more it is covered up, and the more harmful it is to the individual – the more likely the courts will consider the party’s silence as fraud. 

Duty to disclose facts

The first instance, where silence can be held to be the reason for fraud is in situations where there is an obligation by the other party to reveal facts about a specific case. This obligation to speak arises when one party makes an offer and the other party accepts. Such an obligation is also present, when one of the parties does not have the intellect or the resources to find out the truth and is reliant  on the integrity of the other parties. 

A contract where such duty arises is uberrima fides, i.e, a contract made in good faith. An example would be a contract of insurance, wherein it is the duty of the insured to inform the insurance agent of all the relevant facts to the risk that is being covered. There must be complete good faith on the part of the assured. 

In Rajesh Kumar Choudhury vs. United India Insurance Co. Ltd, And anr (2005), the party did not disclose that they applied for insurance for their property on similar grounds but had been rejected by the same company. This non-disclosure was held as a suppression of a material fact. 

The burden of proof lies on the insurer and they need to show that facts were suppressed by the insured, and that they were of material nature to the risk that was to be covered. They also need to prove that the insured concealed the facts with the intention of misrepresenting the risk undertaken by the insurer. 

Some instances where mere silence amounts to fraud are as follows:

Contract of immovable property

Under Section 55(i)(a) of the Transfer of Property Act, 1882, the seller is under an obligation to reveal to the buyer any substantial flaw in the property or in the seller’s title of which the seller is aware. It must be highlighted that the buyer is not aware of that particular defect and cannot foresee or disclose it as a reasonable person. 

Contract of marriage

The parties to a contract of marriage are obligated by a duty to disclose every material fact. If the correct facts are not disclosed, the other party can cancel the engagement and cancel the contract. In the case of Anurag Anand vs. Sunita Anand (1996), it was held that caste, income, age, nationality, religion, educational qualifications, marital status, family status, financial status, would be considered as material facts and circumstances. 

Therefore, when the consent of one party to the marriage is obtained fraudulently by concealing a material fact concerning the other party, this is voidable at the option of the first party. A decree of nullity can be obtained to annul the marriage. This is in accordance with Section 12 (i)(c) of the Hindu Marriage Act, 1955 and Section 25 of the Special Marriage Act, 1954

When silence is deceiving

Silence can in some circumstances be deemed equal to speech. Herein, a person who remains silent despite being aware that his silence can be deceptive is not innocent and can be declared guilty of fraud. For example, the buyer knows the property’s actual worth but conceals this fact from the seller. The seller has the option to rescind the sale as it is void.

If for example, Mr. Jay knows the fact that an insolvent decree is validly declared. He suppresses this fact and convinces the Official Assignee to assign it at 10 percent of its face value to him. Here, Jay makes the representation that the decree is unrealisable. He does not have an obligation to reveal that the security is fully secured. Although, he makes a false statement that the decree is almost unenforceable with the object of deceiving the assignee. Therefore, his silence would amount to fraud. 

Change of circumstances

Some of the time a portrayal is genuine when made, yet, it might, on account of a difference in conditions, become bogus when it is followed upon by the other party. In such conditions, it is the obligation of the individual who made the portrayal to convey the difference in conditions. 

In T.S. Rajagopala Iyer vs. The South Indian Rubber Works Ltd, Coimbatore And Ors. (1942), a company’s prospectus showed that certain individuals would be the company’s directors. However, before the allotment, some directors had retired and there were changes in the directorate. The Madras High Court said that the non-communication of the change in the directorate was enough for an allottee to avoid the allotment. 

Half-truths

In any event, when an individual is under no obligation to unveil reality, he may turn into blameworthy misrepresentation by non-divulgence if he intentionally reveals something and at that point stops a large portion of the way. An individual may keep quiet, yet on the off chance that he talks, an obligation emerges to unveil every bit of relevant information.

In R.C.Thakkar vs. (The Bombay Housing Board by its Successors) Now the Gujarat Housing Board (1972), false estimates were provided in a tender. The contractor, in the belief that the estimate was correct, reduced the costs. The court held that the representations made in the tender amounted to misrepresentation. The defendants could not take the defence that the plaintiff could have deduced the actual costs by reasonable efforts.

Guarantee obtained by keeping silence to material circumstances

Section 143 of the Indian Contract Act, 1872 invalidates a guarantee obtained by willful silence as distinguished from mere non-disclosure. The creditor had the duty to give the surety precise and accurate information of all the relevant material facts.

As per the provision, it should be established that not only was silence observed to material circumstances but  the guarantee was also acquired because of the same.

For example, an employer guarantees that the servant is honest and hardworking. However, he concealed the fact that the servant is also employed elsewhere and is guilty of acts such as dishonesty. Here, the past conduct of a servant is a material fact and should be disclosed to the other employer. 

Duty to speak

There is an obligation to speak in case of contracts uberrima fides i.e, contracts of utmost good faith. One of such cases is when one party places trust and reliance on the other. Such duty of disclosure will follow in all instances where one party relies on the other. Duty to speak also ensues when one party has no means of finding the truth and has to rely on the good intention of the other party. For instance, an insurance company has very little information about the circumstances of the assured. Thus, it is the obligation of the assured to provide all important facts affecting the risk covered. It is for this reason that contracts of insurance are called contracts of absolute good faith, i.e, “uberrima fides.”

In the case of, P. Sarojam vs. L.I.C, of India (1985) two insurance policies were taken out by the appellant’s husband one for Rs. 40,000/- and another for Rs. 1,35,000/- from Life Insurance Corporation of India. In both the policies the appellant was the nominee. After the death of the husband, the appellant demanded payment of the amounts from the two policies. The defendant revoked the policies as they were acquired by fraud and by suppressing material facts relating to the insured person. The appellant filed a suit for recovery of the amounts from the two policies .The subordinate court held that the policies were made without revealing material facts relating to the health of the insured and thus the defendant was entitled to revoke the contracts of insurance. 

Subsequently, an appeal was preferred to the High Court. The insured was suffering from a heart disease at the time when the proposals were made for life insurance. The false answers to questions in the proposal form given by the insured invalidated the contract of the insurance. The High court said that, as the contract of insurance is uberrima fides, the proposer had an obligation to reveal all important facts relating to his health to the defendant.

There is no obligation as such to reveal facts that are or might be equally within the means of knowledge of the parties. In Bell vs. Lever Bros(1932), the company agreed to pay large compensation to two employees, the subsidiary company directors, whose services were being dispensed with. After paying the money, the company discovered that the directors had committed breaches of duty, which would have justified their dismissal without compensation. The House of Lords laid down that the directors had not these breaches in mind, and were under no duty to disclose them.

No fraud

If the party alleging fraud had the facts before it or had the means to know them, they cannot be said to have been defrauded, even if a false statement has been made. Further, a contract cannot be rendered invalid merely on a trivial and inconsequential misstatement or non-disclosure. In Janaki Amma And Ors vs. Raveendra Menon And Ors(1981), where the plaintiff was aware of the contents of the Will of her father, the partition of property on the death of the father and mother was not set aside for the fraud of not disclosing the contents of the Will; and no fresh partition was ordered.

Evidence and burden of proof in case of fraud

In most of the cases, fraud is not capable of being proved by positive and tangible proof. It is by its very nature secret in its movements. It is, therefore, sufficient if the evidence given is such as may lead to interference that fraud must have been committed. In most cases, circumstantial evidence is the only resource in dealing with questions of fraud. If this were not allowed, the ends of justice would be constantly, if not invariably, defeated.

At the same time, the interference of fraud is to be drawn only upon an intentional wrongdoer. Being a restitutionary remedy, all actual losses flowing from fraud are recoverable, even if they could not have been reasonably foreseen; subject to the rule of mitigation by the defrauded party. Nor would the damages be reduced on account of contributory negligence.

Effect of fraud

A contract, consent to which is acquired by fraud, is voidable under Section 19 of the Indian Contract Act, 1872. The party deceived has the choice to affirm the contract and plead that he should be put in the situation in which he would have been if the representations were true, or he may rescind the contract to the degree it is not executed. Upon rescission, he is liable to reinstate the benefit received by him under Section 64 of the said Act and may recover damages. 

The measure of damages recoverable is essentially that applicable in case of tort, ie, all the actual loss directly resulting from the transaction included by the fraud, including the consequential loss, and not merely the loss which was reasonably foreseeable. Where a document, which was intended to be in favour of a particular person but, as a result of fraud of the defendant, conveyed to someone else, the transaction would be also voidable as per Section 19.

Proving fraudulent intent

An important question here is how can we prove that the contracting party remained silent and did not disclose the relevant material facts. The party who has suffered damages must show that:

  1. The defendant did not reveal material facts pertaining to the subject matter of the contract.
  2. The defendant had full knowledge of the facts. 
  3. The defendant’s failure to reveal the facts resulted in a false impression in the plaintiff’s mind. 
  4. The defendant had the knowledge that his failure to reveal the material facts would cause a false impression and the plaintiff would depend on the false impression.
  5. The plaintiff depended on the impression and incurred damages as a consequence. 

Voidability of agreements and fraud under the Indian Contract Act, 1872

Section 19 of the Act, deals with voidability of contracts in the absence of free consent. It states if the consent to an agreement is acquired by coercion, fraud or misrepresentation, the agreement is voidable at the option of the party whose consent has been acquired in such manner. 

According to this provision, contracts that are induced through fraudulent misrepresentation or concealment of material facts, the aggrieved party may seek to invalidate the contract and recover damages for any losses suffered.

A party to a contract whose consent was obtained by fraud or misrepresentation, can, if they think fit, plead that the contract shall be performed, and that they shall be put in the position in which they would have been if the representation made was true. Let’s take for instance, A fraudulently informs B that A’s estate is free from encumbrance. B, subsequently buys the estate. However, the estate is subject to a mortgage. In this situation, B may either avoid the contract or may insist on it being performed and the mortgage debt redeemed. 

However, if the consent to the contract was obtained by misrepresentation or through silence declared as fraudulent within the meaning of Section 17, the contract shall not be voidable, if the party whose consent was obtained in such manner had the means of finding out the truth with ordinary diligence. Thus, a contract shall not be rendered void only on flimsy grounds. Further, a fraud or misrepresentation which did not affect the consent to a contract of the party on whom such fraud was practised, or to whom the misrepresentation was made will not render a contract voidable.

Remedies for fraud 

In case of a silent fraud, the plaintiff has the following two remedies:

  1. The plaintiff can rescind, that is, cancel the contract and obtain compensation for the losses he has suffered.
  2. Affirm the contract and sue the defendant to receive damages. (for example, when the value of the asset has decreased)

Rescission of the Contract

In case of a contract affected by fraud, the aggrieved party can rescind the contract. Section 19 of the Act states that when an assent to an agreement is obtained by fraud, the agreement is voidable at the option of the party whose assent was so obtained. This provision further states that the party to the contract, whose assent was obtained by fraud, can, if they think appropriate, plead that the contract should be performed and that they should be put in the position in which they would have been if the representation made was true.

Section 62  of the Indian Contract Act, 1872 sets out that if the parties to the contract agree to rescind it, then the original contract may not be performed. Section 64 provides that when a person at whose decision the contract is voidable rescinds it, the other party is not required to perform any promise in the contract in which he is the promisor. If the party rescinding the contract received any benefit under it then they shall restore the benefit from the person from whom they received it.

In Jibrail Mian And Anr. vs. Lalu Turi And Ors. (2004), it was ruled that when a sale deed is ratified by fraud and the contract must be performed as a whole, there will be no rescission of a portion of the deed, unless that part is separable from the remainder of the contract. In such a situation the person entitled to rescind a contract cannot rescind a part only.

Damages

“Damages” denotes compensation in money for the loss incurred by the injured party. The injured party must prove their loss in order to receive damages. When a contract is induced by fraud, the aggrieved party can claim rescission or damages or both.  A person who is a victim of fraud can file a suit for damages. 

In Dambarudhar Behera vs. State of Orissa And Ors. (1980), the plaintiff rescinded the contract due to misrepresentation of facts by the other party. The plaintiff claimed damages as the expenditure occurred in the formulation of the contract and the loss of earnings till the time the plaintiff got to know about the misrepresentation. The Court awarded damages to him and held that the damages given for fraudulent misrepresentation should not surpass the losses which would have occurred had the facts not been misrepresented. 

In Smith New Court Securities Ltd vs. Scrimgeour Vickers (Asset Management) Ltd (1996), Lord Browne-Wilkinson formulated certain principles to assess adequate damages for fraudulent misrepresentation: 

  1. The defendant is bound to make amends for all the damage directly flowing from the transaction or the contract. 
  2. The defendant must make amends for all the foreseeable damages caused emanating from the contract or by the transactional.
  3. The plaintiff is entitled to recover by way of damages the full price paid by him, but he must give credit for any benefits which he has received as a result of the transaction.
  4. As a general rule, the benefits received by the plaintiff would include the market value of the property acquired at the date of the transaction. But this rule is not to be inflexibly applied when applying the rule would obstruct the plaintiff from recovering compensation for the damage he suffered.  
  5. The plaintiff is entitled to recover consequential losses caused by the transaction or the contract. 

Difference between fraud and misrepresentation

Misrepresentation and fraud have some elements in common. For example, both make the contract voidable and there is false representation in both. Damages for loss incurred as a consequence of innocent misrepresentation are determined on the same principles as in case of fraud. However, there are noteworthy points of differences between misrepresentation and fraud which are enumerated in the table below:- 

             Fraud     Misrepresentation

Meaning
Fraud is a deceptive act intentionally committed by one party in order to induce the other party to enter into a contract.Misrepresentation is an incorrect statement made innocently by one party which induces the other party to enter into a contract.

Intention

Fraud is intentional wrongdoing.
Misrepresentation can be committed without any guilty intention.

Cause of action
Fraud, besides making the contract voidable, is also a cause of action under the law of torts.Misrepresentation is not a tort, but rather a cause of action for damages under the law of contracts.

Belief
In fraud, the person making the suggestion does not believe in its truth.In misrepresentation, the person making the statement believes that it is true.

Conclusion

To conclude we can say that, fraud under contract law can be defined as an act committed by a party with the purpose of deceiving another party to induce them to enter into a contract. The false statement in fraud must be regarding a material fact which is significant to the contract and which is likely to impact the decision of the party to enter into a contract. However, only silence as to some material facts affecting the decision of an individual to enter into the contract would not amount to fraud. But if their silence can be treated as speech or the individual has a duty to inform the other party of the facts, silence would amount to fraud. A contract which is entered into by fraudulent means is voidable at the option of the party affected by such fraud.

Fraud under Indian Contract Law evolved from the Common law concept of fraudulent misrepresentation. The definition of fraud under Section 17 of the Indian Contract Act, 1872 lists a category of acts which if committed with the objective inducing a party to enter into a contract shall amount to fraud. While the scheme of the provision is precise and helps in identifying the fraudulent acts which may vitiate the consent in a contract, the scope of the provision should be even broader, so that all cases of deliberate misrepresentation can be identified. The specific circumstances where there is a “duty to speak” should be expressly mentioned in the provision. This might help resolve issues of ambiguity as to when there is a “duty to speak”  in relation to a contract. 

Frequently asked questions (FAQ)

What are some of the other statutes besides the Indian Contract Act, 1872 under which fraud is punishable ?

Besides the Indian Contract Act, 1872, the Companies Act, 2013, the Bharatiya Nyaya Sanhita, 2023 and the Transfer of Property Act, 1882 also penalise fraud.

What is misrepresentation ?

Misrepresentation denotes misstatement of a material fact relating to the contract. According to Section 18 of the Indian Contract Act, 1872, Misrepresentation consists of positive assertion of unwarranted statements, or a breach of duty without any intention to deceive, or unintentionally inducing mistake about the subject-matter of the contract.  

When duty to speak arises ?

The duty to speak arises when one party places their trust and confidence on the other party. In relation to a contract such duty arises, when one party lacks the resources to find out the truth and must rely on the information provided by the other.

References


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Article 226 of the Indian Constitution

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This article has been written by Sneha Mahawar and further modified by Shubham Choube. This article discusses the concept of Article 226 at its length. It discusses the scope of Article 226 including all the writs and the relevant case laws. The article also involves a description of Article 227 and its difference with Article 226.

Table of Contents

Introduction 

The judiciary is instrumental in the functioning of democracy in India as it protects the citizens from the abuse of power by the government and ensures the safety of the Indian Constitution. Consequently, the Constitution of India provides for a strong, autonomous, and centralised system of judiciary. 

Articles 32 and Article 226 make the Supreme Court and the High Courts empowered to file a suit against any governmental body should the rights and freedoms of any citizen be infringed. Under Article 226 of the Indian Constitution, the High Court has the jurisdiction to make orders and grants of writs to any person or authority. First of all, the party who is seeking the writ or the order has to establish that he has a right that is being infringed unlawful. In a case where the cause of action is partly within its jurisdiction, the High Court has powers to issue writs and directives to any Government, authority or person even though the Government, authority or person is not within the jurisdiction of the High Court. 

As a general rule, the High Court does not invoke its power under Article 226 when the matter is essentially a question of fact. Likewise, where the petitioner has an alternate remedy, the Courts will not entertain the Article 226 petitions. Besides, if there is an undue delay in reaching the court, then the court may decline to grant relief under this article. 

Article 226 of the Indian Constitution

Enshrined under Part V of the Constitution of India, Article 226 of the Constitution of India in relation to the High Courts empower them to issue writs where the writs are in the form of habeas corpus, mandamus, prohibition, quo warranto, certiorari, or any of them to any person or authority including the Government. According to Article 226 of the Constitution of India, High Courts possess the power and the capacity to implement any of the fundamental rights under Part III of the Constitution of India, 1949 or for any other cause. 

As stated in Article 226(1), every High Court has the capacity and authority to make orders, directions or writs commanding or restraining in any part of India on the ground of the violation of any of the provisions of Part III of the Constitution or any legal rights within their territory. 

Article 226(2) enables the High Courts to pass appropriate order, direction or writ to any government authority or any person beyond its territorial limit if the cause of action partly or wholly lies within its territorial jurisdiction even though the seat or abode of such government or authority or the person concerned is outside the territory. 

According to Article 226(3), when an interim order is issued against the respondent under Article 226 in the form of an injunction or a stay without: 

  • providing the respondent with a copy of the petition and any relevant evidence; and,
  • providing the respondent with an opportunity to be heard.

The High Court shall determine the application within two weeks from when the application was lodged or from the date on which the other party responded to the application, whichever is later. If the application is not so disposed of, the interim order shall be vacated on the expiry of that period, or, if the High Court is closed on the last day of that period, before the expiry of the next day on which the High Court is open, the interim order shall be vacated. 

According to Article 226(4), the jurisdiction granted to the High Courts under Article 226 does not preclude the Supreme Court from using its powers under Article 32(2).

Historical background and origin of Article 226 

Article 226 of the Indian Constitution through which High Courts can issue certain writs has a comprehensive history associated with the legal and pre-independent judicial system of India. It has its roots in British colonialism and is one of the most fundamental changes in the legal structure of India. 

Colonial heritage and Indian High Courts Act, 1861 

The origin of High Courts in India can be dated back to the Indian High Courts Act of 1861 passed by the British Parliament. This act established High Courts in Calcutta, Bombay, and Madras to replace the prior Supreme Court and Sadar Adalats in these presidencies. The High Courts had jurisdiction in civil and criminal cases and could issue writs. However, these powers were not as apparent or extensive as those assigned to the Indian Constitution at a later point in time.  

The Government of India Act of 1935 

The Government of India Act 1935 can be said to have introduced a measure of decentralisation of judicial power. It created the Federal Court of India which had limited original jurisdictions but rendered invaluable decisions on constitutional interpretation and controversies between the provinces and the centre. The High Courts persisted to operate under this act with increased authority and roles in proceedings. However, the power to grant the writs, which can be compared to the later Article 226, was not fully evolved yet. 

Constituent assembly debates 

The drafting of the Indian Constitution was surrounded with much controversy and discussion within the Constituent Assembly. Thus, the importance of such a mechanism to safeguard basic rights and involving judicial supervision can be noted. The Drafting Committee Chairman, Dr. B. R. Ambedkar also highlighted the significance of the judicial redress for the protection of liberty of person. 

The Constituent Assembly deliberations were based on certain constitution making materials which included British legal system, constitution of USA and the Government of India Act, 1935. The power to issue writs was considered necessary for the enforcement of civil liberties and the preservation of individual rights. Therefore, Article 226 was included to establish the authority of High Courts to issue writs in order to enforce fundamental rights and for any other purpose which was intended to enhance the concept of judicial review. 

Adoption and relevance to the Constitution of India  

It became a part of the Constitution of India after the commencement of the Constitution on January 26, 1950. It empowered the High Courts to make writs, orders or directions to any person or authority within the territorial jurisdiction of such High Court. This provision was broader than Article 32 of the Constitution of India which provides power to the Supreme Court to issue writs for enforcement of fundamental rights. Article 226 extends this right to the enforcement of both constitutional and other rights of the individual. 

Evolution and judicial interpretation 

Over the years, the role, extent, and use of Article 226 have been defined through several important cases. Thus the judiciary has given a liberal interpretation to article 226 suggesting justice and protection of the rights of individuals. The power to issue writs under Article 226 has been used to deal with issues of unlawful detention, abuse of power by government officials and organs, violation of constitutional and other legal rights.

Scope of Article 226 of the Indian Constitution

In Bandhua Mukti Morcha vs. the Union of India (1984), it was held that Article 226 has a much broader scope than Article 32, as it gives the High Courts the power to issue orders, directions, and writs not only for the enforcement of fundamental rights but also for the enforcement of legal rights that are granted to the disadvantaged by statute and are just as important as the fundamental rights.

In Veerappa Pillai vs. Raman and Raman Limited (1952), it was held that the scope of the writs referred to in Article 226 it was held that the purpose of such writs was intended to empower the High Court to issue the same where subordinate bodies or officers act without jurisdiction or in excess thereof or in violation of the principles of natural justice or where they refuse to exercise a jurisdiction vested in them or where there is obvious error apparent on the record and the said act or omission or error or excess has caused an injustice However wide the jurisdiction is applied, it cannot seem to be wide or large enough for the High Court to transform it into a Court of Appeal and assess for itself the correctness of the challenged decisions and decide on what the correct position to be taken or order to be made.

In Chandigarh Administration vs. Manpreet Singh (1991), it was observed that the High Court does not sit and/or function as an appellate authority over the orders/actions of the subordinate authorities while exercising powers under Article 226. Its authority is just supervisory in nature meaning that it does not have executive powers. It includes the goal to maintain the government and several other agencies and courts within their respective jurisdictions. However, while performing this duty the High Court should not overstep the sound and set legal jurisdictions of the High Court.

In Burmah Construction Co. vs. the State of Orissa (1961), It was held that the High Court under Article 226 of the Constitution has no jurisdiction to entertain a petition for enforcement of civil remedy for a tort or breach of a contract to pay an amount to the claimant and such matter should be pursued in a civil suit. But to perform a statutory obligation, a petition can be filed under Article 226 against the state or an officer of the state in which an order can be passed for payment of money.

In Jagdish Prasad Shastri vs. the State of Uttar Pradesh (1970), it was held that if a writ petition raises factual problems that the High Court considers should not be decided in a petition for a high prerogative writ, the High Court has the right to refuse to resolve such matters and relegate the party seeking redress to his usual litigation process. The High Court’s decision to dismiss the petition because there were disputed factual matters to be resolved is unquestionably unlawful.

In the case of State of Madras vs. Sundaram (1964), it was held that where it has been established that conclusions which have been impugned were not based on any evidence at all, a High Court cannot, in exercise of its jurisdiction under Article 226 of the Constitution, entertaining appeal against findings of fact arrived at by a competent Tribunal in a properly conducted departmental inquiry. While the High Court uses its discretion to exercise the power under Article 226 of the Constitution, the adequacy of that evidence to substantiate the allegation is of no concern.

In Common Cause vs. the Union of India (2018), the Hon’ble Supreme Court said that the High Court has been empowered and can issue necessary writs in the nature of mandamus, certiorari, prohibition, quo warranto and habeas corpus under article 226 of the constitution for the protection of fundamental rights or otherwise. Consequently, the High Court can grant relief for enforcement not only of fundamental rights but also of any other reason which might mean enforcement of public responsibilities by public authorities.

Writs under Article 226 of the Indian Constitution

A writ is a written order issued by a court instructing someone to do or refrain from doing something. It possesses authority and the ability to compel compliance. We all have various rights, such as the right to life, the right to education, the right to dignity, and so on, but these rights can only be used if they are safeguarded. Our Constitution primarily mentions the protection of our fundamental rights in four articles: 

  • Article 13 of the Constitution of India discusses judicial review;
  • Article 359 of the Constitution of India states that fundamental rights cannot be curtailed at any time except in the situation of emergency; 
  • Article 32 of the Constitution of India mentions the protection of our fundamental rights by the Supreme Court;
  • Article 226 of the Constitution of India mentions the protection of our fundamental rights by the High Courts. 

Part III of the Indian Constitution deals with fundamental rights, it runs from Article 12 through Article 35. This essentially indicates that Article 32 of India’s Constitution, which stipulates the preservation of fundamental rights, is a fundamental right in and of itself.

Types of writs available under Article 226

Habeas Corpus

It is a Latin word, which translates to “to have a body or to produce a body. ” This is the strongest of all the writs, and it is used most frequently. For instance, if a person is detained unlawfully by the government, that person, or his/her relatives or friends can approach the courts through a Writ of Habeas Corpus to seek the release of the detained person. When this writ is exercised, the Supreme Court or the High Court asks the State to explain why the particular person has been detained. If the ground is considered as irrational then the person is immediately released from police custody. This is the order of the court to produce the detainee before that particular court to make a determination as to the validity of the arrest. The main purpose of this type of writ is to secure the release of a person who has been deprived of his liberty unlawfully or is imprisoned unlawfully. This writ is important because it defines whether a person has a right to liberty and freedom in the society.  

Grounds for Issuance:

  • Unlawful Detention: It is often used when a person is held in custody without any legal justification or against the provisions of the law. The detaining authority is required to present the detainee before the court to explain why the detention was legal.
  • Violation of Fundamental Rights: Whether the said detention denies a detainee his/her fundamental right to personal liberty under Article 21 of the Constitution.
  • Absence of Legal Justification: When there is no legal justification or proper warrant for holding a suspect.

This writ cannot be used in the following four situations: 

  • Detention is legal;
  • Disobedience to the Court;
  • The Court has no jurisdiction over detention;
  • A Competent Court is in charge of detention.

Who may apply for the writ:

  • The individual who has been illegally imprisoned or incarcerated;
  • The individual who is aware of the advantage related to the case;
  • The individual who has knowledge about the facts and circumstances of the case willingly files a writ of habeas corpus under Articles 32 and 226.

Rudul Sah vs. State of Bihar (1983)

In this case, a person who had already served his sentence was wrongfully held in prison for an additional fourteen years. The person was promptly freed from jail and was given exemplary damages after using the writ of Habeas Corpus.

Sunil Batra vs. Delhi Administration (1980)

In this case, it was said that a writ petition for habeas corpus may be filed not only for the purpose of seeking the prisoner’s release on the ground that he was detained improperly or illegally but also for the purpose of protecting him against any sort of ill-treatment or discrimination by the authority under which he is detained. Therefore, herefore, there is the possibility to file a petition for wrongful detention, and the nature of the detention can also be looked into.

Nilabati Behra vs. the State of Orissa (1993)

In this case the petitioner’s son was kidnapped and taken by the Orissa police for questioning. This time all efforts made to know his whereabouts were in vain. Consequently, a habeas corpus writ petition was preferred before the court. While the petition was still pending, the petitioner lost his son who was found dead on a railway track. The petitioner was compensated with Rs. 1,50,000.

Mandamus

It is a Latin phrase which when translated to English means ‘we command’. It is a type of command which can be used to discharge public functions by any constitutional or statutory or non-statutory, universities or courts or body. This writ is employed to make sure that a public officer performs the tasks assigned to him or her. The precondition of this writ is that there must be a public duty. The Writ of Mandamus is issued to compel any authority to perform their public duties assigned to them. It is an order or command given to someone, a company, a lower court, or the government to perform what they are legally required to do. Any person aggrieved by a breach or abuse of a public duty and who has the legal power and authority to compel performance of this duty can apply for a writ of Mandamus in the High Court or the Supreme Court.

Grounds for Issuance:

  • Failure to Perform a Duty: This writ is used when a public authority or an official has not done what was expected of him or her under the law.
  • Legal Obligation: It has to be the legal duty, prescribed either in statutes or case laws, which the authority is under the obligation to discharge.
  • No Discretion: Mandamus can not be ordered where the duty is discretionary or where the authority has the choice whether to discharge the duty or not.

This writ cannot be used in the following three situations: 

  • When a private body is entrusted with a public obligation; 
  • When the duty is discretionary;  
  • When the duty is based on a contract.

Gujarat State Financial Corporation vs Lotus Hotels (1983)

In this case, the Gujarat State Financial Corporation entered into an arrangement with Lotus Hotels, stating that the funds would be released so that the building work could proceed. They did not, however, release the monies subsequently. As a result, Lotus Hotels filed an appeal with the Gujarat High Court, which issued a writ of mandamus ordering Gujarat State Financial Corporation to perform its public duty as promised.

Hemendra Nath Pathak v. Gauhati University (2008)

In this case, the petitioner sought a writ of mandamus against the institution where he studied because the university failed him despite the fact that he received the requisite passing grades under the university’s statutory standards. The university was ordered to declare him pass according to university norms, and a writ of mandamus was issued.

Sharif Ahmad vs. HTA., Meerut (1977)

In this case, the respondent failed to follow the tribunal’s instructions, and the petitioner went to the supreme court to have the tribunal’s orders enforced. The Supreme Court issued a Mandamus, requiring the respondent to obey the tribunal’s directives.

SP Gupta vs. Union of India (1981)

In this case, the court concluded that the president of India cannot be served with a writ directing him to determine the number of High Court judges and fill vacancies. The courts cannot issue writs of Mandamus against individuals such as the president and governors. Also known as the Judges’ Transfer Case, this PIL played a crucial role in ensuring judicial independence and transparency in judicial appointments. The case emphasised the importance of a free and impartial judiciary in upholding the rule of law and constitutional governance.

Certiorari 

It is a Latin phrase which translates to ‘to be certified. ’ With this writ, the Supreme Court and the High Court can compel any other subordinate court to produce records for scrutiny. These reviews are for the purpose of ascertaining whether the decisions made by the lower court are legal or not. Their decisions may be unlawful where such decisions are made beyond jurisdiction, without jurisdiction, in unconstitutional jurisdiction, or in breach of the principles of natural justice. If their decisions are found to be unconstitutional, or illegal then those judgments will be quashed. 

Grounds for Issuance:

  • Exceeding Jurisdiction: There should be a court, tribunal, or an official with the legal power to decide the issue and the responsibility to act judicially; When that lower court or tribunal exceeds its powers or assumes jurisdiction it does not have.
  • Violation of Natural Justice: If the lower court or tribunal behaves in a way that is contrary to natural justice and in violation of the principles of natural justice, including a failure to offer a fair hearing.
  • Error of Law: In situations where there is an arguable legal defect that has occurred in the lower court or tribunal proceedings.

A.K. Kraipak vs. Union of India (1970)

In this case, the writ of certiorari was issued to the lower courts and their judgments delivered were quashed. The cases which were reviewed were termed illegal and were held as quashed and invalid for future purposes. 

Collector of Customs vs. A.H.A. Rahiman (1956)

In this case, the customs collector issued a seizure order without any prior warning or investigation. The Madras High Court ruled that the collector’s order was made without hearing or understanding all of the facts of the case and that this was contrary to the principles of natural justice. As a result, the Madras High Court issued a writ of certiorari to quash the collector’s order.

Syed Yakoob vs. Radhakrishnan (1964) 

In this case, the Court held that a writ of certiorari can fix an error of law that is obvious on the face of the record, but not an error of fact, no matter how bad it appears to be.

A. Ranga Reddy vs. General Manager Co-op. Electric Supply Society Ltd. (1977) 

In this case, the Court found that no writ of certiorari could under any circumstances be made against a private body. This appellant, Co-operative Electricity Supply Society Limited, is a private body other than the public authority carrying out a public function; thus, the writ petition cannot be filed against such private society.

Prohibition 

For all intents and purposes, the difference between a writ of prohibition and a writ of certiorari is marginal. The saying “an ounce of prevention is better than a cure” aptly captures the difference between the two writs. In this case, the word preventive is connected with prohibition which is defined as ‘to forbid’ whereas the word certiorari is associated with treatment or cure. If a judgement is given and it is incorrect, it is recalled and a Writ of certiorari is issued. Nevertheless, if the judgement is still to be published and to avoid the said mistake, a writ of prohibition is resorted to. This writ can only be used up to the point that the judgement has not been delivered. A writ of prohibition is sought to restrain a lower court/ tribunal from assuming jurisdiction or exceeding the scope of its authority, or affording natural justice to the parties. This writ suspends the normal procedures in the lower court and brings them to a halt. As a general rule, where these grounds are applicable, a writ of prohibition may be granted on the same bases as a writ of certiorari except where there is a mistake or law apparent on the face of the record.

Grounds for issuance:

  • Jurisdictional Error: The writ is used when any lower court or any tribunal has ventured into an area of jurisdiction it was not entitled to, or had gone beyond the limits of its mandate.
  • Violation of Law: When there is a legal flaw in the decision-making process for instance, when there is an error in the law.
  • Procedural Irregularity: This may be where the lower court or tribunal has not adhered to legal procedures or the principles of natural justice.

East India Company Commercial Ltd. vs. Collector of Customs (1962)

In this case, the Supreme Court clarified the concept of a writ of prohibition, stating that it is an order issued by a higher court ordering a lower/inferior court to halt proceedings on the grounds that the court either lacks jurisdiction or is exceeding its jurisdiction in determining the matter.

P.S. Subramaniam Chettiar vs. Joint Commercial Tax Officer (1966)

In this case, the court held that a writ of prohibition may only be issued if the petitioner can show that any government official owed him a duty that was under his authority but was not carried out.

Brij Khandelwal vs. the Union of India (1975) 

In this case, the Delhi High Court refused to pass an order restraining the Central Government from entering into a boundary dispute agreement with Sri Lanka. The basis for this ruling was the proposition that prohibition does not preclude the government from fulfilling executive duties, and that prohibition is aimed at reigning in quasi-judicial as opposed to executive powers.

However, with the emergence of the idea of natural justice and the setting up of the idea of fairness even during administrative work, this stance is not sustainable any more and the rigidity of prohibition also has been done away with also. If any of the grounds on which the writ of mandamus is sought is made out, the writ can now be issued to anybody irrespective of the nature of the function performed. Today Prohibition is viewed as an extensive measure concerning judicial oversight of quasi-judicial and administrative decisions that interfere with rights.

Quo Warranto

It is a Latin term, which literally translates to ‘by what authority.’ The Courts may issue this writ to seek information from any public official as to the authority on which that official has assumed that certain public office. In this case, if it is found that the public office was unlawfully obtained, the public official has to relinquish the job. Unlike the other five writs, this one may be issued by any person.

Conditions to be satisfied for issuing the writ of quo warranto:

  • The office must be open to the public, and it must be established by statute or by the constitution;
  • The office must be a substantive one. 
  • In appointing such a person to such a position, there must have been a violation of the constitution or legislation, or statutory instrument.
  • Unlawful Claim: This writ is issued when a person is exercising a public office unlawfully or without lawful basis, to statutory or constitutional measures.
  • Legal Authority: The petitioner has to be able to prove that the person occupies the office unlawfully, and that there is a legal remedy for a challenge to the appointment.

Jamalpur Arya Samaj vs. Dr. D Ram & Ors. (1954)

In this case, a quo warranto writ was brought against the working committee of a private entity, the Bihar Raj Arya Samaj Pratinidhi Sabha. The petition was refused by the court. The Patna High Court ruled that a writ of quo warranto may only be issued against someone who is unjustly holding a public office. In the event of a private office, it is not applicable.

In G. Venkateswara Rao vs. Government of Andhra Pradesh (1966) 

In this case, the court held that a private individual may make an application for a writ of quo warranto. The individual filing the writ does not have to be directly impacted or engaged in the issue.

Puranlal vs. P.C.Ghosh (1970)

In this case, the court held that a person’s election to or appointment to a particular post is insufficient for the issuance of quo warranto unless that person accepts the position.

Difference between Mandamus and Prohibition

  • The writ of mandamus is Issued against judicial, quasi-judicial, and administrative authority. Whereas, the writ of prohibition is Issued against judicial and quasi-judicial authority. 
  • The writ of mandamus is an order to a lower court to do something. Whereas, writ of prohibition is an order to a lower court to not do something. 
  • The writ of mandamus directs activity. Whereas, writ of prohibition directs inactivity. 
  • The writ of mandamus directs the performance of public duties. Whereas, writ of prohibition prohibits continuance in excess of their jurisdiction. 

Difference between Certiorari and Prohibition 

  • The writ of prohibition is issued to stop a decision or administrative action in the process from moving further, whereas the writ of certiorari is used to quash a judgement that has already been made.
  • When a subordinate court takes up hearing a subject over which it has no jurisdiction, the person being sued can file a writ of prohibition with the supreme court, and an order will be issued prohibiting the inferior court from continuing the case. When a subordinate court hears a cause or matter and makes a judgement on a case over which it has no jurisdiction, the aggrieved party must file a writ of certiorari with the Supreme Court, which will issue an order quashing the inferior court’s decision.
  • A writ of prohibition is issued prior to the conclusion of the proceedings. Writ of certiorari is issued after a subordinate court or Tribunal, or any other entity exercising judicial or quasi-judicial responsibilities, makes a judgement that is outside of its authority.
  • A writ of prohibition is intended to prevent rather than heal. Whereas, writ of certiorari is used to quash a decision made by a lower court.
  • Only judicial or quasi-judicial organisations are subject to a writ of prohibition. Writs of certiorari, on the other hand, are issued against a public authority acting only in an executive or administrative capacity, as well as legislative bodies, as well as judicial and quasi-judicial organisations.

Article 226 : challenges and contemporary significance 

Delays and Backlogs in the Judicial Process 

Among the problems that are facing the judicial system of India particularly concerning Article 226 one of them is delay and case backlog. The High Courts that have powers to issue writs under Article 226 of the constitution face a large number of cases to handle. This congestion results in delayed trials which in turn delay the delivery of justice. These delays contradict the rationale of Article 226, which aims at offering an efficient legal redress for enforcement of rights. Creditors whose rights have been violated and require an interim order, like in cases of unlawful imprisonment or detention have to wade through the legal processes. The backlog has been attributed to several factors such as lack of adequate judicial personnel, lack of infrastructure and delays in procedures. Solving these problems needs extensive judicial reforms that include increasing the number of judges, improving the court facilities, and simplifying the processes to overcome the cases as quickly as possible.  

Accessibility for Marginalised Communities 

While Article 226 grants a wide range of powers to public authorities to help the needy to access justice in India, the process still remains cumbersome for the needy particularly the marginalised communities. Lack of socio-economic access, legal consciousness, and physical accessibility limit these groups of people to fully utilise the judicial remedies available under Article 226. High Courts in most cases are located in urban centres and are not reached by individuals from the rural and isolated areas. Furthermore, legal expenses involved in litigation, including attorney’s fees as well as other incidental expenses, present another challenge. Such parties, such as the economically subdued, women, and minorities, cannot afford to seek legal redress. To fill this gap there is need to improve on legal aid, legal awareness and accessibility to courts inclusive of mobile courts and e-courts. Enhancing the frameworks for underrepresented groups will help guarantee that the provisions of Article 226 are accessible and useful to all. 

Complexity of Modern Legal Issues 

Contemporary legal environment is complex and raises difficulties in relation to implementation of Article 226. Owing to advancement in technology, globalisation, and the ever changing socio-economic factors, legal matters are complex. The High Courts are now called upon to deal with issues that are complex such as cyber law, intellectual property rights, environmental laws, and complicated financial instruments, among others. Such problems require specialised knowledge and experience, and this could exert pressure on the conventional judiciary systems. However, the future direction of Article 226 requires an expansion of its interpretative domain to meet new legal needs without distorting the delicate balance between judicial activism and judicial self-restraint. To overcome this challenge, it is important to ensure that there is constant training of the judges through developing understanding of new areas of law. Furthermore, applying new technologies in the judicial system, for example, AI and legal data analysis, can help to handle large and intricate cases effectively. Only through adjusting to the new legal conditions, the judiciary can guarantee that Article 226 will remain an effective corrective legal power in the modern world.  

High Courts and their function in relation to Article 226 of the Indian Constitution 

Jurisdiction

The Supreme Court judgement in Benedict Denis Kinny vs. Tulip Brian Miranda(2020) underlines the sweeping ambit and the special status of High Court in exercising its powers under Article 226 of Constitution of India. This decision reaffirms that despite the consideration of other statutory remedies, they do not in any manner curtail the High Courts jurisdiction in the issuing of writs for the protection of legal and constitutional rights. High Courts are therefore able to guarantee that constitutional provisions are complied with and that authorities behave legally regardless of another statute. This case is a landmark in the protection of the right of appeal to the supreme court and ensuring the dominance of constitutional remedies in the legal framework of India.

Question of fact in writ jurisdiction

In the given case concerning the writ jurisdiction under Article 226 of the Indian Constitution, the primary duty of the High Court is to protect individuals against unlawful actions and decisions of public authorities and to make sure that they are fair and legal. Since under article 226 of the constitution High Courts have the power to issue writs for enforcement of fundamental rights and other legal rights, it becomes important to examine how the Court deals with questions of fact within this territory. 

The primary purpose of writ jurisdiction is not to decide factual controversies but to deal with legal questions raised concerning the action taken by a public authority. The High Court jurisdiction is to determine the validity of administrative decisions, their conformity with legislation, rules, and regulations and natural justice principles. In this context, the High Court does not usually delve into further fact investigation or reconsideration of the case merits. Rather, it matters that the decision-making was lawful and that the authority was acting within its jurisdiction.  

Thus, the review under Article 226 cannot be said to be an appellate review in any sense of the term. Whereas first instance courts consider or analyse facts and the whole of the legal process, the writ jurisdiction of the High Courts addresses issues of law and the legal propriety of a decision or an action. This distinction implies that High Courts are not generally expected to review the probable veracity of the evidence adduced at first instance. Instead, they determine whether the actions of administrators were legal and whether the procedure was proper and equitable. 

However, the High Court can only address questions of actual fact to a certain extent due to the following factors. For instance, the Court does not typically require close examination of factual issues that could take time to review evidence. The emphasis remains on whether there is a jurisdictional error, an abuse of power, or a denial of procedural fairness. This limitation is premised on the fact that the writ jurisdiction is not intended to be a substitute for normal appellate process or to act as a fact-finding commission. 

High Courts as the Protector of Fundamental Rights 

According to Article 226 of the Constitution of India, High Courts have the significant responsibility of protecting the fundamental rights. According to this provision, the High Courts have the jurisdiction to issue writs, orders, and directions to any person or authority within the territories of India for the protection of the rights included in Part III of the Indian Constitution. As the protectors of these rights, High Courts have the prerogative to act at any time that there has been a violation or probable violation of the said rights by the state or any other person. 

The High Courts writs include habeas corpus, mandamus, prohibition, quo warranto, and certiorari which are effective in the delivery of justice. For example, the writ of habeas corpus can be used to correct a violation of the constitution regarding unlawful imprisonment in order to protect an individual’s right to bodily liberty. Likewise, the writ of mandamus can enforce the right to equality and non-discrimination by ordering public authorities to discharge their statutory duties. 

Judicial activism is another feature whereby High Courts actively involve themselves in the protection of fundamental rights. They occasionally assume original jurisdiction in respect of matters of public importance and fundamental rights, entailing that justice be done to everyone irrespective of their station in life. The High Courts have played a great role in the evolution and enforcement of the constitutional fundamental rights in India. For instance the recent judgement of the Delhi High Court in the Naz Foundation case struck down section 377 IPC which criminalised consensual sexual relation between two adults of the same sex thus protecting fundamental rights of equality and non discrimination.  

Further, High Courts have the authority to revisit administrative decisions and legislation that may encroach on fundamental rights. In the course of exercising the writ jurisdiction, they ensure that executive actions and laws conform to the constitution hence upholding the constitutionality of the constitution. 

In other words, High Courts play the roles of wide awake guardians, overseeing that the rights provided in the Constitution are not infringed. This is especially important under Article 226 to ensure that the checks and balances between and among the three branches of government and the judiciary, in particular, are preserved. In this way, High Courts maintain fairness and safeguard people’s constitutional rights against any unlawful conduct. 

Expansion of Jurisdiction Beyond Fundamental Rights 

Although Article 226 specialises in enforcement of fundamental rights it has application in any violation of legal rights by granting High Courts the power to do so. This wider jurisdiction enables High Courts to issue the writs for any other purpose as it gives a holistic approach in the area of judicial review and remedy of the public. 

This expansive jurisdiction under Article 226 empowers the High Courts to step in where administrative decisions, statutory construction and operations of other public bodies are invoked. This makes sure that the actions of the executive and administrative bodies are legal, proportionate and non-discriminatory. High Courts can declare certain administrative orders ultra vires thereby preventing the abuse of power and upholding the rule of law.

Among the positive consequences of the broadened jurisdiction, special mention should be made of the consideration of public interest litigation (PIL). High Courts have entertained several PILs involving structural injustice affecting a sizable population of the society including problems of pollution, corruption and violation of human rights. They have thus served a very important purpose especially in areas of social and economic justice which the executive and legislative branches of government have left unattended. 

For instance, while exercising the writ of mandamus it is possible to compel public authorities to perform their statutory duties. It has been useful in situations where government departments have neglected to launch welfare programmes, enforce regulation or provide services appropriately. For instance, the writ of certiorari enables High Courts to quash decisions that have been made by the lower courts and tribunals to uphold justice and correct the mistakes that have been made. 

High Courts too have invoked their writ jurisdiction to give meaning and enforce statutory rights. For instance in labour rights and consumer rights cases and education policies, High Courts have given directions that statutory laws were to be complied with in the letter and spirit. This broad oversight is helpful in as far as it aids in sustaining the quality and efficiency of different legislative measures. 

In addition the power to issue a writ for “any other purpose” has assisted High Courts to deal with new and complex legal matters. Faced with new technologies, the globalised world and shifting cultures, new types of legal issues have emerged that call for progressive and fresh approaches in courts. High Courts have also embraced these changes hence exercising broader jurisdiction in order to accord legal redress to modern day vices like data protection, cybercrime and corporate fraud among others.

Alternate remedy

It is a principle of judicial review that the fact that an alternative remedy is available does not preclude the exercise of writ jurisdiction under Article 226 of the Constitution of India. This principle explains why High Courts participate in reviewing administrative actions and decisions for compliance with the rule of law and non-interference with fundamental or legal rights, even where other legal redress is available. 

The High Court is vested with authority to issue writs under Article 226 for enforcement of various fundamental rights and other legal rights. This provision still captures the specific nature of the remedy awarded under writ petitions, which deals with concerns that fall under public law and administrative activities. Thus, it is clear that the scope of writ jurisdiction does not solely depend on the presence or absence of adequate remedies. Instead, it concerns itself with whether the actions under consideration are legal or constitutional. 

Thus, even where there is an available remedy of appeal, this cannot prevent High Courts from entertaining a writ petition as it is an element that High Courts may consider when exercising their discretion. Despite the availability of ancillary relief, the High Court retains the discretion to determine whether relief under Article 226 should be granted or not. This discretion is exercised depending on certain factors which include the nature of the grievance, adequacy of the available legal redress, and likely bearing on public interest. 

In practice, however, there are those exceptional cases in which the High Court may decline to exercise the writ jurisdiction even where an alternative remedy is available. For instance, where such an alternative remedy is efficacious, appropriate and affords a fair chance of relief, the High Court may decline intervention. However, this does not mean that writ jurisdiction will not lie down if an alternative remedy exists. It is, therefore, important to note that the decision to entertain or reject a writ petition is made with principles of justice and fairness in an attempt to uphold rights as enshrined in the Constitution. 

Role of High Courts in Public Interest Litigation (PIL) 

Locus standi under Article 226

Locus standi, or the right to bring an action or to be heard in a court, is a critical concept in the realm of legal jurisprudence. Under Article 226 of the Indian Constitution, which grants High Courts the power to issue writs, the principle of locus standi determines who is eligible to approach the court for the enforcement of fundamental rights or other legal rights.

PILs evolution and importance 

PIL has brought about a sea change in the contemporary judicial scenario in India by enabling the common man to seek justice on issues of public importance. The idea of PIL was developed in the later part of seventies and early eighties as the Indian judiciary took the lead to fight social evils to protect the rights of the weaker sections of the society. Both Justice P. N. Bhagwati and Justice V. R. Krishna Iyer was instrumental in establishing this concept under which another person or a group could petition on behalf of a person who could not do so due to socio-economic factors. 

The importance of PILs can be understood in the sense that it facilitates the provision of justice to all. It should be noted that in contrast to conventional litigation that addresses individual disputes between individuals and companies, PILs address significant problems affecting large groups of people. They have provided the courts with opportunities to respond to the systematic problems including environmentalism, human rights abuse, and other vices like corruption and lack of accountability among officials. PILs have broadened the range of possibilities for judicial involvement, and help the judiciary to become the defenders of the public interests and harbingers of social change. 

PILs have revolutionised social justice and the reform process in India. Through dealing with concerns that are universal to the disadvantaged and the voiceless in the society, PILs have served a very vital role in the pursuit of equality, justice and human dignity. They have played a crucial role in policy and legislative reforms both at national and international levels. 

Another area that has been most affected by PILs is the environment. The judiciary following various PILs has compelled the government to take adequate actions to control pollution, conserve forests and wildlife. Some of the improvement orders included the shifting of dangerous factories and the regulation of car exhaust emissions in Delhi which were as a result of the M. C. Mehta vs Union of India (1986) case.

Judicial review

The power of judicial review is an integral feature of the legal system of India that grants the judiciary the authority to scrutinise the activities of the executive and legislative arm of the government. This makes certain that laws and actions do not offend the constitution and the rights of individuals. Article 226 of the Constitution of India provides High Courts with power to issue certain writs for the enforcement of the fundamental rights or any other legal rights which helps High Courts in maintaining the rule of law.

Article 226 empowers the High Court to pass appropriate directions, orders or writs, including writs of habeas corpus, mandamus, prohibition, quo warranto and certiorari. These writs are important in affording remedies to individuals in as much as the state or its agencies have acted unlawfully and violated their legal and constitutional rights. 

Article 226 entails broader review powers by the superior courts than under Article 32 under which the Supreme Court alone can protect essential rights under the Indian constitution. Article 226 entitles High Courts to deal not only with cases involving infringement of fundamental rights but also any other rights of the legal system. This makes the High Courts a crucial place where people seek justice for violation of their rights by the administration.

Difference between Article 32 and Article 226

Article 32, being a part of the Right to Constitutional remedies, forms the bedrock of the constitutional concept of protection of individual rights and freedoms. Its inclusion under Article 21 as a fundamental right also gives it added importance, offering a direct access to the Supreme Court for the protection of such rights. However, Article 226 though remains of paramount significance is a constitutional right. This classification implies that although it is crucial for the judiciary, it is not as automatically and intrinsically subjective as fundamental rights will be under the Constitution. 

Suspension 

The aspect of suspending Article 32 during an emergency shows the discretionary powers that are accorded to the government during special circumstances. However, this suspension can also be viewed as a threat to individual liberties during emergency situations. In contrast, there is no suspension of Article 226, which means that High Courts exist as a constant legal remedy, especially for legal and constitutional rights, in case of national calamities. 

Scope 

The restricted application of Article 32 to fundamental rights is in line with its purpose to primarily and directly safeguard these basic liberties. While Article 226 is far reaching, High Courts can intervene on many more aspects of legal problems than under Article 32, which makes it a more flexible instrument for seeking justice. This flexibility is particularly important in a complex legal environment where political and economic changes may necessitate judicial action in a wider range of areas than just the protection of basic rights.  

Jurisdiction 

The Supreme Court under Article 32 has original jurisdiction making it possible to apply and uphold the provisions on fundamental rights equally across the country. This is because it centralises the meaning and application of fundamental rights, thus ensuring that the understanding is consistent. However, the scope of High Courts under Article 226 is confined to the territorial jurisdiction and therefore is a more flexible one as it takes into consideration regional variations. However, it can also cause the variation in the application of legal principles in different states.

Discretion 

The obligatory character of Article 32 stresses the non-derogable right of individuals to turn to the highest court for protection of fundamental rights. This ensures that there is a clear and unqualified access to justice for infringement on these rights. On the other hand, the discretionary powers granted to the High Courts under Article 226 enable them to screen out meritless or unsustainable causes of action, thereby making optimal use of judicial time and manpower. This discretion, however, brings subjectivity in the decision making process, thereby creating the option of inconsistency in the judicial system.

Article 227 of the Indian Constitution

Article 227 of the Constitution of India deals with the power of the High court to control and supervise the subordinate courts and tribunal. Its principal function is to oversee that lower courts and other administrative tribunals within their jurisdictions work efficiently and fairly, and in compliance with the doctrines of legality. This enables the High Courts to exercise supervision to ensure that there is proper administration of justice within the judicial system and adherence to the Rule of Law. 

As for the general meaning of Article 227, it necessarily concerns the High Court’s power of control over the working of subordinate civil, criminal, and revenue courts, as well as other quasi-judicial authorities and tribunals. While the writ jurisdiction under Article 226 aims at protection of the fundamental rights and other legal rights, the Article 227 aims at seeing that the lower courts and tribunals do not assume jurisdictions which they have not been lawfully entitled to and that they followed legal procedures in the exercise of their jurisdictions. This supervisory role does not conceive an appellate function but a more general one in order to correct jurisdictional mistakes, process violations or non compliance with the law.  

High Courts can employ this supervisory power in several ways such as giving directions or rectifying mistakes in the lower courts’ processes. This can include ordering a subordinate court to continue with a case in a lawful manner or eradicating any legal errors. However, it must be emphasised that pursuant to Article 227, the High Court cannot interfere with the merits of the decisions of lower courts unless there is a showing of jurisdictional error or procedural impropriety.

Hence, the supervisory jurisdiction under Article 227 is necessary to ensure unity and stability of the legal system. It assists in ascertaining that all judicial and quasi-judicial organs operate within their constitutional jurisdictions and offers a forum for redress of any perceived injustice on matters of procedure and jurisdiction. It then strengthens some of the checks and balances within the judicial system to ensure that the delivery of justice is more effective and fair.

In the case of Jacky v Tiny @ Antony & Ors.(2014), the Supreme Court of India, with the bench of Justice S. J. Mukhopadhaya and S. A. Bobde dealt with the scope of the writ jurisdiction under articles 226 and 227 of the Constitution of India. The Supreme Court noted that whereas Article 226 gives the High Court the direction to issue writs for the enforcement of legal and fundamental rights, Article 227 extends the supervisory jurisdiction. According to Article 227, the High Court has the power to oversee the jurisdictional activities of subordinate courts and tribunals that have gone beyond the scope of legal authority and legal principles. 

The Court cited one of its previous judgments in the case of Shalini Shyam Shetty & Anr. v. Rajendra Shankar Patil (2010) wherein the Apex Court observed that the High Courts should decline to interfere in matters arising out of private law and where the respondent is a private party. The court opined that “An improper and a frequent exercise of this power would be counterproductive and will divest this extraordinary power of its strength and vitality.” The Court also pointed out that Article 227 of the Constitution enables High Courts to have corrective jurisdiction over the subordinate courts and tribunals, but it is not meant for a personal grievance between two parties. 

The Supreme Court further observed that the writ petitions under Articles 226 and 227 cannot be entertained for settling intense personal disputes. To the contrary, Article 227 ought to be employed by High Courts to compel lower courts and tribunals to exercise their jurisdiction and respect the law especially where egregious mistakes or injustice has occurred.

Difference between Article 226 and Article 227 of the Indian Constitution

The Supreme Court of India relied on many previous constitutional judgments of the Hon’ble Apex Court in the case of Surya Devi Rai vs. Ram Chander Rai, one of which was Umaji Keshao Meshram and Ors. vs. Smt. Radhikabai and Anr which established the scope, power, and differences between Articles 226 and 227.

After reviewing its prior decisions in the matter of Surya Devi Rai vs. Ram Chander Rai (2003), the Supreme Court determined the following differences:

  • Article 226 gives High Courts the ability to issue instructions, orders, and writs to any person or authority, including the government. Whereas, Article 227 gives High Courts the power of superintendence over all courts and tribunals in the territory over which they have jurisdiction.
  • The most significant and distinguishing distinction between the two articles is that actions under Article 226 are in the exercise of the High Court’s original jurisdiction, whilst procedures under Article 227 are purely supervisory.
  • The writ of certiorari is an exercise of the High Court’s original jurisdiction (Article 226); supervisory jurisdiction (Article 227) is not an original jurisdiction and is more analogous to appellate revision or corrective jurisdiction in this regard.
  • The authority given by Article 226 of the Constitution can be exercised on a plea made by or on behalf of the party aggrieved, although the supervisory jurisdiction conferred by Article 227 can also be exercised suo moto.

Technological advancements and Article 226 of the Indian Constitution 

Digitization of Court Processes 

The concept of digitization of the proceedings of various courts can be considered as the new model in the reform process of the Indian judiciary in terms of improving productivity, accessibility and transparency. This transformation mirrors the increasing caseload backlog and the imperative to rationalise justice delivery. Digitization entails several elements such as; electronic filing of cases, case status and judgments through various devices, and digital case management systems. 

The digitization is well known for minimising the time consumed in carrying out procedures. The use of paperless systems can enhance the efficiency of the handling and processing of cases by courts. This results in improved efficiency in the generation of summonses, notices, and other judicial processes, which in turn expedites the delivery of justice. Further, digitised records can be organised, accessed and also controlled with a lot of ease compared to physical records which may easily be damaged or lost. 

Another important benefit is the improved availability of the services provided by the court. It also makes it easy for litigants, attorneys, and the public to follow case details and court hearings at their convenient time and place. It is most helpful for those who reside in rural or isolated areas since physically getting to the court structures may be very tasking for them. Also, digitization enhances accountability since users can easily access judicial data and scrutinise the performance of the judiciary. 

The use of technology also improves the management of the courts in terms of organisation. The use of automated case management systems can assist with court date bookings, monitoring of cases, and court lists. Such systems can notify judges and other court personnel about the approaching deadlines and procedural obligations that require compliance, thus minimising the time-consuming clutter.

E-filing and virtual hearings 

E-filing and virtual hearings are critical as they form the core of judicial digitalisation, which has made a profound shift in the dynamics of the legal profession and court proceedings in India. E-filing, also known as electronic filing, is a process by which lawyers and litigants can submit their legal documents and case files electronically and not physically. This not only helps in saving much time and less effort but also reduces the chances of mistakes and loss of papers. 

Through the implementation of e-filing systems, the process of initiating or pursuing legal cases has been eased. Given the fact that e-filing enables the compiling of cases in a central storage and filing system, all the stakeholders are able to access documents and updates in real time. This contributes to the better organisation of the cases and less burden on the court personnel who do not need to sort and process the paper files. 

Remote proceedings, which are held over portable communication applications or video conferencing, have become standard or commonplace, especially following the COVID 19 outbreak. These hearings allow the courts to conduct the proceedings virtually, thereby carrying out their functions even during physical limitations. Virtual hearings can be defined based on the following benefits: convenience, cost reduction, and improved accessibility. It means that the participants of the court sessions can be physically present at any location and avoid expenses on their travel and organisational problems connected with it. 

Virtual hearings are also beneficial in that they help to include participants with mobility restrictions or those from remote regions. They make sure justice does not wait because of buildings and that matters that require urgent attention can be handled as such. In addition, virtual hearings increase the involvement of the public by giving them a better view of the proceedings that occur in the court. 

However, the following are the challenges that are associated with the implementation of e-filing and virtual hearings. There are some important issues that need to be taken into consideration: the protection of digital information and its non-disclosure, the reliability of virtual proceedings and, finally, the problem of digital gap. The potential for such advancements to enhance the field is apparent; nevertheless, sustained work is required to strengthen the technological framework, train the legal workforce, and enforce secure and powerful cybersecurity measures.

AI and legal tech for case management 

The application of Artificial Intelligence (AI) and legal technology in handling cases has transferred a new face to the judiciary in terms of function and decision making. Intelligent systems can parse large volumes of legal information, find connections, and offer recommendations that improve judicial performance and efficiency.  

Another major use of AI in case management is in the area of predictive analysis. There are insights regarding various cases from which AI algorithms can deduce the possibilities of the case and help judges and lawyers. These predictive models are capable of evaluating the probability of the success of various legal arguments, recognizing possible threats and proposing the best course of action. This is not only helpful in the preparation of a case but also helps to standardise decisions made by Judges. 

It can also reduce the amount of time spent on more mundane tasks such as document review, legal research and scheduling of cases. Technologies such as Natural Language Processing (NLP) can parse through legal documents, retrieve the information and even sort through case folders saving much time and effort as compared to manually handling documents. This enables legal professionals to prioritise higher value activities in terms of tasks. 

Through the application of artificial intelligence, the legal chatbots and virtual assistants may offer instant support to those in court or lawyers. These tools may provide answers to simple legal questions, help complete the relevant paperwork, and inform the status of the case. In this way, instant support of AI-based solutions makes a positive impact on clients and helps to facilitate the access to legal assistance. 

Also, AI can help improve the administration of justice by enabling intelligent case tracking and monitoring. These systems can provide reminders to judges and court personnel on some possible upcoming deadlines, procedural rules, and events in cases and prevent such omissions. 

Although the implementation of AI and legal technology brings the benefits, it has ethical or pragmatic issues. The issues of calibration of the model, fairness of the AI algorithms, safeguarding of the data, and the problem with the bias in the automatic delivery of dispositions are the significant concerns. Thus, it is possible to state that constant monitoring, open and clear AI use, and compliance with ethical frameworks are critical to using AI in the judicial system for maximal effectiveness and minimal harm.

Court can not suggest policy under Article 226  

According to Article 226 of the Indian Constitution the High Courts have the power to issue writs for the enforcement of fundamental and other rights. Nevertheless, this power is not to be confused with the function of making or proposing public policy. Under Article 226, the judiciary’s role is to check that the public authorities perform their functions within the legal and constitutional frameworks and that they do not act unreasonably or unlawfully. It is the constitutional role of the Court to consider the lawfulness of administrative actions and disputes arising due to violation of legal rights and/or abuse of power, which does not include making policy decisions. 

The separation of powers principle presupposes that policymaking is the authority of the executive branch and the legislative branch. It is imperative for the reader to be reminded that courts cannot design or even suggest any policies since such roles are not within their purview of duty. However, the courts may be reviewing whether current policies and procedures are aligned with the law and the constitution. When a policy decision leads to a legal/constitutional violation, the Court can prescribe remedial measures or quash the action. But this does not mean the substitution of policies or construction of new policy paradigms. 

By doing so, the judiciary ensures that it remains a neutral participant in the legal process and does not encroach on the policy-making arena that belongs to the legislators and executive branches. This way the judiciary does not overstep its bounds and only seeks to correct legal and constitutional injustices and imbalances thus maintaining the right proportion between judicial activism and policy making roles in governance.

Conclusion 

Martin Luther King once said, “Injustice anywhere is a threat to justice everywhere”.

This means that any unfair behaviour or injustice that occurs in some part of the globe will become contagious and will not be tolerated anywhere. Therefore, all the justice that has been served will be tarnished and everyone else will be trying to find out how they can be subjected to the same injustice. In addition, it is essential that there are no discriminations against the people, and that there are no discriminations in the system. That is why, the notion of writ was incorporated into Common Law to maintain a check on the administrative procedures. Hence, the Indian Constitution empowers the people by the Articles 226 and 32 which execute the writs of people’s basic rights.

Frequently Asked Questions (FAQs)

What are the kinds of writs that can be awarded under Article 226? 

The following common kinds of Writs can be issued by the High Courts under Article 226:

Habeas Corpus; Mandamus; Prohibition; Quo Warranto; and Certiorari. 

Can Article 226 be used against private individuals? 

In any case, Article 226 typically concerns matters of issuing writs against recalcitrant public entities. However, it is also available against other private individuals as long as they are exercising public work/office. 

What are the implications of Article 226? 

Article 226 is vital in the protection of citizens’ rights by affording them a direct and expeditious way to access the High Courts in the case of violations by public authorities.

Is there any period of limitation for filing a petition under Article 226? 

The Constitution does not say anything about the time limit within which a petition should be filed under Article 226. However, the High Courts may decline to hear the particular petition if there is undue delay in the filing.

References


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The Principle of Subrogation in Indian Contract Law

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This article is written by Anjani Singh.

Introduction

The Indian Contract Act of 1872 is a law governing contracts and agreements in India. This act provides guidance and helps resolve any dispute that arises during the period of the contract or in ensuring its compliance. The Indian Contract Law is divided into two parts: the first deals with the general principles that apply to all contracts (Article 1 to Article 75), and the second deals with specific contracts such as indemnity, guarantee, bailment, and pledge (Article 124 to Article 238). This act consists of different types of legal doctrines, one of which is “the doctrine of subrogation.” The meaning of this doctrine, in simple words, is ‘to step into the shoes of others’. Sections 140 and 141 of Indian contract law deal with the doctrine of subrogation, in which surety takes over the right of the creditor after paying off the debt of the principal debtor.

Understanding subrogation

What is subrogation?

Subrogation, a legal concept, allows one party, known as the subrogee, to step into the legal shoes of another party, called the subrogor, to exercise their legal rights. It is primarily used in situations involving debt and damages. Through subrogation, the subrogee assumes the subrogor’s legal claim, thereby gaining the right to pursue debt recovery or seek compensation for damages.

The principle of subrogation is significant in various scenarios. For instance, in the insurance industry, it enables insurance companies to recover compensation from the party responsible for causing the loss or damage. The insurance company, having paid the policyholder’s claim, takes on the policyholder’s rights and can pursue legal action against the at-fault party to recoup the expenses incurred.

Subrogation also plays a crucial role in personal injury cases. If an injured person receives compensation from their insurance company for medical expenses and other losses, the insurance company may exercise subrogation rights to seek reimbursement from the party responsible for causing the injury. This allows the injured person to receive compensation promptly, while the insurance company recovers its expenses from the liable party.

Moreover, subrogation is instrumental in preventing double recovery. Without subrogation, a claimant might receive compensation from multiple sources, leading to unjust enrichment. By transferring the legal claim to the subrogee, the original claimant is prevented from receiving duplicate compensation, ensuring fairness in the resolution of debt and damage claims.

In summary, subrogation is a crucial legal principle that allows one party to step into the legal position of another to exercise their rights, primarily in the context of debt and damages. It plays a pivotal role in insurance, personal injury cases, and other scenarios, ensuring that the party who has suffered loss or damage is compensated, often by the party who assumes these legal rights.

Characteristics of the doctrine of subrogation

The following are the characteristics of the subrogation:

  • Transfer of rights: This right of one person (creditor) is transferred to another person (surety) without forming any new agreement.
  • Indemnification: There is an implied promise by the principal debtor to indemnify the surety, and the surety is entitled to recover from the principal debtor whatever sum he has paid equitably.
  • Equitable doctrine: The main purpose of this doctrine is that the party who pays for the loss has the right to recover from the party who is responsible. This creates fairness and prevents injustice from happening to any party to the contract.
  • No double recovery: The creditor cannot recover the same amount twice, once from the principal debtor and once from the surety.
  • Limited to the amount paid: The surety’s liability is limited to the principal debtor’s liability. The surety is responsible for paying only the amount they have agreed to, no more and no less.

Scope of subrogation under Indian law

Subrogation under Indian law is a legal principle that governs the transfer of rights and remedies from an insured party to an insurer after the insurer has paid a claim. It is primarily applicable in general insurance policies, such as property and casualty insurance, where the insurer steps into the shoes of the insured to recover losses from a third party responsible for the damage.

The legal framework for subrogation in India is primarily based on two key statutes: the Indian Contract Act of 1872 and the Transfer of Property Act of 1882. These acts provide the legal basis for the transfer of rights and remedies from the insured to the insurer upon payment of a claim.

Equitable subrogation:

One form of subrogation recognised under Indian law is equitable subrogation. Equitable subrogation arises by operation of law and does not require an express agreement between the insured and the insurer. It is based on the principle that a person who pays a debt or obligation that another person is legally bound to pay is entitled to be reimbursed by that other person. In the context of insurance, if the insurer pays a claim to the insured, it becomes equitably subrogated to the insured’s rights against the third party responsible for the loss.

Contractual subrogation:

Another form of subrogation recognised in India is contractual subrogation. Contractual subrogation arises from an express agreement between the insured and the insurer. This type of subrogation is typically included in insurance policies and explicitly assigns the insured’s rights and remedies to the insurer upon payment of a claim. Contractual subrogation provides a clear and legally binding framework for the transfer of rights and remedies from the insured to the insurer.

Subrogation rights and limitations:

The insurer’s rights under subrogation are limited to the extent of the indemnity provided to the insured. This means that the insurer cannot recover more from the third party than what it has paid to the insured. Additionally, any waivers of subrogation rights included in contracts between the insured and the third party can limit the insurer’s ability to pursue subrogation.

Upholding subrogation principles:

Indian courts have consistently upheld the principles of subrogation, recognising that it promotes fairness and prevents double recovery by the insured. However, courts have also emphasised that the insurer’s rights under subrogation are limited to the indemnity provided to the insured.

Practical application of subrogation:

In practice, subrogation enables insurers to recover amounts paid to the insured from liable third parties. This can include pursuing legal action against the third party, negotiating settlements, or exercising other remedies available under the law. Subrogation helps insurers manage their financial exposure and maintain the integrity of the insurance system.

Overall, subrogation under Indian law plays a crucial role in ensuring that insurers have the necessary legal tools to recover losses from third parties responsible for damage, thereby promoting fairness and preventing double recovery by the insured.

Relevant provisions in the Indian Contract Act of 1872

Section 140: Right surety on payment or performance

The section pertains to the timeline for the principal debtor who owes money or has an obligation to perform a duty. If they haven’t done so, or they’ve failed to meet their promise, then the surety steps in and fulfils the obligation on behalf of the principal debtor, which he/she failed to pay.

The surety is liable for the amount or duty that the principal debtor was supposed to perform or pay. After the surety has paid that amount or performed the duty, the surety acquires all the rights the creditor had against the principal debtor. And now the surety would recover the amount from the principal debtor, or we can say the principal debtor would be liable to the surety.

Section 141: Surety’s rights to benefit of the creditor’s securities

According to this section, a surety is entitled to benefit from any security or collateral that the creditor holds against the principal debtor. This means if the creditor has assets or guarantees from the principal debtor to secure the loan or obligation, the surety has a right to reply on it.

This applies from the moment the suretyship contract is signed, regardless of whether the surety is aware of the securities or not. The surety’s entitlement to these benefits is inherent in their role as a guarantor.

If the creditor either loses these securities or gives them up without the surety’s consent, the surety is released from their obligation to the extent of the value of those securities. This means that if the security was worth 10,000 rupees and the creditor lost it, the surety’s liability is reduced by 10,000.

The logic behind it is that the surety’s risk increases if the securities backing the debt are lost or mishandled.

Judicial interpretation/case laws

Babu Rao Ramchandra Lalan vs. Babu Manaklal Nehmal (1938)

In this case, the court held that if the liability of the surety is coextensive with that of the principal debtor, his right is not less coextensive with that of the creditor after he satisfies the creditor’s debt.

Amrit Lal Goverdhan Lalan vs. State Bank of Travancore (1968)

In this case, the Supreme Court ruled that a surety is entitled to all remedies available to the creditor against the principal debtor. This includes enforcing securities, all means of payment, and having securities transferred to them, even without specific stipulations. The surety can stand in the creditor’s place and utilise all securities against the debtor. This right is based on both contract and principles of natural justice.

State of M.P vs. Kaluram (1967)

In this case, the Supreme Court described the term ‘security’. It is not used in any technical sense but includes all rights that the creditor has against the property of the principal.

The court also held that on paying off the creditor, the surety steps in his shoes and gets the right to have the securities, if any, that the creditor has against the principal debtor.

M. Ramnarain (P) Ltd. vs. State Trading Corp. of India (1988)

In the following case, the court held that, when certain bills of exchange were provided as collateral security and subsequently dishonoured, the creditor rendered them ineffective by failing to act within the limitation period. As a result, the surety was released from liability to the extent of the bills’ value.

Rights under subrogation

Right to security: Section 141 stipulates that the surety is entitled to the benefit of every security which the creditor had against the principal debtor at the time the contract of guarantee was made. If the creditor, without the surety’s consent, releases or loses this security, the surety’s liability is reduced to that extent.

Right to remedies: Section 140: Once the surety pays the debt or performs the obligation, they are entitled to all the rights and remedies the creditor had against the principal debtor. This includes the right to recover the amount paid from the debtor and any security the creditor held against the debtor.

Right to sue: The creditor has the right to sue the principal debtor if the principal debtor is unable to complete his part of the contract. The same right is transferred to the surety once he/she gets in the shoes of the creditor.

Conclusion

In conclusion, the principle of subrogation in the Indian Contract Act deals with two provisions, that is, sections 140 and 141. These sections ensure that the loss that has been paid by the surety on behalf of the principal debtor to the creditor would not place the principal debtor in the position of any loss in this contract. Under this, the surety has the full right to claim for whatever he has paid or performed from the principal debtor. The surety is also given some of the rights that help him/her throughout the contract. Together, these sections ensure that rightful parties are compensated appropriately and that those responsible for causing losses bear the financial consequences, thus maintaining fairness and accountability in contractual relationships.

References

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Treaties as contract theory, textualism, and interpretation

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This article has been written by Madhumita Raut pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution course from LawSikho

This article has been edited and published by Shashwat Kaushik.

Introduction

The debate on whether to treat treaties as a mere contract has posed serious thoughts to the academicians and the legal fraternity under international law. This has been made using textualism and contract theory in the analysis of the duties and objectives of the involved parties. This essay is intended to deal with the complex dimension of treaties and contracts and to clearly show how textualism and contract theory critically influence the way international agreements are interpreted.

In simpler terms, a treaty and a contract are formal documents through which some legal kinds of rights are created for parties, specifying their rights and duties under such documents in the expectation that these commitments will be honoured. However, in general, the environment and the entities have typically been different and varied.

Basically, treaties and contracts are formal agreements that create legal obligations for the parties involved. These are the parties’ rights and duties in expectation that their commitments are honoured, but the circumstances under which they operate and the parties different from each other.

Define the contract and treaties

A contract is a legally binding agreement between two or more individuals or businesses. It outlines the rights and obligations of each party and is enforceable by a court of law. Contracts can cover a wide range of activities, such as commercial deals, property transactions, and job agreements. They are typically written documents, but they can also be oral agreements.

In order to be valid, a contract must meet certain legal requirements. These requirements include:

  • Offer: One party must make an offer to the other party. The offer must be clear and specific, and it must identify the subject matter of the contract.
  • Acceptance: The other party must accept the offer. The acceptance must be unconditional and unequivocal.
  • Consideration: There must be an exchange of something of value between the parties. This can be money, goods, services, or a promise to do something.
  • Capacity: The parties must have the legal capacity to enter into a contract. This means that they must be of legal age and sound mind.
  • Legality: The purpose of the contract must be lawful.

Treaties, on the other hand, are formal agreements between two or more sovereign states or international bodies. They are typically written documents and are governed by international law. Treaties cover a wide range of topics, such as commerce, security, human rights, and environmental protection.

Treaties are legally binding on the parties that have entered into them. They are typically negotiated by representatives of the different states or international bodies involved and are then signed by the heads of state or government. Treaties are often subject to ratification by the legislatures of the parties involved.

The Vienna Convention on the Law of Treaties is the principal legal document governing treaties. It sets out the rules for the negotiation, conclusion, and interpretation of treaties. The Vienna Convention also provides for the peaceful settlement of disputes between parties to a treaty.

Contracts and treaties are both legally binding agreements. However, there are some key differences between the two. Contracts are typically between individuals or businesses, while treaties are between states or international bodies. Contracts are governed by national law, while treaties are governed by international law. Finally, contracts are typically less formal than treaties. In that vein, treaties resemble contracts in the field of international law and require mutual agreement and the assumption of obligations by parties. Such a description resembling the nature of contractual arrangements is indeed justified by legal descriptions and historical examples that, in fact, prove that signatories have high levels of commitment.

Core values of contract

The recognition by states of the solemnisation of an agreement through mutual assent is hardly going to evoke the word “contract” to be the first to come to mind for most. Yet this metaphor of treaties as contracts plays an important role in the practice of international law precisely because it fills a vital gap in our understanding between concepts of an informal agreement and the near incomprehensible, intricate web of obligations and expectations that have culminated among nations. While not truly private contracts, a comparison may be drawn from what the two share in common, giving a clear meaning as to the importance and significance that treaties have in international law.

In fact, treaties, analogous to contracts within the frame of contract law, are essentially an agreement between sovereign states, dispersed in most of the cases in a written form like ratification or accession, which marks acceptance to receive the provisions of the treaty; such an agreement sets a structure of interlocking or interconnected reciprocal duties.

Similarly, treaties, like well-drawn contracts, are very specific and clear in laying out the rights and duties of the parties. This amount of detail makes the treaty language purposely worded so that there is no margin for ambiguity in its interpretation, which could lead to causes of misunderstanding likely to sour international relations. Each article’s language is meant to become a cog in the cooperative mechanism and take care of a range of concerns, from trade rules to disarmament agreements.

The heart of a treaty is, like the parties in a contract, dependent on its execution. The states shall be compliant dreamily in carrying the obligations, act affirmitively in observing the steps depicted in the treaty, and cease from doing the acts contrary to the purposes of the treaty.

Whereas courts are the enforcers of private contracts, with respect to treaties, the situation is more nuanced in the international arena. Even though there isn’t a single body to enforce these treaties, mechanisms do exist: from publicity to countermeasures, from diplomatic pressure to finally finding ways through the international tribunals in case of non-compliance.

Admitting the likenesses involves the acknowledgement of subtle distinctions. States, unlike people in a contract, exist within the realms of sovereignty and autonomy. The difference is shown in much stricter formalities in the creation of a treaty and some specific grounds in the termination of the same, beyond merely the breaking of rules of a contract.

Treaties and contracts may belong to separate fields, yet some contractual law framework is very insightful for such a vast world of international agreements. Realisation of common features contributes to the understanding of how states relate to one another and interact within the enormous field of international relations. But the further reach which treaties have always had, as the tools of diplomacy and the embodiments of the hopes of the nations in the pursuit of common goals, has gone beyond the pale of the realm of contracts.

This has made textualism relevant in treaty analysis as an interpretative method that makes a priority of the meaning of the manifest text. An endeavouring method that reveals the exact text of treaties and the consensus intentions that it creates between the states at the time.

Proponents of textualism have confidence in it due to its accuracy and objectivity. They further state that all that constitutes a treaty are clear and plain words. This minimises the uncertainties and contributes to predictable expectations on the part of the nations. This construction is part of the demands under Article 31(1) under the Vienna Convention on the Law of Treaties, which insists that there should be “good faith and the natural meaning that should be accorded the terms of the treaty to the context in which it used in light of the end and the objective of the treaty.”

On the other hand, the theory of contract has a more evolved perception as it sees the treaties more in the character of contracts rather than merely bargaining between states and rests on the premises of the original intentions of the parties concerned or a cooperative spirit and principles of faith. The proponents of this idea, among whom is also Ian Brownlie, accept that international relations are in the process of continuous change and attempt to interpret treaties to the advantage of seeking legal obligation and good faith principles.

The principle of pacta sunt servanda, or “contracts must be honored,” serves to make this more binding. This principle works from the basic tenet of contract theory that entities are bound to and will abide by their part of the agreement. Just like the concept of contractual relationships is an imperative in international law, so too is the command for states to hold their obligations under treaties reprehensible in both law and morality.

The application of contract theory to international law is, however, problematic. There may well be an imbalance in power relationships amongst states that can distort intentions. Further, unforeseen developments may make original interpretations redundant. Contextual elements, such as subsequent practices in terms of how the States have implemented the treaty and travaux préparatoires (the history of the negotiations), become very important in comprehending the ongoing spirit of cooperation.

Textualism and contract theory are likewise paramount factors in treaty interpretation, but their greater practice, in most cases, encounters suspicion and controversy. For example, the text of a treaty can be vague, resulting in a dispute over interpretation. In addition, the fact that recourse is had to one textual or contractarian interpretation without considering the surrounding context may give rise to an approach, subsequently recognised, of seeming to know the intentions of states in a most mechanical and restrictive manner.

Nevertheless, critics point out that a rigorous adherence to textualism could end up ignoring any larger context—either preparatory works or any further agreements that could serve as clues to the true intentions. It remains one of the most controversial aspects in the expression of a delicate balance during treaty interpretation: either a literal interpretation or a broader contextual analysis.

This interaction shows the subtle balance between the notions of treating treates as contracts: a dynamic interplay among textualism, contract theory, and the broader context. Through the use of textualism, there is a systematised way of reading treaty language, but through contract theory, there is a focus on principal aspects of equity and good faith. Each will bring out the subtlety of the balance involved and, at the same time, take into account a context broader and yet directly affecting the interpretation of the texts of the considered treaty.

Such changes in the overall perspective of international law with respect to the interpretation of the treaties exhibit a holistic viewpoint involving textualism and the contract theory. All of these balance to be sensitive to the clarity of textualism and the openness that an understanding of the larger context may give in reaching satisfactory and practical international conclusions.

Criticisms and challenges

While textualism and contract theory serve as valuable tools for interpreting treaties, they have not been immune to challenges and criticisms. One of the main issues with these approaches is the ambiguity of treaty language. The meaning of words and phrases in a treaty can be open to multiple interpretations, leading to diverging opinions among parties. This ambiguity can be caused by factors such as imprecise drafting, inconsistent terminology, and the use of vague or undefined terms. As a result, different parties may interpret the same treaty provision in different ways, leading to potential disputes and disagreements.

Another criticism of textualism and contract theory is that they tend to focus solely on the text of the treaty and the intentions of the parties at the time it was drafted. This narrow interpretation fails to take into account the dynamic nature of international law and the evolving context in which treaties operate. Over time, circumstances may change, new technologies may emerge, and societal values may shift. As a result, the original intentions of the parties may no longer be relevant or appropriate in the current context. A strict adherence to textualism or contract theory may therefore lead to an inflexible and outdated interpretation of the treaty, limiting its ability to adapt to changing circumstances.

Furthermore, textualism and contract theory often overlook the broader purposes and objectives of treaties. These approaches prioritise the literal meaning of the text and the legal obligations created between the parties, but they may not fully consider the underlying goals and objectives that motivated the creation of the treaty in the first place. By focusing solely on the text, these approaches may miss the opportunity to interpret the treaty in a way that promotes its overall purpose and effectiveness.

Critics also argue that textualism and contract theory can be overly formalistic and legalistic. They may prioritise technical legal rules and principles over practical considerations and the broader implications of treaty interpretation. This can lead to an overly rigid and narrow interpretation of the treaty, which may not be conducive to achieving the desired outcomes or resolving disputes effectively.

To address these challenges, some scholars and practitioners have proposed alternative approaches to treaty interpretation. These approaches may involve considering the context of the treaty, its purpose and objectives, and the subsequent practice of the parties. By taking a more holistic and purposeful approach to treaty interpretation, it is possible to overcome some of the limitations of textualism and contract theory and ensure that treaties are interpreted in a way that is both faithful to the intentions of the parties and responsive to the evolving needs of the international community.

Conclusion

In sum, these textualist devices are an aid to unlocking the complexity underwritten in treaties-as-contracts, and contract theory gives a lens through which to understand the fairness and good faith that underpin them. Adjudication of these conflicting imperatives requires sophistication in the recognition of context to give meaning to treaty provisions literally.

As the world legal order keeps changing, however, that proper meaning—textualism married to the law of contracts—will keep being a norm in the interpretation of the treaty, in the fulfilment of obligations of parties, and in the maintenance and observation of rule of law in the community of nations. The fine balance between rigidity of textualism and fluidity of contextual understanding will have to be a sensitive, critical one if worthwhile; just international pacts are to be reached.

References

  • The Indian Contact Act 1872
  • Vienna Convention on the Law of Treaties between States and International Organizations or between International Organisations 1986
  • Avtar Singh, Law of Contract and Specific Relief, 13th edition 4- 200 (EBC, 2021).
  • P.W. Alson, “Principles of International Law: Theory and Practice”, First Edition, Chapter 10 (Cambridge, 2015).
  • Brownlie,  Principles of Public International Law,  7th edition (Oxford University Press, 2008)
  • https://www.toppr.com/guides/business-laws/indian-contract-act-1872-part-i/essentials-of-a-contract/ 
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Receiver under CPC

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This article is written by Aakash M. Nair and further updated by Monesh Mehndiratta. It explains the concept of the receiver under the Civil Procedure Code, 1908, in detail. It explains the meaning, role, and objective behind the appointment of the receiver along with its powers, duties, and liabilities. 

Introduction 

Who do you think is a “receiver”? Is he somebody who receives something?

Well, this is partially correct. However, in the eyes of the law, a receiver is a person who is appointed to look after a property for which he has been appointed. He is entrusted with certain duties and powers with respect to the property for which he is appointed. 

In civil litigation, a receiver plays an important role in assisting the court. The receiver is considered to be an officer of the court who helps the court to protect and preserve the subject matter of suit till the time the court decides the matter. Sometimes, the court thinks, it is in the best interest of both parties to appoint a receiver who will be responsible for the management of the subject matter. The subject matter is generally a movable or immovable property.

The receiver is liable to take care of the property just as a prudent man will take care of his own personal property. He should follow the directions of the court, or else his property can be attached by the court to recover the amount which is due to him. The present article explains the concept of the receiver in detail. It provides the meaning of the receiver, the objective behind his appointment, his duties and powers, the circumstances under which he is appointed, and relevant judgments in this regard. 

Meaning of receiver 

The Code of Civil Procedure, 1908, does not provide the definition of the term ‘receiver’. However, according to the Oxford Learners Dictionary, “receiver is a person who is appointed by the court to be incharge of a company that is bankrupt to handle the company’s affairs”. The definition given by Kerr in his book “The Law and Practice: As to Receivers Appointed by High Courts of Justice or Out of Court” defined the term as an impartial person who has been appointed by the court to collect and receive the rent, issues, and profits of land or personal estate while the proceedings are pending. This is because the court finds it reasonable not to allow either party in dispute to collect or receive the same in order to distribute it among the persons entitled to collect. 

To put it simply, it can be stated that a receiver is a third person who is appointed by the court to take care of the property in dispute till the case is disposed of, as it is unreasonable for either party to do so. Such a person must be independent and impartial. He is expected to manage the property or subject matter of the dispute and would also be responsible for maintaining such property. 

It can be said that the receiver is an officer of the court who acts for the benefit of the property and not on behalf of either party, i.e., plaintiff and defendant. In the case of Anthony C. Leo vs. Nandlal Balakrishnan (AIR 1996 SC 1323), the Supreme Court gave the characteristics of the receiver as:

  • An impartial or a neutral person.
  • Agent of the court
  • If a property is in the custody of the receiver, it implies that it is in the custody of law or court. 
  • Receiver has the same powers as that of the real owner of the property.
  • Receiver acts under the supervision of the court and hence is also called the officer of the court. 

For example, in a dispute between A and B for immovable property, if the court thinks that it is in the best interest of both parties that possession should be taken from B and given to an independent person, the court may appoint a receiver who can manage the property till the time the suit is being decided. Such a receiver appointed by the court would be responsible for the maintenance of the property. He can collect the income accruing, like rent or any other profits and utilise it to maintain the property. After deducting the expenses incurred in maintenance from the income received from the property, the receiver will have to submit the remaining income, if any, in court.

Objective behind appointing a receiver

The objective of appointing a receiver is two-fold:

  • To protect, preserve, and manage the property while the case is pending in the court. 
  • To safeguard the interests of both the parties to a suit. 

The receiver is regarded as an officer of the court and is the extended arm and hand of the court. He is entrusted with the responsibility to receive disputed property or money given by the court and manage such property or money till the time a decree is passed or the parties have compromised or any other period as the court deems fit. The property or fund entrusted to the receiver is considered to be custodia legis, i.e., in the custody of the law. The receiver has no power other than those entrusted to him by the court while appointing him.

Appointment of a receiver under CPC

Order XL of the Code provides for the appointment of receivers. Rule 1 of Order XL provides that the court can order the following if it appears just and convenient to the court:

  • Appointment of receiver either before or after the decree has been passed. 
  • Removal of any person from the possession or custody of the property. 
  • Property to be given in possession, custody, or management of the receiver.
  • Confer certain powers to the receiver with respect to the property for which he has been appointed.

In the case of T. Krishnaswamy Chetty vs. C. Thangavelu Chetty (1930), the Madras High Court provided five principles to be borne in mind before appointing a receiver:

  • The power to appoint a receiver is a discretionary power that is neither arbitrary nor absolute. This power must be exercised keeping in mind all the circumstances of the case in order to protect the rights of parties in a dispute.
    • It is described as one of the harshest remedies given under the law because it deprives the party of enjoying the possession of the property much before the final judgement has been passed. Thus, it must not be exercised if there are other remedies available in a dispute. 
  • A person will be appointed as receiver in a suit only when the plaintiff proves that he stands a chance to succeed in a case. 
  • The plaintiff must prove some damage, loss, or emergency in order to get a person appointed as a receiver. The court must not appoint a receiver merely on the grounds that it will cause no harm.
  • A receiver will not be appointed if it deprives the defendant of de facto possession of the property, ultimately causing irreparable loss. 
  • The party who makes an application for the appointment of the receiver must not be at fault or cause any delays, laches, etc. 

Persons eligible to become a receiver

A person who is independent, impartial, and totally disinterested should be appointed as a receiver. Such a person should not have any stake in the disputed property. Generally, parties to the suit are not appointed as receivers by the court. But in extraordinary circumstances, a party to suit can be appointed as receiver.

Who can appoint a receiver

According to Section 51(d) of the civil procedure code, the court before which the proceedings are pending can appoint a receiver if it appears just and convenient to the court to appoint such a receiver. It is within the discretionary power of the court to appoint the receiver. For example, in a suit, the trial court can appoint a receiver. Meanwhile, in an appeal, the appellate court can appoint a receiver. However, the discretion is not absolute, arbitrary, or unregulated. The expression “just and convenient” does not mean the appointment is based on the whims and wishes of the judge on any grounds which stand against equity.

Circumstances under which receiver can be appointed 

The court can appoint a receiver whenever the court is of the opinion that either party should not hold the property in dispute. The court under Section 94(d) can appoint a receiver before or after a decree and can remove any person from the possession or custody of the property and commit the same property in the custody or management of the receiver.

Under the code itself, the receiver can be appointed to prevent the ends of justice being defeated. 

There are provisions in special Acts that provide for the appointment of a receiver by the court. For example, Section 84 of the Companies Act, 2013 provides for the appointment of a receiver.  

Process for appointment of receiver

The process of appointment of a receiver is provided by the courts in their respective court rules. The High Court has the power to make rules for the superintendence and control of the subordinate courts. For instance, in chapter XIX of the Delhi High Court (Original Side) Rules, 1967, the following process is provided:

  1. Application for appointment shall be made in writing and shall be supported by affidavit.
  2. Receivers other than the official receiver have to give security.
  3. The security is to be given to the satisfaction of the registrar.
  4. He has to provide personal bonds with the number of sureties required by the registrar. The personal bond will be double the amount of the annual rental value of the property or the total value of the property that the receiver is going to administer.
  5. Within a week of the appointment, the receiver will have to submit a report providing the details regarding the property, such as inventory of property or books of account, etc.
  6. The registrar will give directions on where to invest the money received by the receiver from the property. Generally, such money is submitted to scheduled banks or government bonds.

Powers and duties of receiver

Powers of receiver

The following powers can be conferred upon the receiver by the court according to Rule 1(d) of Order XL of the Code:

  • To bring and defend suits related to such property for whom the receiver has been appointed. 
  • To realise and manage such property. 
  • To protect, preserve, and improve such property. 
  • To collect rents and profits arising from such a property.
  • To present application and disposal of such rents and profits.
  • To apply for the execution of documents with respect to such a property as the owner himself. 

However, it is important to note that a receiver is appointed by the court and is an officer of the court. Thus, he is under obligation to perform duties and exercise only those powers as imposed by the court. The Court can also limit his powers when it is reasonable to do so. In the case of Krishna Kumar Khemka vs. Grindlays Bank P.L.C. and Ors (1991), the court held that a receiver can neither sue nor be sued without permission of the court, and if any such suit is filed against the receiver without permission of the court, it would be dismissed. The court in the case of Prabodh Nath Shah vs. SBI (1999) held that the powers of the receiver given under Order XL are not exhaustive and more powers can be conferred upon the receiver. Further, in the case of The Industrial Credit & Investment… vs. Karnataka Ball Bearing Corporation Ltd. (1999), the court held that the receiver can be given the power to sell the property for which he has been appointed, in extreme cases as a residuary power. 

Duties of receiver

According to Rule 3 of Order XL of the Code, the duties of a receiver are:

  • Furnish security in order to account for what he will receive from the property for which he has been appointed as a receiver.
  • Submit proper accounts at periods prescribed by the court. 
  • Payment of the amount due to him as directed by the court.
  • To be responsible for any loss caused to the property due to his negligence or wilful default. 

Liabilities of a receiver 

According to Order 40 rule (4), when a receiver fails:

  • To submit the reports as specified by the court,
  • To pay the amount due from him as directed by the court,
  • Causes loss to the property due to gross negligence.
  • Any other duty that court directed him to do.

The court may order the attachment of property of the receiver to recover the loss caused due to his willful default or negligence. The court, after recovering all the losses from the proceeds received after selling the receiver’s property, will pay the balance (if any) to the receiver.

The receiver is bound to keep down the expenses and take care of the property in his possession as a prudent man would observe in connection with his own property under similar circumstances.

Appointment of receiver in execution proceedings

The term ‘execution’ has been derived from the Latin word “ex sequi” which means to perform or follow. Thus, the term signifies the last performance of an act. The term has not been defined under the Civil Procedure Code, 1907. However, it implies the implementation or enforcement of an order or judgement of the court. In simple words, it means the process which helps in enforcing or giving effect to the decree or judgement of the court by asking the judgement debtor to fulfil the mandate provided in the decree or order and enabling the decree-holder to recover what has been granted to him. 

When a decree is passed, execution of the decree becomes the next stage, wherein the judgement debtor against whom the decree is passed is expected to enforce the decree in order to enable the decree-holder to enjoy the benefits of the decree which has been passed in his favour. Execution can be termed as the last stage of litigation. Execution is said to be complete when the decree is executed or enforced. However, instances may arise where the judgement debtor refuses to execute the decree or delay the execution. In such cases, different modes of execution as prescribed in the Code are used to execute or implement the decree. Section 51 of the CPC gives different modes of execution of a decree. The appointment of the receiver is one of the modes used to execute a decree given under Section 51(1)(d). Other modes of execution of a decree are:

  • Delivery of property.
  • Attachment and sale of property.
  • Arrest and detention

Execution of a decree by appointing a receiver is also known as equitable execution and depends entirely on the discretion of the Court. It must be noted that the appointment of a receiver in order to execute a decree cannot be claimed as a right. It is considered as an exceptional remedy, and a strong case or reason must be provided in order to use this remedy. It must be proved that no effective remedy is available with the decree-holder to obtain relief from the judgement debtor and that the other modes of execution cannot be used. 

Relevant case laws

Krishna Kumar Khemka vs. Grindlays Bank (1991)

Facts of the case

In this case, a suit was filed for declaration that the multiple properties in question belonged to the joint family. While the suit was pending, an application was filed for the appointment of a receiver with respect to the said properties. The receiver was appointed; however, his actions were questioned, and an application was filed in the High Court contending that the receiver had no authority to create a tenancy. 

Issues involved in the case

  • Whether the receiver appointed in the present case exceeds his powers?

Judgement of the court 

While deciding the validity of the receiver’s act to let out the property to one of the respondents in the present case, the Supreme Court reiterated the principles to be kept in mind while appointing a receiver:

  • Appointment of the receiver is at the discretion of the court.
  • The objective of such an appointment of receivers is to preserve the property in dispute.
  • No appointment of a receiver can be made unless the plaintiff, prima facie, proves that he stands a chance of succeeding in the suit. 
  • This remedy should only be granted for the presentation of manifest injury or wrong. 

The court held that letting out a property to others by a receiver is a new tenancy and comes within the ambit of ‘transfer’ and was thus against the order of injunction passed by the court in the present case. 

Industrial Credit and Investment Corporation of India Ltd. vs. Karnataka Ball Bearings Corporation Ltd. & Ors. (1999)

Facts of the case 

In this case, a suit had been filed for recovery of Rs. 76,72,00,000 in favour of the appellant. An application was filed for the appointment of a receiver along with a prayer for the sale of immovable properties before the single judge of Bombay High Court. However, the court dismissed the application against which the present appeal had been filed before the Hon’ble Supreme Court. 

Issues involved in the case

  • Whether receivers have the authority to give effect to the sale of immovable property before a decree has been passed in this regard?

Judgement of the court

The honourable Supreme Court of India held that Order 40 of CPC clearly provides for the appointment of receivers with respect to a property either before or after a decree has been passed by the Court. The receiver so appointed has the power to manage, protect, preserve, and improve the property for which he has been appointed. 

Order 40 must be interpreted in a way that gives effect to the legislative intent with respect to the conferment of powers by the court to preserve and maintain the property by appointing a receiver in this regard. Through the catena of cases, the court has been given discretionary power to appoint a receiver and this power has to be exercised with due care and caution in order to serve ends of justice. 

There can be no restriction on the power of a court to direct a receiver to give effect to a sale of immovable property before a decree has been passed in case the court feels it is just and convenient to do so. Thus, it was held that the question of embargo does not arise in the matter of the sale of immovable property by the receiver before a decree has been passed. 

Parmanand Patel vs. Sudha A. Chowgule (2009)

Facts of the case

In this case, a will had been executed by a wealthy man in favour of his wife and two daughters. The appellant filed a suit to declare that the document purporting to be the will as null and void and that it has no effect in the eyes of law. The court passed an interim order and appointed a receiver. 

Issues involved in the case 

  • Whether the appointment of a receiver is just and proper?

Judgement of the court

The court in this case observed that a receiver is appointed in accordance with Order 40 Rule 1 of the CPC only when it is just and convenient to do so. It was further observed that the appointment of a receiver in a pending suit comes within the discretionary jurisdiction of the court. In ordinary cases, no receiver would be appointed unless prima facie it is proved that the plaintiff has an excellent chance of succeeding in the suit. The plaintiff must show that there is an element of danger or emergency with respect to the property in question that demands immediate action. 

The court held that the present case is a fit case where a receiver should be appointed.  

Conclusion 

It is clear that a receiver plays an important role whenever the court requires the receiver to manage the subject matter in a suit to protect and preserve it till the time the court decides the suit. A receiver should be of impartial, independent, and indifferent character who has no stake in the subject matter and can manage the property just as a prudent man will do with his own property. Courts have vested certain powers and responsibilities on the receiver, which he should use to manage the property in the best way possible.

The receiver should be careful while making an important decision related to the subject matter, as he is personally liable for any damage to it. He can seek the permission of the court before making such decisions to be safe. However, the courts must adopt this remedy only when no other option is available as this is one of the harshest remedies. 

Frequently Asked Questions (FAQs)

Will a receiver be entitled to remuneration?  

Receivers are entitled to remuneration as fixed by the court for the services rendered by them. Also, a receiver has to be provided for the loss or expenses incurred by him for maintaining the property. Under Order 40 Rule (2), the court can fix the remuneration to be paid to the receiver for the services provided by him. The court can pass a general or specific order in this regard.

Can a collector be appointed as a receiver?

Yes, according to Order 40 Rule 5, a collector can be appointed as a receiver if the revenue generated from the property is received by the government. The court can appoint a collector as a receiver with his consent if the court thinks that management of such property by the collector will promote the interests of those who are concerned.

Who can apply for the appointment of the receiver?

Generally, a plaintiff files the application for appointment of a receiver, but defendants can also file such an application. A third party is not allowed to file the application but if he is interested in the protection and preservation of the property, he can also make an application after taking permission from the court.

References 


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Types of partners in Partnership Act, 1932

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This article is written by Sparsh Agrawal and further updated by Anwesha Pati. This article discusses the various types of partners and their characteristics in accordance with the Indian Partnership Act. Furthermore, the rights and duties of each of the partners in a partnership firm are discussed.

Table of Contents

Introduction 

A partnership is basically a contract wherein two or more people agree to carry out a business together. A partnership can be considered as a joint venture as opposed to a “sole proprietorship” wherein a single person carries out his business with his individual resources, skills and efforts. The major disadvantage of being a sole proprietor is that since there is only a single person involved in the business, it is difficult for him to manage the huge resources and investments in the business. 

On the other hand, in a partnership, a number of persons are involved and they can pool their resources in order to form and manage a much larger business. Moreover, if there is a loss in the business, it can be divided amongst the partners of the partnership firm.

A partnership is an agreement between two or more people who wish to share profits and losses for the partnership firm. However, in a partnership, all the partners do not participate in all the activities of the firm for profits and losses equally. The nature of a partnership varies depending upon the extent of liability of the partners and their participation in the firm. The main purpose of this article is to discuss the various types of partners in a partnership.

Definition of partners

According to Section 4 of the Indian Partnership Act, 1932 (hereinafter mentioned as the Act), a partnership is defined as a relationship between two or more people who have entered into a mutual agreement between themselves to share the profits and losses in the business which is carried on by all or any of them acting for all the partners. Therefore, people who have entered into an agreement with one another are individually known as partners.

According to the definition in Black Law dictionary, a partner is a member of a firm or co-partnership who has united with others in order to form a partnership in business. 

Types of partners in the Partnership Act

The types of partners under the Act can be studied under the following heads:

  • Active partner
  • Incoming partner
  • Outgoing partner
  • Minor partner
  • Partner by holding out 
  • Dormant partner

Before we delve in detail about the types of partners, it will be apposite to mention certain other partners which are not explicitly mentioned under the Act. Yet they are often used in common parlance to denote their position in a partnership. They have been discussed in the later part of the article under the following heads :

  • Nominal partner
  • Limited partner
  • Partner in profits only
  • Secret partner 

Active partner

The term active partner is explicitly not mentioned in the Act but it denotes those partners who are carrying on the business of the partnership. An active partner is responsible for managing the affairs of the firm. While acting for the firm, he acts as an agent of the other partners too as partnership thrives on the mutual trust and confidence amongst the partners. He may take up different roles such as manager, advisor, organiser and controller of affairs of the firm. 

The main function of an active partner is to look after the overall functioning of the business. Hence, if he wishes to retire from the firm, he is required to give a public notice to the remaining partners. The purpose of this public notice is to absolve himself from liability and acts done by the other partners after his retirement. If he doesn’t issue a public notice declaring his retirement he would be held liable for the acts done by other partners post-retirement also. 

Rights of an active partner 

  • Right to take part in business: The partners have the right to take part in the conduct of business of the firm under Section 12(a) of the Act. It is in the nature of a joint venture where every partner is given the opportunity to contribute towards the progress of the firm. The right to take part in the business is an important aspect of partnership which allows the partners to have a say in the way the business is carried and suggest measures to maximise profits.
  • Right to have access to books: Section 12(d) of the Act allows every partner the right to have access to the books of accounts of the firm and also inspect and copy them. The books can be inspected by the partner himself or his agent but he can be restrained by the firm from utilising the information received if it can cause damage to the reputation of the firm or harm its business.
  • Majority rights: Every partner has the right to be consulted in matters of business policy which may relate to an ordinary matter or fundamental matter. Ordinary matters relate to matters regarding execution of the business. Fundamental matters relate to questions regarding alteration or addition to the business or admission of a new partner. In the case of any difference of opinion with regard to ordinary matters, it has to be decided by the majority of partners. However, if there is a change in the nature of business, the consent of all partners are required.
  • Right to profits: Section 13(b) states that the partners of a firm are entitled to share the profits earned between them equally unless an agreement has been signed that stipulates the share of their profits. Also in the case of contribution to be made by the partners for losses, it should be made equally. 
  • Right to interest: Section 13(d) states that where a partner has advanced money, exceeding the amount agreed to be paid by him for the purpose of business of the firm, he is entitled to receive interest on the sum advanced at the rate of six percent. The interest has to be paid from the profits made by the firm.
  • Right to remuneration: Under Section 13(a) of the Act, the partners are not entitled to receive any remuneration or salary for their contribution in business. Their position is not the same as a regular employee of the firm. However, the partnership agreement may contain provisions for remuneration to its partners.
  • Right to indemnity: Section 13(e) of the Act provides that in case any payment is made or any liabilities are incurred by a partner, he is entitled to be indemnified by the firm. This right to indemnity can be claimed in two situations. Firstly if the partner has made payments in the ordinary course of conduct of business. Secondly, a partner is entitled to recover the expenses incurred by him in the case of an emergency, for doing any act which is necessary for protecting the firm from loss.

Duties of an active partner

  • Duty of good faith: Section 9 of the Act provides that the partners are bound to act in a truthful and just manner. They are to furnish true accounts and disclose full information about any matter that is likely to affect the firm. The business of the firm must also be carried out so that it is advantageous for all the partners. 
  • Duty not to compete and account for personal profits: Section 16(b) of the Act states that a partner must not carry out any business that is competitive or similar to that of the firm. Also a partner is not allowed to derive any profit by carrying out a transaction which would not have been possible had it not been for his connection with the partnership firm. 

However, a partner is not precluded from carrying out any business or transaction which is independent of the business of the firm and does not have any bearing upon it. 

  • Due diligence: Section 12(b) of the Act states that the partners of a firm must act in a diligent manner in respect of its affairs. Section 13(f) states that it is the duty of the partners to act in a responsible way so that the firm is able to function properly and earn substantial profits. 

In case of any loss that is caused to the firm by virtue of the negligent act of the partners in the conduct of business, he will be liable to indemnify the firm in respect of the losses. The term negligence here refers to wilful negligence which means to act irresponsibly without any proper regard for the welfare of the firm. 

  • Duty to use property for firm purposes: Section 15 of the Act states that it is the duty of the partners that the property of the firm must be used only for the purposes of business of the firm. If any damage is caused to the property in the course of personal use, he has to indemnify the firm for the same.

Liabilities of an active partner

  • An active partner has unlimited liability in respect of losses incurred by the firm for any act of its partners.
  • An active partner must be honest in their dealings with their co-partners as well as third parties. If a partner acts fraudulently and causes any loss to the firm, he will be liable to the firm to make good the damages incurred under Section 10 of the Act.
  • An active partner is liable to render any profits made by him, to the firm by making use of the property of the firm or the firm name.

Related case laws

Pulin Bihary Roy and Ors vs. Mahendra Chandraghosal and Ors (1921)
Facts 

In this case, the partnership named Joint Salt Bond Business was involved in the business of importing salt from foreign countries and reselling them in Chittagong. The partnership consisted of Krishnadas Sanatan Brojendra Kumar Ray, Krishna Kumar Ghosal, Ramkumar Radhaballabh Saha and Gangadas Seal and their respective shares in the firm were predetermined. 

The partners managed the business by taking turns, where the first quarter was managed by the Ghosals, the second quarter by the Seal, the third quarter by the Shas and the fourth by the Rays. The amount of salt sold and the price fixed by each of the partners in their respective quarters was kept in a record book. 

At the end of each quarter, there used to be an adjustment of accounts in order to pay off the amount due amongst the partners. The plaintiffs started a separate salt business but it was contended by them that the other partners were also carrying separate businesses and they cannot be held liable to render the profits.

Issues

Whether the plaintiff could be held liable to render the accounts to the defendants, for a separate salt business started by them.

Judgement

The Calcutta High Court held that if a partner carries on a business that is similar and competing to that of the firm, without the consent of the other partners, he is liable to render the profits to the firm and is also bound to pay compensation if any loss has been incurred. This is in consonance with Section 259 of the Indian Contract Act, 1872 and the rules of partnership. The evidence clearly shows that the partners were engaged in a business that was similar to that of the firm. They had breached their duty of not carrying a competing business and hence were liable to pay the profits to the firm. 

Sasthi Kenkar Bandopadhya and Ors. vs. Man Gobinda Chandra and Another (1919) 
Facts 

In this case, a suit for dissolution of partnership and accounts was filed. The defendants were the managing partners who were sued on the ground of negligence and contribution for losses were claimed against them. The contention of the plaintiffs were that the defendants had failed to claim the price of coals from certain firms as a result of which one of the claims had become time barred and the other could not be realised as the debtors had become insolvent. 

Issues

Whether the defendants could be held liable for contributing to the losses on the ground of gross negligence.

Judgement

The Patna High Court held that the defendants were liable for the claim which had become time barred because they were not diligent enough to pursue it within the time limit. As regards the insolvency of the other firm, the knowledge of their insolvency was received by the defendants much later and hence they had not acted negligently.

Incoming partner

An incoming partner refers to a partner who has been newly admitted into the partnership. Section 31 of the Act deals with the process of introduction of new partners. It states that a person cannot be introduced into the firm as a partner without obtaining the consent of all the existing partners.

Rights and duties of an incoming partner

The rights and duties of an incoming partner are the same as that of an active partner. A partner who has been newly inducted into a firm must carry on the business diligently. He will be entitled to receive an equal share in the profits made by the firm. At the same time, an incoming partner has the duty to render true accounts of the business to the other partners. He must apply the property and capital of the firm for legal purposes only.

Liabilities of an incoming partner

Section 31(2) provides that a person who has been newly inducted into the partnership, will not become liable for acts done by the firm before he became a partner. An incoming partner becomes liable for any debts that incurred by the firm after the date of his admission. 

However, an agreement can be made between the new partner and the remaining partners that he will be liable for the debts incurred before his admission. But this agreement is binding between the partners only and third parties are not allowed to sue the new partner for acts of the firm before his admission. In order to make the new partner liable for past debts, two things must be satisfied. 

Firstly, the newly constituted firm must accept that the new partner is liable for the past debts. Secondly, the creditors of the firm must be notified about the change in the constitution of the firm, who have to accept the terms of the new arrangement expressly or impliedly. Whether a creditor has impliedly consented to the terms can be understood if he continues to deal with the firm after reconstitution or brings a suit against the new firm regarding any issue. 

Related case laws

B.M Devaiah vs. Canara Bank and Onr. (2002)
Facts

In this case, a partnership under the name of M/S Simon Enterprises was carried on by Mrs. Kitty Mandanna and Shri C.P Muthanna. It was involved in the hotel and restaurant business. The firm took a loan from the plaintiff bank by executing a promissory note and property was also mortgaged to secure the loan. 

The firm informed the bank after a few months, that a new partner Mr. B.M Devaiah has been inducted as a partner. When the firm failed to pay the outstanding dues in respect of the loan amount, the bank filed a suit for recovery against all the three partners. The new partner contended that he could not be made liable for the loan amount as Section 31 of the Act states that an incoming partner cannot be held liable for acts of the firm before he joined it.

Issues 

Whether the new partner could be held liable for the past debts of the firm?

Judgement

The Karnataka High Court held that the evidence adduced by the firm clearly shows that the reconstituted firm had taken over the liability for acts of the firm before the reconstitution. Mr. Devaiah had made efforts towards the discharge of the debt which confirms that he had accepted his liability in respect of the outstanding loan. His contention that Section 31 of the Act would be applicable to him is not maintainable. He further contended that the payments were made because he was threatened by the bank that in case of failure to pay off the loan, a suit for recovery would be instituted is also not tenable.

Outgoing partner

An outgoing partner is a partner who voluntarily retires without dissolving the firm. He leaves the existing firm, therefore he is called as an outgoing or retiring partner. Section 32 of the Act provides for the various modes of retirement of a partner. A partner can retire either by obtaining the consent of all the other partners or according to the terms of the agreement set out at the beginning of the partnership or in case of a partnership by will, by giving notice to the other partners in writing that he intends to retire.

Insolvency and death of a partner act as a cessation of being a partner in a firm, hence, they are also considered as outgoing partners. In case of insolvency, the estate of an insolvent partner no longer remains liable for acts of the firm done after he has been adjudicated as insolvent under Section 34 of the Act. Similarly, in the case of the death of a partner, his property cannot be held liable for acts done after his death under Section 35 of the Act.

Rights of outgoing partner

The rights of an outgoing partner are provided under Section 36 of the Act. It states that an outgoing partner is allowed to carry on a business that is competing in nature to that of the firm in which he was a partner. He may also advertise about his business, as all of this is necessary to set up a new venture and an important part of the right to freedom of trade. But he is prohibited from doing the following things:-

  • He cannot use the name of the previous firm. 
  • He cannot represent to his customers that he is still associated with the previous firm.
  • He is not allowed to solicit the customers of the previous firm in which he was a partner. 

Section 36(2) also encompasses an important aspect of partnership law. It allows a partnership firm to enter into an agreement with a retiring partner, restraining him from carrying on a similar business to that of the firm for a specific period or within a specified local limit. 

Such an agreement falls within the exception to Section 27 of the Indian Contract Act,1872 which deals with agreements in restraint of trade. An agreement of this nature is valid under the Act as it allows a firm to protect its business. All that is necessary is that the agreement must be reasonable and specify the period of restraint or the geographical limits.

Section 37 of the Act lays down the rights of an outgoing partner in case where the firm is continued by the remaining partners. If a partner leaves the firm or dies and the partnership business is carried forward by the surviving partners, without there being a final settlement of accounts between the outgoing partner and the other partners, he is entitled to receive a share of the profits made by the firm by making use of his share of the firm property. However, if the surviving partners purchase the share of the deceased or outgoing partner, then he will not be able to claim a share in the profits.

Duties of an outgoing partner

  • An outgoing partner must pay off his share of debts before leaving the firm.
  • An outgoing partner must give public notice of his retirement to third parties so as to absolve himself of the acts of the firm done after his retirement.
  • It is the duty of an outgoing partner to give full account of his dealings with third parties to the other partners and return the assets of the firm which were in his possession.

Liabilities of an outgoing partner

Section 32(2) states that a retiring partner can be released from his existing debts incurred for the acts done by the firm before his retirement by entering into an agreement with the other partners and the creditors. In such a case, the remaining partners must agree amongst themselves that the retiring partner shall be released from his liabilities. At the same time, the creditors must also be informed about the retirement of the partner and they have to agree to the reconstituted firm as its debtor. Only then the retiring partner is absolved from his liability. 

Section 32(3) states that a retiring partner is liable to third parties for all his debts and obligations incurred before his retirement. However, he can be held liable for his future obligations, if at all he fails to give a public notice stating his retirement from the partnership firm. A retired partner cannot be held liable to any third party if that person enters into business with the firm without knowing that the retired partner was a partner.

Minor partner

A minor is a person who has not attained the age of majority in the law of the land. Section 3 of the Indian Majority Act,1875 states that a person who has attained the age of 18 years is considered to be a major. It is pertinent to note that, Section 11 of the Indian Contract Act,1872 prohibits a minor from entering into an agreement, as the agreement entered by a minor is considered void ab initio. 

Thus a minor cannot be regarded as a partner in a firm because a partnership essentially stems from a contract, and a minor is incompetent and cannot enter into a contract. 

Rights of a minor partner

  • Section 30 of the Act allows a minor to enjoy the benefits of partnership when a set of rules and procedures are complied with in accordance with the law. Section 30(1) states that a minor can be admitted to the benefits of a partnership after obtaining the consent of all the partners. 
  • Section 30(2) states that a minor is entitled to the shares of property and profits of the firm, which has to be stipulated through an agreement. He will also be entitled to have access to and inspect and copy any accounts of the firm. 
  • Section 30(4) states that a minor is not entitled to sue the partners for accounts or payment of shares of his property or profit unless he is severing his connection with the firm. In such cases, the valuation of the amount of his share shall be made in accordance with the rules contained in Section 48 of the Act. 

Duties of a minor partner

  • Section 30(5) states that a minor, on attaining majority or on obtaining the knowledge about his admittance into the benefits of partnership, should give a notice within six months as to whether he has decided to become a partner of the firm or not and the notice will determine his position in the firm. However, if he fails to give the notice before the expiry of the six months, he will be inducted into the firm as a partner. 
  • Section 30(6) stipulates that if a person who has been admitted to the benefits of a partnership during his minority claims that he did not have the knowledge of such admission even after the expiry of six months from the date of attaining majority, the burden of proving such a fact on the person who is claiming it. 
  • The provisions, if he chooses not to continue into the firm as a partner, have been provided under Section 30(8). In such a case, his rights and liabilities as a minor continue up to the date on which he gives public notice and his shares shall not be liable for acts of the firm after such date. He will also be entitled to institute a suit against the firm for his share of property and profits.

Liabilities of a minor partner

  • Section 30(3) sets out the liability of a minor partner when he has not attained majority. It states that only the shares of the minor will be liable for any act of the firm and he will never be personally liable. 
  • Section 30(7) provides that the rights and liabilities of a person who is inducted as a partner after the cessation of his minority. He is subjected to the same rights and liabilities as that of a regular partner. He becomes personally liable for the acts of the firm since the date of his admittance into the firm. His share in the property and profits continue to remain the same unless it is altered by agreement. 

Related case laws

Commissioner of Income-Tax, Bombay vs. M/S Dwarkadas Khetan and Co. (1960)
Facts

In this case, a partnership was entered between four people out of which one of them was a minor. But he was admitted as a full-time partner, subjected to all the rights and liabilities as applicable to all partners. The Registrar of Firms granted a certificate indicating that the minor was a full-time partner and not one who was admitted to the benefits of partnership. However, the Income Tax officer refused to register the firm under the Income Tax Act, 1961 and his decision was upheld by the Income Tax Appellate Tribunal. The High Court reversed the decision of the Tribunal. An appeal was preferred by the Commissioner of Tax before the Supreme Court.

Issues

Whether a partnership deed which mentions a minor as a full-time partner in a firm can be registered under the Income Tax Act? 

Judgement

The Supreme Court held that a minor cannot be considered as a full-time partner by virtue of Section 30 of the Act. A minor can be allowed to sign the registration application as all partners are required to sign it during the process of registration. But he cannot be treated as a full-time and competent partner. A partnership deed which goes beyond this interpretation is incorrect and would be invalid for the purposes of registration under Section 26A of the Income Tax Rules, 1962.

State of Kerala vs. Laxmi Vasanth (2022)
Facts 

In the case, the respondents, Lakshmi Vasanth and J. Raj Mohan Pillau were minors when they were inducted into the partnership firm named M/s. Malabar Cashew Nuts and Allied Products. After reconstitution of the partnership firm in 1976, they were removed as partners. The Sales Tax Department was aware that they have been removed from the firm. Both the respondents attained majority in the years 1987 and 1984 respectively. 

The concerned department made a demand for sales tax against the partnership firm as well as both the respondents for the period between 1970-71 to 1995-96. The learned Single Judge set aside the demand made against the respondents. An appeal was filed against the judgement which was dismissed by the Division Bench of the High Court. Aggrieved by the order, the state filed an appeal before the Supreme Court.

It was contended on behalf of the state that the respondents on attaining majority had not given any notice as required under Section 30(5) of the Act. Hence they were still considered as partners of the firm and as such liable to pay the dues. The respondents contended that since they had been removed from the firm in 1976 which was within the knowledge of the department, they were no longer a part of the firm on the date of attaining majority. Therefore, Section 30(5) was not applicable to them.

Issues

Whether the respondents could still be considered as part of the firm and held liable for its debts?

Judgement 

It was held that Section 30(5) becomes applicable only when a person is inducted into a partnership during his minority and continues till he becomes a major. On attaining majority, he is required to give notice within six months, as to whether he intends to continue in the firm or not. On failure to give notice, he is considered to be a partner of the firm and the provisions of liability under Section 30(7) will be applicable. Where the minor ceases to be a partner at the time of attaining majority, Section 30(5) will not be applicable and cannot be held liable for dues of the firm when he was a minor partner.

Partner by holding out

Apart from the aforementioned partners, a person can also become a partner by holding out under Section 28 of the Act. It refers to a person who has made a representation by words, actions or conduct to third parties that he is a partner in the firm and on the basis of that representation, the other person has given credit to the firm. 

Thus, he has become a partner by holding out even though he is actually not a partner. It is pertinent to note that, though he does not contribute to the capital or management of the firm but on the basis of his representation in the firm he is liable for the credits and loans obtained by the firm. 

There are two essential conditions for establishing the doctrine of holding out – 

  1.  Firstly, the person must have made a representation by words, actions or conduct that he is a partner in the firm. An express representation may be made when a person allows the firm to use his name in its title or signboard as can be seen in the case of Bevan vs. National Bank Ltd.(1906) 23 T.L.R. 65. In this case, a person named Malcolm Wade used to manage the business of another person B. 

The business was carried out in the name of Malcolm Wade & Co. It was held that since Mr. Wade had permitted the firm to use his name in its title, a representation was made to the third parties that he was a partner in the firm and was liable to every person who would act on that representation and give credit. 

  1. Secondly, the other party must substantially prove that he had knowledge of such representation and he acted on it. Thus, in order to hold a person liable under this doctrine, it is necessary that the representation must have reached the plaintiff and he must have acted upon it. The fact that the defendant did not know that the representation made by him had come to the knowledge of the plaintiff is immaterial. 

Rights of a partner by holding out

A partner by holding out is not subjected to the same rights as those enjoyed by the other partners. He merely allows his name to be used in the name of the firm or makes a representation to third parties that signifies that he is a partner in the firm. He is not involved in the day to day conduct of business of the firm.

Duties of a partner by holding out 

If a partner is aware that his name is being used by a firm to which he has not consented, he must give public notice to its customers in order to absolve himself from being held liable by holding out.

Liabilities of a partner by holding out

A partner by holding out will be liable like the other partners to third parties, if they have given credit to the firm on the basis of his representation. However, if the third party, despite knowing of the representation does not act upon it or does not believe it to be true or gives credit to the firm irrespective of the representation made, the case of holding out is not made out. In such cases, he cannot be held liable for any loss incurred.

Effect of the doctrine of holding out in certain cases

  • Retirement of a partner: The doctrine of holding out continues to apply in case of a partner who has retired without giving public notice. In such a case, he continues to be liable to its customers because they have given credit to the firm without knowledge of his retirement. The customers can choose to sue the old firm or the new firm constituted after his retirement, but he is not allowed to sue both. 
  • Death of a partner: Section 28 does not apply in case of a partner who is no longer alive because in case of his death, his estates cannot be held liable for the acts of the firm done after his death under Section 35 of the Act. Therefore, even if the firm continues to use his name in the affairs and title of the firm, the doctrine is not applicable.
  • Insolvency of a partner: When a partner becomes insolvent, he ceases to be a partner from the date of his insolvency and his liability also comes to an end. His estates cannot be held liable for any act done by the firm after his insolvency under Section 34 of the Act, hence the doctrine of holding out does not apply even if he has not given notice.
  • Dormant partner: A dormant partner is one who does not take an active part in the business of the firm hence his existence is not known to the customers. Although his liabilities are the same as that of the other partners, in case of his retirement he is not required to give public notice and the doctrine of holding out will not be applicable.

Difference between partner by holding out and partner by estoppel

There is a fine line of distinction between a partner by holding out and partner by estoppel. In the case of the former, a person who is actually not a partner allows his name to be used in the name of the partnership business or makes a representation to its customers that he is a partner in the firm. Here the firm along with the person who held himself out are liable to the customers who advanced capital based on the representation. 

Whereas, in case of partner by estoppel, a person himself represents to third parties that he is a partner of the firm where he is actually not so. In this case, the rule of estoppel becomes applicable and he is not allowed to go back on his word and say that he is not a partner. He alone will be held liable to those persons who gave credit on the basis of his representation.

Related case laws

K. Venkatasubbamma and Ors vs. K. Subba Rao Nuna Venkatarami Setti and Ors (1964)
Facts 

In the case, a pronote was executed in favour of a partnership firm for the purpose of business which was attested by the managing partner and two other partners. Few payments were made by the partners in order to pay off the money. In the meantime, one of the attesting partners died and the partnership was considered as dissolved in the eyes of law. But the business was carried on by the managing partner. He also made payments towards the pronote. 

A suit was instituted against the firm for payment of the money advanced through the pronote, in which the legal representatives of the dead partner were held liable. They contested the suit on the ground that by virtue of Section 45 of the Act, the estates of a deceased partner cannot be held liable for acts of the firm done after his death. It was also contended that Section 28(2) of the Act makes it amply clear that if the partnership business is continued in the old name, after the death of a partner, his legal representatives and estates cannot be held liable for acts done after his death

Issues 

Whether the legal representatives of the deceased partner could be held liable for acts of the firm after the death of the partner.

Judgement

The court held that the legal representatives of the deceased partner are not bound by the payments or acknowledgments made by the managing partner. The proviso to Section 47 clearly states that a deceased partner, similar to a partner who has been adjudicated as an insolvent or a dormant partner, stands on a different footing as he cannot be held liable for acts done after his death, in case of dissolution of the firm. Further, Section 45 of the Act which deals with the implied authority of a partner to bind the other partners for acts of the firm, even after dissolution cannot be invoked in such a case.

Juggilal Kamlapat vs. Sew Chand Bagri and Ors (1963)
Facts 

In the case, the question of liability under Section 45 of the Act arose. Sew Chand Bagi had three sons Moti Chand, Manik Chand and Janki Das. All of them were part of a Hindu joint family and carried on a partnership business. After the death of their father, the partnership was carried out jointly by the brothers which was dissolved during Diwali, 1945. 

A deed of dissolution was made on the basis of which it was decided that they were at liberty to start their own business and would not use the name and style of the old partnership. It was agreed between them that Manik Chand would carry on the business under the name of “Manik Chand Bagree”, Moti Chand under the name of “Sew Chand Moti Chand” and Janki Das was allowed to carry on the business under the old name of “Sew Chand Bagree”.

The appellant placed an order for a number of jute bags with the firm of Sew Chand Bagree in September, 1948. When the goods were not delivered, he claimed the damages and referred the case to the Bengal Chamber of Commerce for arbitration. The award was passed in his favour and accordingly an execution application was filed by him under Order 21 Rule 50 CPC, against the respondents Manik Chand, Moti Chand and Janki Das on the ground that they were partners to the firm. This was contested by Manik Chand and Moti Chand.

Issues

Whether Manik Chank and Moti Chand could be held liable under the Doctrine of holding out, for debts incurred by the firm of Sew Chand Bagree?

Judgement

The court held that in the present case, the dissolution of the firm took place in 1945 but the business was carried on by one of the partners under the same name. The appellant entered into a contract after the dissolution took place. 

Hence, he had no knowledge about Manik Chand and Moti Chand being partners of the firm and had not dealt with it on that basis. Section 45 of the Act states that in case of dissolution of partnership, a retired partner cannot escape liability for debts incurred by the firm after his retirement, until public notice is given. However, if the person dealing with the firm had no knowledge that the retired partner was a partner of the firm, he cannot be held liable. 

Thus, Manik Chand and Moti Chand, both being partners of the old firm could not be held liable as the appellant did not know whether they were partners or not at the time of entering into the contract with the firm of Sew Chand Bargee.

Dormant partner/ Sleeping partner

A “dormant partner” is one who does not take an active part in the management of the partnership firm. A person may not be able to act as a full-time partner, but he might be keenly interested in investing in the business and sharing the profits. In such a case he can act as a dormant partner in the firm. A dormant partner like any other partner brings share capital to the firm and has to make a contribution in order to pay off its debts. As opposed to an active partner, the role of a dormant partner is restricted as he is not actively associated with the decision making process of the firm.

Rights of a dormant partner

  • A dormant partner is entitled to receive his share of profits made by the firm.
  • A dormant partner does not have a say in the management of the firm business.
  • A dormant partner is not allowed to withdraw remunerations from the firm as he is not participating in the daily operations of the business. If at all the partnership deed is providing remuneration to dormant partners, it is not deductible under Section 40 of the Income Tax Act, 1961

Duties of a dormant partner

Since the dormant partner is not known to the creditors of the firm, it is not necessary for him to give public notice in case of his retirement. However, if his name was known to some of the creditors, notice of his retirement must be given to them in order to preclude him from being held liable by holding out. 

Liability of a dormant partner

A dormant partner will be subjected to the same liabilities as the other partners. He can be held liable for acts of the firm but his liability is limited to the extent of contribution made by him in the capital of the firm.

Sub-partner

A sub-partner is a person who has been assigned a share of profits in a partnership firm by a partner of that firm. He gives a part of his share to the sub-partner. In this case, the relationship is not between the sub-partner and the partnership firm but is between him and the partner. Therefore, a sub-partner is a non-entity of the firm and he does not hold any liability towards the firm. A sub-partner usually agrees to share profits which are derived from the third party. Such a partner cannot represent himself as a partner in the original firm. 

Rights and duties of a sub-partner 

A sub-partner doesn’t reserve any right in the original firm. He can only claim his agreed share of profits from the partner who has contracted him to be a sub-partner. Similarly, a sub-partner is not subjected to any duties like the other partners of the firm as there is no agency between him and the firm. His position is that of a stranger with whom the profits of the firm are shared by its partner.

Liability of a sub-partner

A sub-partner is not considered as a part of the partnership firm. Hence, he is not liable for acts done or any losses incurred by partners of the firm.

Related case laws

Commissioner of Income-Tax, Punjab vs M/S. Chander Bhan Harbhajan Lal (1966)
Facts

In this case, a partnership firm named Chander Bhan & Co. was registered in Ferozpur in December, 1948. The firm which initially consisted of five partners was reconstituted to include eight partners among which Gosain Chander Bhan was a major shareholder. Another firm named Messrs Chander Bhan Harbhajan Lal, consisting of 14 partners, was constituted by a deed of partnership at Rupar in December, 1952. 

An application for its registration was made under Section 26A of the Income Tax Act, 1961. Gosain Chander Bhan was also a major shareholder of the firm at Rupar. It was admitted by Harbhajan Lal that Gosain Chander Bhan was not a partner of the firm at Rupar in his individual capacity but had joined it on behalf of the Ferozpur firm and the amount invested in the firm came from the Ferozpur firm. 

The application was rejected by the Income Tax officer on the ground that the deed of partnership did not disclose the details of the 14 partners properly and that all the partners of the Ferozpur firm were partners in the Rupar firm which exceeded the limit of total number of partners allowed in a firm. The Commissioner of Income Tax filed a petition by special leave before the Supreme Court for the purpose of deciding certain questions of law.

Issues 
  • Whether the Ferozpur firm could be considered as a sub partner of the firm at Rupar.
  • Whether the Rupar firm was eligible for registration under Section 26A of the Income Tax Act. 
Judgement 

The Supreme Court was of the opinion that a sub partnership comes into existence only when there is already a partnership subsisting. It is in the nature of a partnership within a partnership. In the present case, the Rupar firm had come into existence after Ferozpur firm had been constituted. Hence, it is not a sub partner of the firm at Rupar. The clause in the partnership deed of the Ferozpur firm which stipulated that the profits and losses would be shared between the partners laid down the liabilities amongst them in respect of Gosain Chander Bhan’s share in the Rupar firm. Additionally, the statements made by Harbhajan Lal wherein he had admitted that the Rupar firm consisted of fourteen partners proves the fact that the partners of the Ferozpur firm were not part of the Rupar firm.

As to the question, whether the firm is registrable under Section 26A, the court has held that the Income Tax officer must take into consideration whether the partner joined the firm in their individual capacity or as representing a group of persons. In the present case, Gosain Chander Bham had joined the firm at Rupar in representative capacity. A partner can join a firm in representative capacity, but that cannot be the ground for refusal of registration. 

A partner can act as a Karta of a joint Hindu family or as a trustee or become a benamdar. In such cases, he fulfils two positions. In respect of the partnership, he acts in his personal capacity and in respect of the third parties, he acts in his representative capacity. The fact that one of the partners of a firm seeking registration has brought capital from another firm in which he is a partner and also shared the profits obtained from the former firm does not imply that the partnership is not genuine.

Other partners

Now that the major types of partners have been discussed in detail, let us have a look at the other types of partners briefly.

Nominal partner

A nominal partner, as the name suggests, is one who allows a partnership firm to use his name for the purpose of attracting creditors and does not contribute to the capital. He is only lending his name to the firm and does not have a voice in the management of the firm. Thus a nominal partner’s contribution to the firm is only in terms of his reputation and fame, which allows the firm to secure credit and also showcase its efficiency. For example, if a firm enters into a partnership with a celebrity or a business tycoon, it will help in increasing its brand value, as the creditors will associate the goodwill of the celebrity with that of the firm, thus increasing the likelihood of investment.

This partner does not share any profit and losses in the firm because he does not contribute any capital to the firm. However, it is pertinent to note that a nominal partner is liable to outsiders and third parties for the acts done by other partners.

Limited partner

A limited partner is a partner whose liability is only up to the extent of his contributions for the capital of the partnership firm. For example, if a limited partner has invested in 30% shares of the firm, he can be held liable only to the extent of 30% of the loss incurred by the firm. Thus, if the firm incurs a loss of Rs. 50 lakhs, his liability will be Rs. 15 lakhs.

Partner in profits only

This type of partner only shares the profits of the firm and cannot be held liable for the losses incurred by it. Moreover, in case of any dealing with third parties or outsiders by partners in profits, he will be liable for the acts of profit only and not any of the liability. He is not allowed to take part in the management of the firm. Such kinds of partners are associated with the firm for their goodwill and money.

Secret partner

In a partnership, the position of secret partner lies between the active and sleeping partner. The membership of a secret partner in the firm is kept secret from outsiders and third parties. His liability is unlimited since he holds a share in profit and shares liabilities for losses in the business. He can even participate in the business’s operations. 

Conclusion

The Indian Partnership Act, 1932 contains the general provision relating to the nature, formation of a partnership and also the rights and liabilities of each partner. However, the general form of partnership is often disfavoured because of certain shortcomings. The unlimited liability of all the partners in a firm for debts incurred by any one of the partners acts as a major deterrent for people to refrain from entering into a partnership. Moreover, the general partners are held jointly and severally liable for the acts committed by the other partners.

Therefore, we can see that there is a shift towards Limited Liability Partnership, which provides more flexibility to the partners. Even the Indian government has recognised the disadvantages of general partnership and stated that there was a need to introduce LLP in India. 

Frequently Asked Questions (FAQs) 

What is the meaning of partner by holding out?

When a person makes a representation by spoken words or conduct to others that he is a partner of the firm and the other person, believing the representation to be true, acts upon it and gives credit to the firm, the person so representing can be held liable for holding out. The person, although he is not a partner but holds himself out to third parties as a partner of the firm and misleads them, he becomes liable under Section 28 of the Act.

What is the meaning of a dormant partner?

A dormant or sleeping partner is one who does not take an active part in the business of the firm and his name is not known to the customers. The rights and liabilities of a dormant partner are similar to that of the other partners. However, a sleeping partner is not required to give public notice of his retirement. If his name is known to some customers of the firm, notice should be given at least to them.

What is the meaning of partnership at will?

A partnership at will means a partnership which has been entered into without specifying the duration or the time of its determination. In this kind of partnership, the contract does not mention the circumstances in which the partnership will be dissolved and its existence depends totally upon the will of the partners, who may dissolve it at their convenience.

References 

  • Introduction to the Law of Partnership, Dr Avatar Singh, Eastern Book Company(10th Edition)2011
  • The Indian Partnership Act, Universal Law Series(10th Edition)2011.

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All you need to know about dying declaration

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This article has been written by Prathiksha. M.

This article has been edited and published by Shashwat Kaushik.

Introduction

“No one will accept their guilt until his or her crime is proven.”

The Indian Evidence Act serves as a fundamental framework in the Indian legal system, significantly influencing the interpretation of cases based on the evidence presented. This act plays a pivotal role in determining the credibility and admissibility of evidence, ensuring that justice is served fairly and impartially.

One of the key aspects of the Indian Evidence Act is its applicability to both criminal and civil proceedings. In criminal cases, the act provides guidelines for the collection, presentation, and evaluation of evidence to determine the guilt or innocence of the accused. It ensures that accused individuals are not unjustly convicted based on insufficient or unreliable evidence. The act also protects the rights of victims and witnesses, safeguarding them from undue pressure or influence during the judicial process.

In civil proceedings, the Indian Evidence Act helps to establish the truth and determine the outcome of disputes between parties. It governs the admissibility of various types of evidence, such as oral testimony, documentary evidence, and expert opinions. The act aims to ensure that decisions in civil cases are based on legally admissible and reliable evidence, promoting fairness and justice for all parties involved.

Meaning

A dying declaration is a potent piece of evidence in a court of law. It is a statement made by a person who is aware that they are about to die and is made in response to questions about the circumstances surrounding their impending death. The statement must be made voluntarily and without any undue influence or coercion.

To be admissible as evidence, a dying declaration must meet several requirements:

  1. Competency of the declarant: The person making the statement must be competent to testify in court. This means that they must have the mental capacity to understand the nature and consequences of their statement and be able to communicate their thoughts clearly.
  2. Imminence of death: The declarant must be aware that they are about to die. This can be inferred from the circumstances surrounding their statement, such as their physical condition or statements made by medical professionals.
  3. Voluntariness: The statement must be made freely and voluntarily. It cannot be coerced or obtained through threats, promises, or other improper inducements.
  4. Content of the statement: The statement must relate to the cause or circumstances of the declarant’s death. It can include information about the identity of the perpetrator, the events leading up to the death, and any other relevant details.
  5. Consistency: The statement must be consistent with other evidence in the case. If there are significant inconsistencies, the court may question the reliability of the declaration.

Dying declarations are considered reliable because they are made under the solemn realisation of impending death. However, their weight and credibility are ultimately determined by the court based on the specific circumstances of each case.

When a person makes a dying declaration, it is important to document it properly. This can be done by recording the statement in writing, audio, or video. The person making the statement should be given the opportunity to review and correct any errors before signing or acknowledging the document. Witnesses should also be present to attest to the voluntariness and authenticity of the declaration.

Dying declarations play a vital role in ensuring that justice is served in cases involving sudden or unexplained deaths. They provide valuable evidence that can help identify perpetrators and reconstruct the events leading up to the death.

Legal maxim

“Nemo Moriturus Praesumitur Mentire” means a man will not meet his maker with a lie in his mouth. The court has a psychological belief that no person will lie on the deathbed.

Admissibility of a dying declaration:

  • The statement given by the person should be related to the circumstances.
  • The death of that person must be ensured.
  • The declaration given by him must be with free consent, it should not be given under the influence.
  • The person who is giving a declaration should be sound-minded.
  • The cause of the person’s death must be in question.
  • A declaration can be given in any language.

How are the dying declarations made

There is no specific type to give a declaration; it is completely dependent upon the situation and capability of the person.

Oral declaration

Oral declaration is one of the most common declarations; the victim will narrate the whole story to the authority or declaration given by the witness.

Gestures

A declaration can also be made through gestures when the person is not capable of speaking. In the case of Queen Empress vs. Abdullah, the victim’s throat was cut by the accused and she wasn’t able to speak. Therefore, she used gestures to convey the name of the accused.

Question and answer

The person who is recording the DD will ask questions to the declarant and record the answer given to him. It is one of the simplest and most effective ways to give a dying declaration.

F.I.R as a dying declaration

When a person dies after lodging an FIR to the police station, stating that his life is in danger, such an FIR can be considered a dying declaration.

For example, Mr. A got continuous death threats from Mr. B. Therefore, Mr. A lodged an F.I.R. at the nearby police station, and the next day Mr. A was found dead. In this circumstance, the FIR lodged by Mr. A can be considered a dying declaration. 

Doctors’ role

Doctors play a crucial role when a person is giving a declaration. They should provide a certificate that the person is sound-minded and capable enough to give a declaration. Doctors can also record a dying declaration when they know that the person cannot survive for a long time, this happens mostly when the person is admitted with a charred body. The testimony given by the doctors will be considered, as the court believes there is nothing for a doctor to give a false statement.

Who can record a dying declaration

A dying declaration is a statement made by a person who is about to die and is believed to be true because of the person’s impending death. The purpose of a dying declaration is to provide evidence in a court of law about the circumstances surrounding a person’s death.

Several people can record a dying declaration, including:

  1. Magistrates:
    Magistrates are judicial officers authorised to take dying declarations. Their presence adds weight and credibility to the statement, as they are impartial and have the authority to administer oaths.
  2. Police officers:
    Police officers are often the first to arrive at the scene of a crime or accident and may encounter individuals who are near death. In these cases, police officers can record the dying declarations of the victims to gather information about the incident.
  3. Doctors:
    Doctors, especially those attending to critically injured patients, may be present when a dying declaration is made. They have the medical expertise to assess the patient’s condition and ensure that the statement is made while the person is still conscious and of sound mind.
  4. Ordinary citizens:
    In situations where there is no time to wait for a magistrate or other authority figure to arrive, any ordinary citizen who is present can record a dying declaration. The witness should ensure that the declarant is lucid and understands the seriousness of the situation before taking the statement.

It’s important to note that the admissibility of a dying declaration in court depends on various factors, such as the declarant’s mental state at the time the statement was made, the consistency of the statement, and the circumstances surrounding the declaration. The court will evaluate the dying declaration along with other evidence to determine its credibility and weight.

Dying deposition

Dying deposition is quite similar to dying declaration. A dying declaration can be recorded by any normal person, police officer, doctor, or magistrate. Still, in the case of a dying deposition, the declaration given by the injured person will be recorded by the magistrate in the presence of the accused lawyer.

When death doesn’t take place

If the person didn’t die after giving a declaration, then such declaration given by him will not be considered as a dying declaration. However, a trial will take place for the statement given by him. Section 21 of the Bharatiya Sakshya Act a proof of admission against the person making them, by or on their behalf (state of mind and body), Section 137 of the Bharatiya Sakshya Act for examination in chief (to corroborate the evidence), Section 145 of the Bharatiya Sakshya Act for cross-examination as to previous statements in writings, Section 159 of the Bharatiya Sakshya Act for impeaching credit of witness, Section 159 of the Bharatiya Sakshya Act for refreshing memory and Section 164 of CrPC for recording of confession and statement will take place.

Difference between dying declaration and dying deposition

Dying declaration

A dying declaration is a statement made by a person who is believed to be dying and who has given up all hope of recovery. This statement is typically made in response to questions from a law enforcement officer, medical professional, or other authority figure. A dying declaration is considered admissible as evidence in court under the hearsay exception. This exception allows for the admission of out-of-court statements when the declarant is unavailable to testify at trial. Dying declaration and dying deposition are two distinct legal concepts that are often confused with each other. While both involve statements made by a person who is believed to be dying, there are several key differences between the two.

In order for a dying declaration to be admissible, the following conditions must be met:

  • The declarant must be in imminent danger of death.
  • The declarant must have given up all hope of recovery.
  • The statement must be made under oath or affirmation.
  • The statement must be made voluntarily and without coercion.

Dying deposition

A dying deposition is a statement made by a person who is believed to be dying, but who still has some hope of recovery. This statement is typically taken by a court reporter or other court official. A dying deposition is not admissible as evidence in court under the hearsay exception. However, it may be used to corroborate or impeach the testimony of a witness who is present at trial.

In order for a dying deposition to be taken, the following conditions must be met:

  • The declarant must be in imminent danger of death.
  • The declarant must have some hope of recovery.
  • The statement must be made under oath or affirmation.
  • The statement must be made voluntarily and without coercion.
  • The court must find that the deposition is necessary to preserve the testimony of the declarant.

Comparison of dying declaration and dying deposition

The following table compares and contrasts dying declarations and dying depositions:

FeatureDying declarationDying deposition
AdmissibilityAdmissible as evidence in court.Not admissible as evidence in court.
PurposeTo provide evidence of a crime.To preserve the testimony of a witness.
TimingMade when the declarant is in imminent danger of death and has given up all hope of recovery.Made when the declarant is in imminent danger of death but still has some hope of recovery.
Presence of authority figureTypically made in response to questions from a law enforcement officer, medical professional, or other authority figure.Typically taken by a court reporter or other court official.
VoluntarinessMust be made voluntarily and without coercion.Must be made voluntarily and without coercion.

Case analysis

Kushal Rao vs. State of Bombay

In this case, 5 members joined together and attacked Baboolal. He was admitted to the hospital, and the doctors examined him and found his body was injured, the doctor asked him what had happened, and Baboolal said that he had been assaulted by Thukaram and Kushal. The doctor noted down everything on paper, and informed the police station regarding the issue. Once the police officer arrived, considering the fact that Baboolal could not survive for long, the dying declaration was recorded by the police officer and later by the magistrate after the doctor gave a certificate that he was mentally fit. The very next morning Baboolal passed away. The Apex Court dismissed the case stating that Baboolal dying declaration was sufficient enough to sustain the appellant’s conviction for murder. 

Delhi Administration vs. Laxman Kumar and others

In this case, Laxman’s wife Sudha was set on fire by her husband and mother-in-law. This case was heard by the trial court; the neighbours were presented in court as witnesses. They stated that they heard Sudha’s scream and hurried to her flat and found her sari was burning in fire. They tried to help her by covering her in a thick blanket. When they asked her what had happened, she said that her mother-in-law poured kerosene, and her husband lit the fire, later she died in the hospital. After hearing the arguments from both sides, the trial court sentenced her husband, mother-in-law and brother-in-law to death. The accused went to the high court for appeal, and the Hon’ble Judges declared that Sudha’s death was an accident. Therefore all three of them were acquitted. A second appeal was made before the Supreme Court against the acquittal of the accused. The Supreme Court declared that it was not an accident; however, Sudha’s brother-in-law was acquitted as there was no proper evidence against him. The husband and mother-in-law were sentenced to life.

Pakala Narayana swami vs. Emperor

In this case, the accused wife took a loan of Rs 3000 with 18% interest from the deceased. On 20th March 1937, the lady sent a letter to the deceased asking him to come and collect the due amount. The deceased informed his wife that he was going to the lady’s house to collect the amount. On 23rd March 1937, a dead body was found in the trunk; the body was sent to a postmortem, and the reports are evident that it was an actual murder. The wife of the deceased recognised that it was her husband’s body. The court convicted the lady’s husband of murdering the deceased, not only based on the deceased wife’s declaration or the letter but also on proper evidence against the accused for murder.

Paniben vs. State of Gujarat

In this case, Bai Kanta had frequent quarrels with her mother-in-law. On the 7th of May, Bai Kanta was sleeping in the ‘or’ alone. Her mother-in-law took the chance and poured kerosene on her and lit the fire. Bai Kanta shouted for help; hearing the screaming sound, her husband and neighbours went to the place and extinguished the fire. Bai Kanta was immediately admitted to the hospital, and the matter was informed to the nearby police station. The head constable asked her what happened and she said that her mother-in-law burnt her, and the same was recorded. Another statement was recorded by the executive magistrate and the same was said to them. This case came before the Hon’ble sessions court it was said that Bai Kanta might have committed suicide and the accused was acquitted. The first appeal was made before the high court challenging the order passed by the session court; the high court judges held that it was a murder and not a suicide; therefore, the acquittal was set aside. The accused was convicted under Section 302 of the Indian Penal Code.  

Nirbhaya rape case

In this case, Nirbhaya and her friend were travelling on a bus along with a gang of six, which included a minor. The bus driver started to drive the bus in a different direction, and the bus window was shut down by the gang. The friend of Nirbhaya raised the obligation, and she was knocked down by the gang. The gang raped her brutally on the running bus for hours and threw her and her friend’s bodies. A passerby person found them and informed the police station. Both of them were taken to the hospital. The doctors examined Nirbaya’s body and found her intestine was completely damaged and also found rust particles in her vagina. Three dying declarations were given, one to the doctor, one to the sub-divisional magistrate and another one to the metropolitan magistrate. The minor was sent to juvenile court and he was sentenced to imprisonment for 3 years. The driver attempted suicide in Tihar jail during the trial and the other 4 members were sentenced to death. 

Conclusion

A dying declaration is a statement given by the person on the deathbed regarding the cause of action. Dying declaration should be recorded carefully considering the fact it acts as evidence in the court. The court may not consider if the DD is incomplete, forced, or threatened. A dying declaration plays a vital role in the evidence act, as the conviction will be made without corroboration.

References

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Non-solicit and exclusivity clauses : an understanding

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This article has been written by Tanu Jaiswal pursuing a Diploma in International Contract Negotiation, Drafting and Enforcement from LawSikho.

This article has been edited and published by Shashwat Kaushik.

Introduction

Non-solicit and exclusivity clauses are widely used in employment contracts. These could be either in the form of a clause in a contract or a separate agreement. The non-solicit clause primarily aims to prevent employees from engaging in activities that could harm their employer’s business, such as soliciting clients or employees after leaving the company.  Conversely, the exclusivity clause is more commonly found in commercial contracts, where it serves to restrict one party from engaging with other competitors, thereby granting a competitive edge to the other party.

These clauses can significantly impact the dynamics of business transactions, particularly in industries where market share and customer loyalty are critical. These clauses do give the businesses an edge. Let us understand this, every business needs skilled workers in order to grow, so they hire such skilled employees. Also, they do not want their skilled employee to leave the business or start their own business. This implies that the employer does not want competition against them.

Thus, these clauses act as a safeguard to the businesses and maintain the enforceability of the clauses of the contract. While both clauses provide strategic advantages, they also impose certain limitations that must be carefully considered by the parties before entering into such agreements.

Concept of non-solicit clause

A non-solicit clause is a contractual provision commonly used in employment agreements and business contracts to prevent one party from soliciting employees, clients, or customers of the other party, typically for a specified period of time after the contract ends. This clause puts a kind of bar on the contracting parties (usually the employer and employee) to give up their current employment and join the other party. The Delhi High Court in Wipro Ltd. vs. Beckman International⁣ enumerated the following principles:

  1. Both Negative and positive covenants that are applied during the course of employment cannot be called upon as Restraint of trade if it are reasonable
  2. Also, such clauses or agreements are not applicable post-termination of the employee contract.
  3. The court shall take a stricter approach in dealing with employer-employee contracts than other forms of contracts, as it is believed that the employer is in a dominant position.

For example, a leading marketing firm hires a senior account manager who is responsible for managing relationships with key clients. To protect its business interests, the firm includes a non-solicit clause in the employee’s contract. This clause states that, for a period of one year after leaving the company, the account manager is prohibited from directly or indirectly soliciting or attempting to solicit any clients or employees of the firm to either leave the firm or move their business to a competing company.

For instance, if the account manager resigns and joins a competitor, they cannot approach any of the clients they managed at the marketing firm to persuade them to switch their accounts to the new company. This clause helps the firm safeguard its client relationships and maintain its competitive edge, even after key employees depart.

The Madras High Court recently ruled in the case of E-merge Tech Global Services P. Ltd. vs. M.R. Vindhyasagar and Ors. that a non-solicitation clause is effective for three years after termination and is binding on the employee to prevent the disclosure of the employer’s confidential information. In summary, non-solicit clauses are valuable tools for businesses to protect their interests, but they must be carefully crafted to ensure they are fair, reasonable, and enforceable.

Concept of exclusivity clause

Exclusivity clauses in contract law provide a kind of restriction on one party from either buying, selling, or partnering with other parties. These clauses are framed in a way so that there might be some kind of limitation on one party and economic advantage to the other party. In practicality, it has wider restrictive implications; thus, there should be a prudent decision to sign such a contract, which has an exclusivity clause in it. 

For example, a software licensing agreement, where a tech company grants exclusive rights to a distributor to sell its software within a specific geographic region. For instance, a company like Microsoft might enter into an exclusive distribution agreement with a local distributor in Japan, allowing that distributor to be the sole seller of Microsoft Office products in the region. In return, Microsoft might offer favourable pricing or marketing support, ensuring the distributor has a competitive edge in the market while maintaining control over how its products are sold in that territory.

In spite of its disadvantages for the person signing the contract, it provides for an addition to the businesses with a competitive advantage by preventing their competitors from forming contracts with their counterparty while the agreement is in effect.

Enforceability of non-solicit and exclusivity clause

These kinds of clauses cannot be arbitrarily enforced on the employees by the employer. There needs to be a balanced equation in the clauses in order to guarantee its enforceability. The freedom of business or trade cannot be curtailed based on one clause, i.e., restricting the employees, as such clause would make it patently illegal.

The Supreme Court of India in the case of Niranjan Shankar Golikari v. The Century Spinning and Mfg. where a film artist, despite entering into a contract to render her exclusive service to the plaintiff during the period of the contract, entered into a contract with a third person in breach of the provisions of the contract, and in these circumstances an injunction was granted. The case highlighted the distinction in the applicability of restrictive covenants or clauses such as non-solicitation during and post-employment. It was observed that these negative covenants would be legally enforceable if they would be reasonable and not against public policy. Thus, the court took a liberalised approach, as such covenants or clauses would not be considered in restraint of trade unless they were excessively harsh or one-sided.  

In Wipro Ltd. vs. Beckman International , the Delhi High court deliberated on the legal validity of a non-solicitation agreement. It was observed that such a clause would not be considered violative of Section 27 of the Indian Contract Act, 1872, unless the clause is rendered to be unreasonable.

In Percept D’Mark (India) (P) Ltd. v. Zaheer Khan and Anr., the Supreme Court addressed a case involving an agreement between a well-known Indian cricketer and an event management company, where the company was designated as the cricketer’s sole and exclusive agent. The contract was set for a three-year term, with the option for extension by mutual consent. After the agreement expired, the cricketer signed a new contract with a different agency. In response, the event management company initiated legal proceedings, seeking an injunction to prevent the cricketer from entering into any agreements with third parties.

In Taboola India Private Limited vs. Eterno Infotech Pvt Limited, it was observed that advertising with widgets is one of the most popular forms of online advertising, and a significant amount of revenue hinges on exclusivity clauses for such promotions. In this case, the exclusivity clause is clearly defined regarding the nature of exclusivity and specifically identifies the plaintiff’s competitors against whom exclusivity is being enforced. The enforceability of this exclusivity clause would depend on the specific circumstances.

Thus, the enforceability of non-solicit and exclusivity clauses hinges on a balanced and reasonable approach. While these clauses serve to protect legitimate business interests, they cannot be arbitrarily imposed, as doing so could infringe on the freedom of trade and make the clause unenforceable. These clauses can provide significant competitive advantages, but their enforceability depends on their fairness and the specific facts of each case. Ultimately, both non-solicit and exclusivity clauses must strike a careful balance to ensure they protect business interests without unduly restricting the rights of individuals or other businesses.

Importance of a non-solicitation agreement

A non-solicitation agreement is a legal contract that prohibits one party from soliciting or enticing the employees, customers, or clients of the other party. These agreements are often used to protect businesses from unfair competition and to ensure that confidential information remains confidential.

There are several reasons why a non-solicitation agreement may be important for a business. First, it can help to prevent the loss of valuable employees. When an employee leaves a company, they may have access to confidential information that could be used to benefit a competitor. A non-solicitation agreement can help to prevent this information from being shared with a competitor.

Second, a non-solicitation agreement can help to protect a company’s customer base. When a customer leaves a company, they may be more likely to do business with a competitor if they are solicited by that competitor. A non-solicitation agreement can help to prevent this from happening.

Third, a non-solicitation agreement can help to protect a company’s reputation. When a competitor solicits a company’s customers or employees, it can damage the company’s reputation. A non-solicitation agreement can help to prevent this from happening.

There are several factors to consider when drafting a non-solicitation agreement. First, the agreement should be specific about the individuals or entities who are prohibited from soliciting the company’s employees, customers, or clients. Second, the agreement should specify the geographic area in which the solicitation is prohibited. Third, the agreement should specify the duration of the prohibition.

Non-solicitation agreements can be an important tool for protecting a business from unfair competition. However, it is important to have an attorney review the agreement before it is signed to ensure that it is enforceable.

Here are some additional benefits of having a non-solicitation agreement in place:

  • It can help to prevent the loss of trade secrets and other confidential information.
  • It can help to maintain a company’s competitive advantage.
  • It can help to promote fair competition.
  • It can help to resolve disputes between businesses.

If you are considering entering into a non-solicitation agreement, it is important to speak with an attorney to discuss your specific needs.

Key provisions of a non-solicitation agreement

These agreements typically include several key provisions that outline the scope, duration, prohibited activities, and remedies for breach of contract.

  • Scope of the agreement: This provision defines the specific individuals or entities that are covered by the agreement. It may include current employees, former employees, independent contractors, and third parties who have access to confidential information or customer relationships. The scope of the agreement should be clearly defined to avoid any ambiguity or disputes.
  • Duration of the agreement: The duration of the agreement specifies the length of time that the agreement will be in effect. This period can vary depending on the specific circumstances and the nature of the business. It is important to ensure that the duration of the agreement is reasonable and does not impose an undue burden on the parties involved.
  • Prohibited activities: The prohibited activities section clearly states the actions that are prohibited by the agreement. These activities typically include soliciting employees or customers of the business, disclosing confidential information, and engaging in any other activities that could harm the business’s competitive advantage. The prohibited activities should be clearly defined and specific to avoid any confusion or misinterpretation.
  • Remedies for breach of contract: This provision outlines the consequences that will occur if the agreement is breached. Remedies for breach of contract may include injunctions, damages, and specific performance. Injunctions are court orders that prohibit the breaching party from engaging in the prohibited activities. Damages are monetary compensation awarded to the non-breaching party to compensate for the losses suffered due to the breach. Specific performance is a court order that requires the breaching party to fulfil their obligations under the contract.

Additional considerations

  • Confidentiality: Non-solicitation agreements often include confidentiality provisions that restrict the parties from disclosing confidential information obtained during the course of their relationship. Confidential information may include trade secrets, customer lists, and other sensitive business data.
  • Choice of law and jurisdiction: The agreement should specify the governing law and jurisdiction that will apply in the event of a dispute. This is important to avoid any confusion or uncertainty about which laws and courts will have authority over the agreement.
  • Severability: A severability clause ensures that if any provision of the agreement is found to be unenforceable, the remaining provisions will remain valid and binding. This clause helps to preserve the integrity of the agreement and prevent the entire agreement from being invalidated due to a single unenforceable provision.

Conclusion

Both non-solicit and exclusivity clauses serve as crucial tools in contract law to protect the interests of the contracting parties, particularly in employer-employee and commercial relationships. The non-solicit clause, as upheld by courts like the Delhi High Court and the Madras High Court, aims to safeguard an employer’s confidential information and business interests, provided it is reasonable and applied during the course of employment. However, its enforceability post-termination remains limited, reflecting the court’s cautious approach in balancing the power dynamics between employers and employees.

On the other hand, exclusivity clauses, while offering significant competitive advantages by restricting one party from engaging with others, must be carefully considered due to their broader restrictive implications. These clauses can grant businesses a strong market position, as seen in examples like exclusive software distribution agreements, but they also come with potential drawbacks for the party agreeing to the restriction. Therefore, it is essential for parties to weigh the benefits against the limitations before entering into contracts containing such clauses.

However, it’s crucial for organisations to adopt a fair approach when incorporating such clauses into employment agreements, ensuring that the restrictions are not overly broad and remain enforceable.

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Salient Features of the Indian Constitution

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Salient Features of the Indian Constitution

This article is written by M.S.Sri Sai Kamalini, and has been further updated by Sakshi Kuthari. The Indian Constitution is the fundamental law of our country and lays down the various objectives which the State aims to achieve for the people of India. It also lays down the various structures and organs of the government at different levels and outlines the rights and duties of the citizens. This article discusses in detail, the salient features of the Indian Constitution in consonance with the preamble of the Constitution, fundamental rights, directive principles of state policy and fundamental duties.

Introduction

The Constitution of India is a dynamic and remarkable achievement of our lawmakers. As the Indian Constitution is the supreme law of the land, it is essential for every citizen to adhere to its principles and provisions. Its outlook and expression are perceived and expressed by the interpreters of the Constitution and must be dynamic and one that keeps pace with the changing times. Though the basics and fundamentals of the Constitution remain unalterable, the interpretation of the flexible provisions of the Constitution can be accompanied by dynamism, in cases when a conflict arises, in protection of the weaker or the one who is more needy.

A “state” is defined under Article 1 of the Montevideo Convention as an independent political entity, occupying a defined territory, the members of which are united together for the purpose of resisting external force and preservation of internal order. The definition lays stress on what may be called the ‘police functions’ of the state. India as a state, has all these features.

Making of the Indian Constitution

To know about the salient features of the Indian Constitution, it is also important for us to know about its making. The Constituent Assembly first met and began the work on the Constitution on 26 November, 1946. It held its first meeting on 9 December, 1946. The meeting was attended by 211 members. Dr. Sachdanand Sinha, the oldest member, was elected as the temporary President of the Assembly. Later on, Dr. Rajendra Prasad and H.C. Mukherjee was elected as permanent President and Vice-President of the Assembly respectively. Among all the committees of the Constituent Assembly, the most important was the Drafting Committee, formed under the chairmanship of Dr. B.R. Ambedkar.

The Drafting Committee, after taking into consideration the proposals of the various committees, submitted its report on 21 February, 1948. At that time Draft Constitution contained 315 Articles and 8 Schedules. The people of India were given 8 months to discuss and draft and propose amendments. As many as 7,635 amendments were proposed. In the light of the public comments, criticisms and suggestions, the Drafting Committee prepared a second draft, which was published on October, 1948 and was presented to the Constituent Assembly on 4 November, 1948, for the first reading or consideration.

The first reading comprised general discussion which commenced on 4 November, 1948 and continued till 9 November, 1948. Then began the second reading or consideration of the clauses of the Draft and it continued from  15 November 1948 to  17 October 1949. During this stage, out of 7,635 amendments which were proposed 2,473 were actually discussed in the Assembly. The Assembly then again sat on 14 November, 1949 for the third reading of the Draft and it concluded on 26 November, 1949.

On this date, the Constitution received the signatures of the President of the Constituent Assembly and it was declared passed. It contained 395 Articles spread over 22 Parts and 12 Schedules. Out of a total 299 members of the Assembly, only 284 were actually present on that day and signed the Constitution. A few of the provisions of the Constitution came into force on 26 November, 1949 itself.

The final session of the Constituent Assembly was held on 24 January, 1950, where it unanimously elected Dr. Rajendra Prasad as the first President of the Republic of India under the new Constitution which came into force on 26 January, 1950. The Constituent Assembly took 2 years, 11 months, and 18 days to complete the herculean task of drafting the Indian Constitution. The main reason behind the long time taken by the Constituent Assembly that went on for almost three years was to strike the right balance so that institutions created by the Constitution would not be haphazard or tentative arrangements but would be able to accommodate the aspirations of the people of India for a long time.  

In this article, we shall discuss in detail the salient features of the Indian Constitution along with the preamble, fundamental rights, directive principles of state policy and fundamental duties.

Salient features of the Indian Constitution

Lengthiest written Constitution in the world

The Indian Constitution is the lengthiest written Constitutions in the world and it is also very detailed. A written Constitution is the formal source of the Constitutional law in any country. It is regarded as the supreme or fundamental law of the land as it controls and permeates every institution in the country. Every organ in the country must act in accordance with the principles enshrined under its Constitution. The Constitution of India has incorporated various Articles by drawing inspiration from Constitutions across the globe. Originally it consisted of 395 Articles arranged under 22 Parts and 8 Schedules. Currently, after several amendments, the Indian Constitution comprises 448 Articles, 25 Parts and 12 Schedules. It is likely the longest of the existing laws worldwide. Several factors contribute to its length, including the following:

  • Firstly, the Indian Constitution deals with the organisation and structure of both the Central and State Governments;
  • Secondly, in a federal Constitution, the Central-State relationship is a matter of crucial importance. It has detailed norms on this matter from Articles 245-255 of the Indian Constitution while other federal Constitutions have only skeletal provisions;
  • Thirdly, the Indian Constitution has reduced many unwritten conventions of the British Constitution to written principles, for instance, the principle of collective responsibility of the Ministers under Article 75(3) of the Indian Constitution;
  • Fourthly, there are various communities and groups in India. Therefore in order to remove mutual distrust among them, it was felt necessary to include in the Constitution detailed provisions in the fundamental rights which will provide safeguards to minorities, Scheduled Castes, Scheduled Tribes and Backward Classes;
  • Fifthly, to ensure that the Indian structure is based on the concept of social welfare, the Indian Constitution included directive principles of state policy. The directive principles of state policy describes the aims and objectives to be taken up by the State in the governance of the country; and
  • Lastly, the Indian Constitution contains not only the fundamental principles of governance but also many administrative details such as provisions relating to citizenship, official language, government services, electoral machinery, etc. Due to the vast Indian population with varied cultural diversity, the need was felt to provide separate provisions to avoid confusion and also for proper administrative functioning.

Preamble

The Preamble of the Constitution lays down its source, aims, objectives, the nature of the polity established by it and the sanctions behind the sources. The Preamble does not grant any power to the Constitution but only gives a direction and purpose to the Constitution. The Preamble contains the fundamentals of the Constitution. India is declared to be a Sovereign, Socialist, Secular, Democratic, and Republic in the Preamble of the Constitution. The term ‘Sovereign’ was incorporated in the Preamble of the Indian Constitution to provide supreme power to the government. The principle of ‘Sovereignty’ is the backbone of our Indian Constitution that protects the authority of the people. 

By the 42nd Amendment Act of the Constitution in 1976, the term “socialist” was added to the Preamble. It means some form of ownership of the means of production and distribution by the State. The degree of State control determines whether it is a democratic state or a socialist state. This term does not mean total exclusion of private enterprise and complete own enterprise and complete state ownership of material resources of the nation.  The term ‘secular’ was not originally present in the Preamble. It was added by the 42nd Constitutional Amendment in 1976. The state does not identify itself with, or favour, any particular religion. The state is enjoined to treat all religions and religious sects equally.

The Indian Constitution is adopted, enacted, and brought into force by the people for themselves. It establishes mechanisms for a representative democracy, defined as government by the people, for the people, and of the people. This implies that the citizens of a democratic country can elect their government, which is accountable and answerable to them. Democratic principles are strengthened through universal adult franchise, regular elections, fundamental rights, and a responsible government. The term “republic” refers to a state where supreme power resides with the people and their elected representatives. Unlike a monarchy, where the head of state is a hereditary monarch, a republic has an elected head of state. Sovereignty rests with the people, and the head of state is chosen for a fixed term. All public offices, from the highest to the lowest, are accessible to all citizens without discrimination. The Preamble designates India as a republic with this principle in mind.

Ordinarily, the Preamble was not regarded as a part of the statute. Therefore, at one time, it was thought that the Preamble did not form part of the Constitution as was held in the case of In Re Berubari Union and Exchange of Enclaves (1960). But that view is no longer in existence. In the 13 judges bench of the Hon’ble Supreme Court in the case of Kesavananda Bharati vs. State of Kerala (1973), it has been laid out that the Preamble is indeed a part of the Constitution. The majority of judges opined that any provision of the Indian Constitution can be amended by the Parliament, provided that such an amendment did not change the basic structure of the Indian Constitution.

Unique blend of rigidity and flexibility

The Indian Constitution is neither rigid nor flexible, for this reason it makes our Constitution the lengthiest one. A rigid Constitution can be defined as one that needs a special method of amendment of any of its provisions. According to A.V. Dicey, a “rigid constitution” means it cannot be changed in the same manner as ordinary laws. In the case of a flexible Constitution, any of the Constitutional provisions can be amended by the ordinary legislative process. 

A written constitution is generally considered a rigid one since it is difficult to change the written words. However, the Indian Constitution, even though written, is sufficiently flexible. Article 368(2) of the Indian Constitution provides that in certain cases the consent of half of the State Legislatures is required for the amendment to take place. The rest of the provisions can be amended by a special majority of Parliament.

A famous example of a rigid constitution is the Constitution of the United States, and it is known as a rigid constitution as the amendment process is very difficult. The Indian Constitution is not as difficult to amend, as the Constitution of the United States. The Indian Constitution has gone through 106 amendments till date. Hence, it can be said that the Indian Constitution is a unique blend of rigidity and flexibility.

Federal Constitution

The Constitution of a country may be federal or unitary in nature. In a federal Constitution, there exists a Central Government that has certain powers that it exercises over the entire country and these supersede the powers of the states. Then there are State Governments and each government has jurisdiction within a State which cannot be superseded by the Centre. The Constitution of India is neither federal nor unitary. Therefore, India is an example of a quasi-federal Constitution. 

A federal Constitution is a much more complicated document than a unitary Constitution because it provides for distribution of legislative powers between Central and the State Governments, administrative and financial powers between the Central and State Governments which a unitary Constitution is not concerned with. Within a federal framework, the Indian Constitution provides for a good deal of centralisation. The Central Government has a large sphere of action and thus plays a more dominant role than the States. List VII of the Seventh Schedule of the Indian Constitution contains subjects of common interest to both the Centre and the States.

The reasons for calling the Indian Government unitary are as follows:

  • The division of powers is not equal. The Union Government has more powers than the State Government, which could be determined from the fact that the Union list contains more matters than the State list;
  • In federations like the U.S.A., the states have the right to frame their own constitution, which is not possible in India as the entire country follows a single constitution;
  • During the time of emergency, the states come under the control of the Centre. The emergency provisions provide a simple way of transforming the normal federal fabric into an almost unitary system so as to meet national emergencies effectively;
  • Article 312 of the Indian Constitution provides for All-India Service. It allows the Parliament to create one or more All-India Services that are common to both the Union and States;
  • The Governor of a State is appointed by the President of India under Article 155 of the Indian Constitution;
  • Article 324 of the Indian Constitution discusses the Election Commission of India in which the supreme authority rests with the President of India for election-related matters;
  • The Comptroller and Auditor General of India is also appointed by the President of India under Article 148 of the Indian Constitution.

The Indian Constitution is considered as federal for various reasons like:

  • There is a written Constitution which is an essential feature of every country following the federal system;
  • The supremacy of the Constitution is always protected;
  • Schedule VII of the Indian Constitution distributes the law-making power between the Central and State Governments; and
  • Articles 214 to 231 provide for High Courts in the States and Articles 233 to 237 provide for Subordinate Courts;

Thus, the Indian Constitution can be described as “quasi-federal” or a federation with a strong centralising tendency. A “quasi-federal” constitution refers to a type of constitutionalism where power is not evenly distributed between the centre and the states. India is considered a federation with a unitary bias, which is why it is described as a quasi-federal state due to its strong central governance.

Adult suffrage

The concept of adult suffrage allows every citizen of our country who is above the age of eighteen years to have the right to vote in the elections. Article 326 of the Indian Constitution guarantees this right to all the adults in the nation. This provision was added by the Constitution (Sixty-first Amendment) Act, 1988. The accepted age for voting was twenty-one before this amendment; afterwards, it was changed to 18 years of age. 

It may be correct to say that the right to vote is neither a common law right nor a fundamental right. However, it is also not a mere statutory right but it holds more substantive significance. The right to vote is not just a privilege granted by the Legislature but it is also enshrined in the Indian Constitution. It can be said so because of the following reasons:

  • Firstly, free and fair elections have been declared to be a basic feature of the Constitution in the case of Indira Nehru Gandhi vs. Shri Raj Narain and Anr. (1975). It means that no statute can completely negate the right to vote;
  • Secondly, the right to vote is a constitutional right as enshrined under Article 326 of the Indian Constitution. Any individual attaining the age of eighteen years is “entitled” to vote. Article 325 provides that no voter can be debarred from voting “on grounds only of religion, race, caste, or sex.” Further, this means that any statute passed by a legislature to regulate the right to vote has to fall within the parameters set out by Articles 325 and 326. Any law infringing these parameters will be void;
  • Thirdly, Articles 84(b) and 173(b) grant the right to stand for election. The essential qualification that allows individuals aged twenty-five years or older to contest for a seat in the Lok Sabha or State Assembly and not less than thirty years of age in the case of a seat in the Rajya Sabha or Council of States. While statutes can establish specific qualifications and disqualifications for candidates [Articles 102(1)(e) and 190(1)(e)] and set procedural rules for filing nomination papers, they cannot entirely negate the qualification required under Articles 84 and 173; and
  • Fourthly, the right to challenge an election through an election petition is conferred by Article 329(b) and is, thus, a constitutional right. What remains for the legislature to do is to prescribe the forum and procedure for deciding the election petitions. No legislature can refuse to set up any machinery for deciding election petitions.

Independence of Judiciary

The judiciary in India has been assigned a significant role to play. Indian courts have been vested with the duty to dispense justice in the matters of not only of an individual but also with respect to the disputed states and its citizens. It interprets the Constitution and the other laws of the country acts as its guardian by keeping all authorities namely legislative, executive, administrative, judicial and quasi-judicial authorities within bounds. The Indian judiciary is entitled to scrutinise governmental action in order to assess whether or not it conforms with the Constitution and the basic structure governing the nation. The judiciary supervises the administrative processes in the country and acts as the balance wheel of federalism by settling intergovernmental disputes.

The judiciary has the power to protect people’s Fundamental Rights from any undue encroachment by any organ of the government. The Hon’ble Supreme Court, in particular, acts as the guardian and protector of the Fundamental Rights of the people. A person complaining of a breach of his Fundamental Rights can directly invoke the writ jurisdiction of the Supreme Court and High Court under Articles 32 and Article 226 of the Constitution respectively. To enable the Hon’ble Supreme Court and various High Courts to discharge their functions impartially, without fear or favour, the Constitution contains provisions to safeguard judicial independence. 

The judges of the Supreme Court and High Courts are appointed by the President on the advice of the judges themselves. Once appointed, the judges shall hold office till the age of superannuation as fixed by the Constitution. Under Articles 124 and 217, a special procedure has been laid down for removing the judges on the grounds of incapacity or misbehaviour.

Single Citizenship

Part II of the Indian Constitution, i.e. Article 5 to Article 11 of the Indian Constitution deals with citizenship. There is no separate citizenship for the States and the Centre in India like in various federal countries like the U.S.A. There is single citizenship provided to Indian citizens. Single citizenship allows persons to enjoy equal rights in various aspects across the country. 

According to Article 5, it is clearly mentioned that the persons will be considered as citizens of the territory of India, which ensures that there would be only single citizenship. The citizenship of Indians is largely determined by the principle of jus sanguinis, i.e., the citizenship is based on the citizenship of the parents. In single citizenship, a person holds only one citizenship. On the contrary, in the case of dual citizenship, each person is a citizen of both the Centre and State.

Judicial Review

The concept of judicial review is an essential feature of the Indian Constitution which helps the Constitution to work properly. Article 13 provides for “judicial review” of all previous and future legislation in India. It is the function of the courts to assess laws and statutes in place vis-a-vis the Fundamental Rights so as to ensure that no law infringes the basic structure. The courts perform the arduous task of declaring a law unconstitutional if it infringes a Fundamental Right. 

In the case of Kesavananda Bharati Sripadagalvaru and Ors. vs. State of Kerala and Anr. (1973) and Minerva Mills Ltd. and Ors. vs. Union of India and Ors. (1980), the Hon’ble Supreme Court strengthened its protective role under Article 13(2) by laying down the proposition that judicial review is the ‘basic’ feature of the Constitution. This means that the power of judicial review cannot be curtailed or evaded by any future Constitutional amendment. Several Articles in the Constitution, such as Articles 32, Article 136, Article 226 and Article 227, guarantee judicial review of legislative and administrative action.

It is also a settled principle that there should be no judicial review in policy matters, and that the policy decision taken by the State or its authorities is beyond the scope of judicial review. It shall not be done unless the decision is found to be arbitrary, unreasonable or it is in contravention of the statutory provisions or if it violates the rights of individuals guaranteed under the statute. The policy decision cannot be in contravention of the statutory provisions because if the Legislature in its knowledge provides for a particular right, the authority making a decision regarding the policy cannot nullify the same. The same principle was also articulated in the case of Monarch Infrastructure (P) Ltd. vs. Commissioner, Ulhasnagar Municipal Corporation (2000). In this case, it was said that the court would not interfere in the matter of administrative action or changes.

Landmark Judgements on Judicial Review

  • In Marbury vs. Madison (1803), the Hon’ble U.S. Supreme Court established that legislative actions can be reviewed by the judiciary, despite the absence of a specific constitutional provision for judicial review in the U.S. Constitution.
  • In Kesavananda Bharati vs. State of Kerala (1973), the Hon’ble Supreme Court held that while Parliament is not restricted in its power to amend the Constitution, it must adhere to the doctrine of the basic structure. The court also emphasised that the constitutional amendments must respect the fundamental framework of the Constitution.
  • In A.K. Gopalan vs. the State of Madras (1950), it was held by the Hon’ble Supreme Court that the laws regarding preventive detention are subject to limited judicial review.
  • In V.G. Row vs. State of Madras (1950), the Hon’ble Madras High Court discussed judicial review as a limitation on legislative supremacy, asserting that it is a fundamental component of the constitutional framework. The court’s role is to declare laws void if they violate constitutional provisions.
  • In Binoy Viswam vs. Union of India (2017), the scope of judicial review of legislative actions was examined in detail. 
  • In Shayara Bano vs. Union of India (2017), the Hon’ble Supreme Court held judicial review must be practised by looking into social values and should be interpreted according to the changing social needs.
  • In L.Chandra Kumar vs. Union of India (1997), the Hon’ble Supreme Court held that the power of judicial review exercised by the Hon’ble High Court under Article 226 cannot be excluded by a constitutional amendment.
  • In Indian Express Newspapers (Bombay) Pvt. Ltd. and Ors. vs. Union of India and Ors. (1984), the Hon’ble Supreme Court reviewed subordinate legislation, noting that such legislation does not enjoy the same immunity as statutes enacted by a competent legislature.
  • In State of Tamil Nadu vs. P. Krishnamoorthy (2004), the Hon’ble Madras High Court established various criteria for the purposes of judicial review of the subordinate legislation.

Parliamentary form of Government

The Indian Constitution establishes a parliamentary form of Government both at the Centre and State level to give effect to the democratic ideals propounded in the Preamble. The bicameral legislature system is followed in our country. The unicameral legislature system is followed in countries like Norway. In this type of legislative system, there exists only one house or assembly. In a Bicameral legislature system, the legislative system is divided into two houses or assemblies. The law-making procedure is easy in the unicameral legislature as compared to the bicameral legislature. There would be a lot of discussions and deliberations before making legislation in bicameralism.  

Articles 74 and Article 75 are concerned with the Parliamentary system at the centre. Article 74 of the Indian Constitution provides that there should be a Council of Ministers with the Prime Minister and Council of Ministers can aid and advise the President. Article 75 of the Indian Constitution deals with the other provisions relating to the appointment of Ministers. Articles 163 and Article 164 are concerned with the Parliamentary system in the states. Article 163 provides that there shall be a Council of Ministers with the Chief Minister at the head to aid and advise the Governor at the time of discharging his duties. Article 164 provides that the Chief Minister shall be appointed by the Governor and other Ministers shall be appointed by the Governor on the advice of the Chief Minister. The Ministers shall hold office at the pleasure of the Governor.

Parliamentary vs. Presidential form of Government

The Presidential form of Government is followed in countries like the United States of America. The President is the head of the State in the Presidential System of Government. The Parliamentary system is a democratic type of government. In this system, the party with the majority forms the government. The parliamentary system is preferred over the Presidential system as it ensures the equal distribution of power and also power is not within the hands of a single person. The drafters of our Constitution did not prefer the presidential system as the executive and legislatures would become independent of each other.

Separation of powers

India focuses on separation of functions rather than a strict separation of powers, unlike in the US. While the strict doctrine of separation of powers is not rigorously applied in India, a system of check and balance is in place. This ensures that the judiciary has the authority to invalidate any laws passed by the legislature that are deemed unconstitutional.

Fundamental rights

Part III of the Indian Constitution guarantees certain fundamental rights to the citizens of India. The fundamental rights are a necessary consequence of the declaration in the Preamble to the Constitution that the people of India have solemnly resolved to constitute India into a sovereign, socialist, secular, democratic, republic and to secure to all its citizens justice, social, economic, and political; liberty of thought, expression, belief, faith and worship; equality of status and opportunity. The Fundamental Rights outlined in the Indian Constitution are as follows:

  • Right to equality:  The right to equality is guaranteed under Article 14 of the Indian Constitution. Article 14 is applicable not only to citizens but also to non-citizens, corporations and foreigners. According to this Article, it is the duty of the state not to deny any person equality before the eyes of the law and to provide them equal protection of laws within the territory of India.
  • No discrimination on the grounds of religion, etc.: Article 15 is a particular aspect of equality guaranteed by Article 14 and grants the right to be free from discrimination regarding rights, privileges, and immunities associated with citizenship. Thus, Article 15 forbids discrimination.
  • Equality of Opportunity in Public Employment: Article 16 guarantees equality of opportunity to all citizens in matters relating to “employment” or “appointment to any office” under the state and the prohibition of discrimination guaranteed by Article 15(1) in matters of public employment. 
  • Abolition of Untouchability: Article 17 of the Indian Constitution abolishes untouchability and practising it in any form is forbidden. In Sastri Yagnapurushdasji. vs. Muldas Bhundardas Vaishya and Anr. (1959), it was held that ‘untouchability is founded by superstition, ignorance, and complete misunderstanding of the true teachings of Hindu religion’.
  • Abolition of titles: Article 18 of the Indian Constitution abolishes the titles. It prohibits the state from conferring any “title” except a military or academic distinction. According to this Article, no Indian citizen can accept the titles from any foreign states.
  • Right to Freedom: Article 19 is the backbone of Part III of the Indian Constitution. This Article guarantees to the citizens of India the enjoyment of certain civil liberties while they are free. Freedoms secured under Article 19 can be claimed only by the citizens. 
  • Protection in respect of conviction for offences: Article 20 provides protection in respect of conviction for offences. 
  • Protection of Life and Personal Liberty: Article 21 of the Indian Constitution guarantees the protection of life and liberty. Article 21 is an important right that protects citizens and non-citizens. 
  • Right to Education: Article 21A guarantees the right to free and compulsory education to children aged 6 to 14 years. This provision was added by the Constitutional (Eighty-sixth Amendment) Act, 2002. Article 21A makes it obligatory for the Government to enact a Central legislation to give effect to the constitutional amendment.
  • Protection against arrest and detention in certain cases: Article 22 provides for preventive detention laws. The object of preventive detention law is to prevent a person from committing a crime and not to punish him as is done under punitive detention.
  • Prohibition on Human trafficking and forced labour: Article 23 provides the prohibition of trafficking of human beings and forced labour by humans of any kind.
  • Prohibition of employment of children in factories, etc.: Article 24 prohibits the employment of children below fourteen years of age in factories, mines or any other hazardous form of employment. 
  • Freedom to Profess or Practice Religion: Article 25 provides the Freedom of conscience and free profession, practice and propagation of religion. The concept of the secular state provided under the Preamble is supported by this Article. 
  • Freedom to manage religious affairs: Article 26 provides the freedom to manage its own religious affairs. 
  • No taxation to promote a religion: Article 27 guarantees the freedom to pay taxes for the promotion of any particular religion. To maintain the secular character of the Indian polity, not only does the Indian Constitution guarantee freedom of religion to individuals and groups, but it is also against the general policy of the Constitution that any money be paid out of the public funds for promoting or maintaining any particular religion. 
  • Restriction on religious instruction in educational institutions: Article 28 guarantees the freedom to attend religious instruction or religious worship in certain educational institutions. According to this Article, any person attending any educational institution recognized by the State or receiving aid from State funds can be forced to be a part of any religious instruction provided at the institution.
  • Protection of interests of minorities: Article 29 protects the interests of minorities.
  • Right of a minority to establish educational institutions: Article 30 provides minorities with the right to establish their own educational institutions and the State shall not discriminate against any such minority institution while providing grants. 
  • Right to Constitutional Remedies: Article 32 guarantees the right to constitutional remedies. There are various constitutional remedies allowed under this Article in the form of writs. If there is any violation of fundamental rights, the aggravated person can approach the Supreme Court under the rights provided by this Article. 

Directive principles of state policy

Part IV (Article 36-51) of the Indian Constitution deals with the directive principles of state policy. It is the duty of every State to apply these principles while making any new legislation. The directive principles of state policy is similar to the ‘Instrument of Instructions’ that is in the Government of India Act, 1935. They are basically instructions to the legislature and executive that have to be followed while framing new legislation by the State. Article 36 provides that the word ‘state’ used in Part IV has the same meaning as has been given to it in Article 12 for the purpose of enforcement of fundamental rights unless the context otherwise requires.

These directions lay down the lines on which the State, which includes both the Legislature and the Executive and means the Union as well as the State should work under the Constitution. The principles express the salient features of the conception of the Constituent Assembly about the new social and economic order which is wanted to bring about through the Constitution. The idea of a welfare State envisaged by our Constitution can only be achieved if the State endeavours to implement it with a high sense of moral duty.

In the Kesavananda Bharati case, the Hon’ble Supreme Court has held that there is no conflict between the directive principles and the fundamental rights and both are supplementary and complementary to each other. Both Part III and Part IV of the Indian Constitution have to be balanced and harmonised together, then only the dignity of the individual can be achieved.

Fundamental duties

Article 51A of the Indian Constitution provides various fundamental duties. The Constitution (Forty-Second Amendment) Act, 1976 introduced the innovative concept of Fundamental Duties of the Indian Citizens in the Constitution. There are no specific provisions to enforce fundamental duties in the courts like the fundamental rights but it is also necessary to follow the fundamental duties. It was held in the case of AIIMS Students Union vs. AIIMS and Ors. (2002), by the Hon’ble Supreme Court that fundamental duties are as important as fundamental rights. There are various duties to be followed by a citizen of India are:

  1. To respect the Constitution, and its principles and to adhere to the constitutional provisions;
  2. To cherish and follow the noble ideals which inspired our national struggle for freedom;
  3. To uphold and protect the sovereignty, unity and integrity of India;
  4. To defend our country when needed and to provide national service when required;
  5. To promote harmony and the spirit of common brotherhood;
  6. To value the rich heritage of our country;
  7. To protect the environment and carry out measures to improve them;
  8. To advance scientific temper, humanism and the spirit of fairness and reform;
  9. To protect the property of the public;
  10. To strive towards excellence in all spheres of individual and collective, so that the nation constantly rises to higher levels of endeavour and achievement;
  11. Parent or guardian to provide opportunities for education to his child or, as the case may be, ward between the age of six and fourteen years.

Article 51A pertains exclusively to the citizens of India, unlike some of the fundamental rights, such as Articles 14 and 21, which apply to all the individuals regardless of their citizenship status.

Borrowed from various sources

Serial No.SourcesFeatures Borrowed
Government of India Act, 1935Federal scheme, Office of governor, Judiciary, Public Service Commissions, Emergency Provisions, and administrative details.
British ConstitutionParliamentary government, Rule of Law, Legislative procedure, Single citizenship, Cabinet system, Writs, Parliamentary privileges, and Bicameralism
US ConstitutionFundamental rights, Independence of judiciary, Judicial Review, Impeachment of the President, Removal of the Supreme Court and High Courts judges and of the Vice-President.
Irish ConstitutionDirective Principles of State Policy, Election of members of Rajya Sabha, Method of election of President.
Canadian ConstitutionFederation with a strong centre, Residuary powers of the Central Government, Appointment of State Governors by the Centre, and Advisory jurisdiction of the Supreme Court.
Australian ConstitutionConcurrent List, Freedom of trade, commerce and intercourse, and Joint sitting of the two Houses of Parliament.
Weimar Constitution of GermanySuspension of fundamental rights during Emergency.
Soviet Constitution (USSR, not Russia)Fundamental Duties and the ideal of justice (social, economic and political) in the Preamble.
French ConstitutionRepublic and the ideals of liberty, equality and fraternity in the Preamble.
South African ConstitutionProcedure for Constitutional Amendment.
Japanese ConstitutionProcedure established by law.

Emergency provisions

Emergency provisions in India are constitutional measures that allow the President to take exceptional actions during the time of emergency. These provisions are provided in detail in Articles 352, 354, and 360 of the Indian Constitution. These provisions shift the federal system towards a more unitary form. During an emergency, the Central Government attains more powers and authority towards the states.

Rule of law

“Rule of law” is an animation of natural law and remains a historical ideal which makes a more powerful appeal even today to be ruled by law not by a powerful man. It is generally understood as a doctrine of “state political morality” which concentrates on the rule of law in securing a “correct balance” between “rights” and “powers”, between individuals, and between individuals and the State in any free and civil society. It balances the needs of society and the individual.

Conclusion

The Indian Constitution has a lot of salient features which make it special. The lawmakers have taken all the factors into consideration and have tried to accommodate all the differences in our Country. The Constitution and various rights provided in the Constitution act as a guardian to our citizens. A nation’s Constitution fulfils various roles and establishes principles that shape society. It also symbolises the country’s independence. The Indian Constitution outlines the framework and structure for governing a free nation. It is through the salient features of the Indian Constitution, rules and procedures, consensus is built amongst diverse groups of people and different communities. Constitutional features and rules decide the fortune of a country. These prescribe certain ideals that the country should uphold. In the context of our country, the core values and visions reflected in the Preamble, Fundamental Rights, directive principles of state policy and Fundamental Duties are expressed as objectives of the Constitution.

Frequently Asked Questions (FAQs)

Who is the father of the Indian Constitution?

The father of the Indian Constitution is Dr. Bhim Rao Ambedkar. He was the Law Minister at the time, who presented the final draft of the Constitution to the Constituent Assembly.

Can fundamental rights be waived?

In the case of Basheshar Nath vs. The Commissioner of Income Tax (1958), it was held by the Hon’ble Supreme Court that a fundamental right being in the nature of a prohibition addressed to the State cannot be waived by an individual. The Hon’ble Supreme Court opined that the fundamental rights enshrined in the Indian Constitution are not solely for individual benefit but are also a matter of public policy. It is an obligation imposed upon the State by the Constitution. No person can relieve the State of this obligation, because a large majority of the Indian citizens are economically poor, educationally backward and politically not conscious of their rights.

What is the difference between sovereignty and independence?

Sovereignty pertains to a state’s supreme authority to self-govern without external interference, whereas independence signifies the state being free from the control of another country.

What is the difference between Articles 19 and 21?

In the case of A.K. Gopalan vs. State of Madras. Union of India (1950), the Hon’ble Supreme Court made the following distinctions between the two Articles:

  • Articles 19 and 21 deal with different subjects. Article 19 deals with “restrictions” on personal liberty. Article 21 deals with its “deprivation”;
  • Article 19 is available to citizens only, Article 21 is available to both citizens and non-citizens;
  • The liberties guaranteed under Article 19 cannot be enjoyed if a person has lost the freedom of his person by being lawfully detained under Article 21;
  • The validity of a deprivation by law under Article 21 cannot be judged under the test prescribed in Article 19(5). Article 19 does not apply to a law of preventive detention even though as a result of an order of detention the rights of a citizen under Article 19 may be restricted or abridged.

In Maneka Gandhi’s case, the Hon’ble Supreme Court held that a law that restricts a person’s personal liberty and establishes a procedure for doing so, under Article 21, must also comply with one or more of the fundamental rights guaranteed by Article 19.

References


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Rights of an unpaid seller

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This article is written by Shilpi. This article sheds light on the rights of an unpaid seller as provided under various legislations. The article also provides for the legislative gaps that are present in the laws in force, the impact of digital transactions on the rights of unpaid sellers, the conflict between consumer protection and seller rights, and the role of alternative dispute resolution for resolving the dispute between an unpaid seller and defaulter buyer. 

Table of Contents

Introduction

The trade and commerce between different parties heavily impacts the global economy. In the cases of commercial transactions, the rights of sellers and buyers form the basic foundation on which trade and commerce are carried out. An important facet of these transactions is ensuring the seller gets paid for the goods supplied and the buyer gets the goods bought as agreed. However, sometimes, the case could be that the seller delivers the goods at the right time and never gets paid. In such a scenario, the laws come into play to protect the right of the unpaid seller. 

In absence of any law enforcing the rights of an unpaid seller, the sellers will become apprehensive towards entering into any contractual transactions. In order to maintain the sanctity of a business relationship as well as enforcing the rights of an unpaid seller, there must be legislation in place. Law is the supreme protector of all. Hence, to recognise the rights of a seller and a buyer, there are multiple pieces of statutes. Now, as we are going to move further with this article, we are going to be a bit more knowledgeable about the rights of an unpaid seller in India. 

Governing law in India on the rights of an unpaid seller 

In order to have a remedy for breach of one’s right, there should be a law which must be used for enforcing such a right. In India, the rights of an unpaid seller is primarily governed by the Sale of Goods Act, 1930 (hereinafter referred to as “the Act”). The Courts refer to Indian Contract Act, 1872 for determining the amount of damages depending upon the facts and circumstances of the case. Therefore, to understand the nuances behind the rights of an unpaid seller, we have to understand the relevant provisions of these two Acts. So, it is time to dive into the elements of these two Acts.

Unpaid Seller

Meaning and definition under the Sale of Goods Act, 1930

When the buyer fails to pay the seller for the goods delivered to him, the seller becomes an unpaid seller. Section 45 of the Act defines an “unpaid seller.” Section 45 of the Act defines an “unpaid seller” as the following:

  • A seller is said to be “unpaid” where in respect of the goods delivered by him, the whole of the sale price has not been paid or formally offered by the seller.
  • A seller also becomes an “unpaid seller” where a bill of exchange or other negotiable instrument was accepted as a conditional mode of paying against the goods, but the conditions were not fulfilled due to a dishonoured instrument or other reasons.
  • Section 45 of the Act also further clarifies that the term “seller” includes anyone acting on behalf of the seller, that, for the purpose of this chapter, the term “seller” includes any agent who has either received the bill of lading or a consignor or agent who has either paid the price himself or himself is liable for the price.

Rights of an unpaid seller under the Sale of Goods Act, 1930

In order to support the ease of doing business, there should be certain protection granted to the parties of a contract. Therefore, the Act provides certain rights of an unpaid seller. An unpaid seller has rights against the goods as well as the defaulting buyer. 

Rights of unpaid seller against the goods under the Sale of Goods Act, 1930

An unpaid seller has following rights against the goods under the Act. These are as follows:

  • Right of lien (Section 47 to 49) under the Act
  • Right of stoppage in transit (Section 50 to 52) under the Act
  • Right of resale of the goods (Section 54) under the Act

Rights of unpaid seller against the buyer under the Sale of Goods Act, 1930

An unpaid seller has following rights against the defaulting buyer under the Act. These are as follows:

  • Suit for price (Section 55) under the Act
  • Action for damages for non-acceptance (Section 56) under the Act
  • Suit for repudiation of contract before due date (Section 60) under the Act
  • Suit for recovery of interest (Section 61) under the Act

Now, you do not need to be worried about these rights just being written in bullet points. Here comes a detailed description and analysis of these rights of an unpaid seller provided under the Act. Besides, we will also be discussing appropriate precedents aligning with these rights of an unpaid seller under the Act. 

Industry examples related to an unpaid seller

It is believed that the unpaid seller’s rights are important in business transactions. These rights protect the sellers from industries. This ensures fairness in trade and safeguards financial interests. Following are some of the industrial examples related to unpaid sellers:

  • Manufacturing: A machinery supplier repossesses equipment in case of default of payment.
  • Retail: In case of the retailer’s failure to pay, a cloth manufacturer stops further deliveries.
  • Agriculture: Resale of grain, in case of insolvency by the wholesaler.
  • Automotive: A parts supplier files a case in court for repossession of the goods against the buyer in case of non-payment.
  • Technology: The IT company withdraws access from licensed software users if they fail to pay.
  • International trade: The legal mechanism allows the sellers to recover their goods from a cross-border transaction.

It helps business firms to minimise risks associated with credit sales and safeguard financial interest.

Rights of an unpaid seller against the goods under the Sale of Goods Act, 1930 

An unpaid seller has rights against the defaulted buyer as well as the goods. The law has provided certain rights to an unpaid seller in order to secure his financial interests. An unpaid seller has the following rights against the goods:

Right of lien: Sections 47 to 49 under the Sale of Goods Act, 1930

Sections 47 to 49 of the Act provide an unpaid seller with the right of lien. As per his right to lien, an unpaid seller has the authority to retain the custody of the goods, as well as, withhold the delivery of the goods till the buyer has paid the whole price of the goods. As per Section 47 of the Act, the seller is entitled to retain the possession of the goods until payment or tender of the price in the following case: 

  1. Goods have been sold without any stipulation of credit;
  2. Goods have been sold on credit, but the terms of the credit have expired;
  3. The buyer has become insolvent

The seller can exercise his right of lien even if he is in possession of the goods as an agent or bailee for the buyer. According to Section 48 of the Act, this right to lien extends in the cases of part delivery also. Where the seller has made part delivery, he can retain the possession of remaining goods. 

In the case of Grice & Ors. vs. Richardson & Anr. (1877), the seller was responsible for supplying three parcels of the tea as included in the sale. The seller supplied one of the three parcels of the tea. However, the seller was not paid for the portion that remained with him. The court allowed the seller to keep the remaining portion of the goods till the outstanding dues were cleared by the buyer.

In the case of Bloxam vs. Sanders (1825) 4 B & C 941 (A), Bayley J. held that the buyer has no right to have possession of the goods till he pays the price of the goods. The rights of the seller with respect to the price of the goods are more than just a lien. The buyer is obligated to either pay or offer to pay the price of the goods before they can claim the possession of the goods. 

This right to lien can only be exercised where the goods are in the possession of the seller. The right of lien extends till the time payment is made or till the seller voluntarily relinquishes his possession over the goods. Once the custody, physical as well as constructive, has been passed over to the buyer, the seller will lose his right to exercise lien. Section 49 of the Act provides that the seller loses his right of lien in the following cases:

  1. When the seller has delivered the goods to the carrier or the bailee for putting the goods in transmission to the buyer, he will lose his right to lien. 
  2. When the buyer or his agent has obtained the possession of the goods as per the provisions of the law.
  3. When the seller has expressly or impliedly has waived his right to lien. 

Right of stoppage in transit: Sections 50 to 52 under the Sale of Goods Act, 1930

Sections 50 to 52 of the Act empowers an unpaid seller with the right of stoppage of goods in transit. Section 50 of the Act provides that where the buyer has become insolvent, this right can be exercised by the seller, when the goods have been put into delivery but have not yet been delivered to the buyer. This right can be exercised by the seller till the goods have reached into the possession of the buyer. This possession can be actual or constructive. Once the goods come into the possession of the buyer, the seller loses any control over them.

Section 51 of the Act provides for the duration of transit. It provides for the following:

  • Section 51(1): Transit starts when the seller delivers the goods to the carrier or bailee to put the goods into transmission to take them to the buyer. It ends when the buyer or his agent receives the delivery of the goods from such a carrier.  

Sometimes, it so happens that the buyer declines to receive the delivery of goods following their landing at the place of destination. But the rule is that even when the delivery has landed at the place of destination; the transit does not reach its final stage. 

One such matter where this was discussed is James vs. Griffin (1926). The goods arrived in the port of river Thames which was the port of destination. The buyer of the goods asked his son to oversee the landing of the goods. However, he told his son that since he was insolvent, he had no intention to accept the goods and wanted the seller to keep the goods with him. When the goods were left as they were lying at the port of destination, the seller sent the instructions to stop them which were received. The trustee of the buyer’s bankruptcy claimed goods. It was ruled that the goods were deemed to be still in transit.

  • Section 51(2): This further provides a clarification for the above. It provides that the transit comes to an end when the buyer or his agent gets the delivery of the goods before their delivery to the agreed destination.

In Lyons vs. Hoffnung (1890), the buyer of the goods, took a seat in the same ship that was transporting his bought goods. The Privy Council ruled that his act does not amount to delivery of the goods to him prior to the arrival at the agreed destination.

  • Section 51(3): This sub-section deals with the effect where the carrier has reached the destination but instead of delivering the goods, the carrier acknowledges that they had received possession of them on behalf of the buyer. In those cases, transit shall have ended even if the buyer wished for the goods to be sent somewhere else after that.
  • Section 51(4): Section 51(4) of the Act states what occurs when the buyer declines the delivery of the goods. Even if the seller does not want to accept the goods back, as long as the carrier continues to hold onto them, they are considered to be “in transit.”
  • Section 51(5): It relates to cases where the goods are delivered to a ship by which the buyer has chartered. It states that whether the captain of the ship acts either as a carrying or agent of the buyer depends upon the circumstances of the case.
  • Section 51(6): Section 51(6) of the Act states that if the carrier wrongly refuses to hand over the goods to the buyer or their agent, the transit is deemed to have come to an end.
  • Section 51(7): Section 51(7) of the Act deals with part delivery of the goods. It states that if part of the goods has reached the buyer, the later shipments may be stopped “in transit” unless it appears from the partial delivery that the seller had agreed to divest himself of his right to possession of the remaining shipment.

Section 52 of the Act provides for how stoppage in transit takes effect. It provides for the following:

  • Taking possession: The seller can stop the goods through taking possession of them. This possession can be actual as well as constructive. 
  • Giving notice: The seller can also halt the delivery of the goods by giving notice of his claim to the carrier or any other third party who is transporting the goods.
    • This notice can be given to either the person who physically is in possession of the goods or to his employer. 
    • If the notice is sent to the employer, it must be delivered in a timely manner to provide the employer with enough time to inform his employee to deliver the goods to the buyer. 
  • Re-delivery: Where the seller gives notice to the carrier or other party in possession of the goods, the carrier is obligated to return the goods to the seller or conform to the instructions of the seller regarding delivery. The seller shall pay all costs of reshipment.

Right of resale of the goods: Section 54 under the Sale of Goods Act, 1930

Section 54 of the Act provides that in certain circumstances the unpaid seller has the right to resale the goods. Once the unpaid seller has exercised his right to lien or right to stoppage in transit, the unpaid seller can exercise his right to resale the goods. Before selling the goods, the seller must notify the buyer of his intention. In case of any loss incurred by the unpaid seller during reselling the goods, the unpaid seller can recover such loss from the buyer. 

In the matter of Ward (R v) Ltd. vs. Bignall (1967), two cars, namely Vanguard and Zodiac were to be sold for $850 as per the contract. Buyers of the car deposited $25 upfront but failed to pay the due amount even after getting a reasonable notice. Owing to this, the seller made an attempt to resell those cars but succeeded in selling only Vanguard for $359. He sought damages from the first buyer for a loss of $475 as the balance price and additional $22 for advertising expenditure. The court ruled that once the seller resells the goods, the contract gets rescinded and the buyer has no right to seek damages. However, he can ask for expenses made on advertising the goods and the difference of price in the Zodiac due to which he suffered loss.

In the case of Dhanrajamal Gobindram vs. Shamji Kalidas And Co. (1961), there was a clause for reselling the goods in the contract entered into between the parties. The buyer failed to fulfil his part of the contractual obligations. Subsequently, the seller exercised his right to resell the goods as per the clause of the contract. Later on, the seller claimed the deficit amount from the buyer. This action of reselling the goods by the seller was upheld by the court. 

In the case of Bhajan Singh Hardit Singh And Co., Delhi vs. Karson Agency (India) And Ors. (1967), the court held that in order to exercise the right to resale, the seller must have exercised either the right of lien or stoppage in transit. However, in this case, the goods were not passed to the buyer, hence, the court held that the seller could not claim his right to resell. 

Difference between right of lien and right of stoppage in transit

The key points of difference between the right of lien and right of stoppage in transit are as follows:

  • The right of lien of the seller can be used when the buyer makes a default in payment. However, the right of stoppage in transit is essentially used when the buyer becomes insolvent.
  • The right of lien is exercised before the goods leave the possession of the seller. The right of stoppage in transit is used while the goods are in transit to the buyer.
  • The seller loses his right of lien when he parts with the goods. The right to stoppage in transit is lost once the buyer receives the goods.
  • During the right of lien, the seller retains the possession of the goods. During the stoppage in transit, the goods can be in possession of the carrier or the intermediary of the seller.

Rights of an unpaid seller against the buyer under the Sale of Goods Act, 1930

Suit for price: Section 55 under the Sale of Goods Act, 1930

Section 55(1) of the Act provides that if the ownership of the goods has been passed to the buyer, and the buyer wrongfully omits to pay for the goods, the seller is empowered to sue the buyer for the price of the goods. The seller is authorised to bring an action in the court to recover the payment.

Section 55(2) of the Act provides for the scenario of a contract of sale where the price is payable on a fixed date irrespective of the delivery of the goods. In such a case, the sub-section permits the seller to bring a suit against the buyer for wrongful neglect or refusal on his part to pay for the goods, if the due date of payment has already expired, even if the goods have not been passed to the buyer.  

In the case of Gordon vs. Whitehouse (1856) 4 WR 231, it was held that when the contract between the parties provides that the buyer must pay by a bill which will be due in the future, and the buyer fails to provide the bill. In this case, the seller can only demand payment when the bill would have been due. Until the bill becomes due, the seller can only ask for damages from the buyer for breach of contract. 

Action for damages for non-acceptance: Section 56 under the Sale of Goods Act, 1930

Section 56 of the Act provides that if the buyer wrongfully neglects or refuses to accept and pay for the goods, then the seller may bring an action against the buyer for damages for non-acceptance. 

In order to calculate the quantum of damages, Sections 73 and 74 of the Indian Contract Act, 1872 can be used. In order to calculate the damages, the following should be taken into consideration:

  • difference between the contract price and the resale price of the goods if the goods have been resold;
  • if not resold, the difference between the contract price and the market price at the time of the breach;
  • Steps taken by the seller to mitigate the loss.

One of the landmark Supreme Court rulings that talks about the duty of the nature of mitigation is  M. Lachia Setty & Sons Ltd. Etc. Etc vs. The Coffee Board (1980). In this matter, a coffee auction was taking place where a dealer bid for the same. His bid was accepted. However, he declined to perform the contract. Owing to this, the coffee had to be auctioned at the second highest bidding price following the one that was cancelled. Consequently, the dealer responsible for refusing to carry out the contract ended up paying  the difference in losses suffered by the board between the highest bidding price and the second highest bidding price.

In the case of Mysore Sugar Co. Ltd. vs. Manohar Metal Industries (1982), the buyer agreed to pay for the goods, however, he failed to complete the purchase which led to the breach of the contract between the parties. The unpaid seller resold the goods to another party due to the said breach. Subsequently, the unpaid seller sued the buyer for a difference in price. They claimed that it was damages which arose from the breach. The court held that in order to claim damages based on resale, the resale must take place within a “reasonable time” after the breach. In this case, the resale was delayed for 3 months which was held to be unreasonable.

Suit for repudiation of contract before due date: Section 60 under the Sale of Goods Act, 1930

Non payment of goods generally amounts to a repudiation of contract. Hence, in a case where the buyer fails to pay the amount, the contract will stand repudiated. Therefore, when the contract stands repudiated before the date of delivery, as per the provisions of Section 60 of the Act, the seller can sue for damages for the breach. 

In the case of Garnac Grain Co. Inc. vs. HMF Faure and Fairclough Ltd., (1968), the plaintiff considered the refusal of the defendant to be an immediate breach of the contract. The court held that in order to determine the market price, the relevant date is the one that is set for delivery, not the date when the breach of the contract took place or when the plaintiff accepted the breach of the contract. It is the duty imposed upon the plaintiff to mitigate the losses. 

Suit for recovery of interest: Section 61 under the Sale of Goods Act, 1930

Section 61 of the Act provides that the seller can claim interest on the due amount from the buyer. The interest can be claimed from the date from which the payment becomes due. 

In the case of Andhra Cotton Mills Ltd. vs. Sri Lakshmi Ganesh Cotton Ginning Mills (1966), the seller filed a suit only for the recovery of the interest, not the principal amount. The Andhra Pradesh High Court held that even if a suit is filed solely for recovery of interest, the court is empowered to grant it under Section 61 of the Act.  

Impact of digital transactions on the rights of an unpaid seller

Digital sales have significantly impacted the rights of an unpaid seller by dislodging long-standing habits and even introducing new problems. Automated payment systems remove payment delays but deprive the right to exercise traditional rights such as stopping goods in transit. Equally, instantaneous processing of payments reduces the need for these rights since payments are made prior to the dispatching of goods.

For digital goods, since there are no tangible products involved in transactions, concepts such as stoppage in transit or resale rights will hardly apply. Instead, the sellers shall have to rely on licence revocation to control access upon payment defaults. Cross-border digital transactions are complicating the means of enforcement of these rights due to jurisdictional problems. Therefore, the seller may have to include jurisdiction clauses and understand international standards.

Applications that offer real-time monitoring and fraud detection help mitigate the risks of the payments and further reduce dependence on traditional rights for an unpaid seller.

Critical analysis of legislative gaps

In the cases of digital transactions and international trade, the present legislations are somehow inadequate and outdated. The present legislations have their scope of applications only with respect to our country, i.e., India. Following are some of the legislative gaps:

  1. Insufficient legal guidelines with respect to digital goods: The present laws primarily deal with tangible objects. In recent times, there has been a rise in the business dealing with digital goods and services. This change of circumstances has raised certain complexities in the present legislation due to the inadequacy of its application. In the case of physical goods wherein, in case the buyer does not pay the seller, the latter can repossess the goods. This would not be feasible in case of digital goods when merchandise is delivered digitally. 

In the commercial laws of India, it has not been clearly spelt out as to what are the rights of the unpaid seller to recover the digital goods that had been delivered to the buyer. This will keep the unpaid seller at a disadvantageous pedestal. Additionally, there are no well-defined provisions related to the right of the unpaid seller to revoke access to the digital goods already delivered to the buyer. In absence of any straight-forward legislative provisions, an unpaid seller will incur financial losses. 

  1. Issues related to jurisdiction with respect to international trades: In the era of ease of doing business, international trade is a sine-qua-non for achieving the same. Where in a transaction, parties from two or more different countries are involved, the legal principles governing their rights will be different. Legislations across the globe have different sets of principles regarding the rights of an unpaid seller. In this scenario, it will be challenging to enforce the rights of the unpaid seller. Due to the presence of different sets of rules, inconsistencies may arise between them. These inconsistencies will further undermine the rightful claims of an unpaid seller.

Parties to a transaction have the option to enter into a contract and agree on the set of rules and forum that will be applicable to all the parties. However, their mutually agreed terms can also give rise to legal battles if the enforceability of the contract comes into question. These complex legal battles will further sabotage the rights of an unpaid seller.   

  1. Issues arising in the insolvency of the buyer: As we have seen a rise in business transactions, we have been also witnessing a rise in insolvency proceedings. There is always a prospect of the buyer going insolvent. In the case of insolvency of a buyer, the claims related to secured creditors get precedence. The Indian laws (Section 53 of the Insolvency and Bankruptcy Code, 2016) provide more importance to secured creditors over unsecured creditors. This preference for the secured creditor over an unsecured creditor will shorten the ability of the seller to repossess the goods or the payment. 
  2. Inadequate provisions related to stoppage in transit: An unpaid seller has the right to stoppage in transit, but this right can only be exercised till the goods are not in possession (direct or constructive) of the buyer. The laws were framed during the time when delivery of goods used to take days. However, with the advent of the fast-paced delivery system for tangible goods, the window for the right of the seller to stop in transit has been narrowed down. 

In the case of digital goods, there is no transit period. The goods or services are delivered immediately. Nevertheless, there are no regulations that can entitle an unpaid seller to revoke the access already granted to the buyer. It will leave the unpaid seller without any legal recourse to reclaim the goods or services. 

  1. Uncertainty with respect to the right of repossession: If the transaction of goods is related to raw materials then once these raw materials have been processed for the manufacturing of the final product, repossession of the raw material will become impossible. The existing laws do not have a proper understanding in this regard. There can be situations related to partial payments made to the seller. In this scenario, the seller authority to repossess the shipment can be questioned by the seller. This will ultimately give rise to legal disputes. 

Conundrum between consumer protection and seller rights

The issue of consumer protection against the rights of an unpaid seller is complex and often debated in commercial law. Both elements are necessary for fairness and a working market, but sometimes both sides can even oppose each other. Following is the analysis of how these two aspects interact: 

  1. The need for consumer protection: Consumer protection laws serve to safeguard buyers from unfair dealings, ensure quality and standards, and provide a course for resolving action in case a dispute arises.
  • Protection against exploitation: In most commercial dealings, the consumer, that is, individual buyers, is usually considered to be the weaker party. The consumer protection law prevents the other party from taking advantage of this weakness, for instance, withholding goods or services after having received payment for the same.
  • Right to goods as described: The consumer has the right to goods matching in description, quality, and performance according to their advertisements. If not, then the consumer may seek remedies through refund, replacement, or repairs.
  • Cooling-off periods and return policies: In many jurisdictions there exists a right of the consumer to cancel a purchase within a certain “cooling-off” period, particularly in cases of purchases over the Internet. This right complicates the position of the seller, by the time a seller realises what has happened, the goods may well have been delivered. For instance, when a consumer purchases something over the internet and the product, when received, is not what the seller had described it to be, then under the consumer protection laws, the buyer might have the right to return the product and receive a refund, despite the fact that the seller might have already dispatched the goods.
  1. The rights of an unpaid seller: An unpaid seller has the right to protect himself against financial risk in case the other party fails to pay. It enables him to recover his goods or seek any other legal way whatsoever if a buyer defaults. 
  • Retention of title: The seller can retain his title in goods until full payment. It is going to be very important in safeguarding a seller from buyers who could otherwise default after goods are delivered to them.
  • Right of repossession: Upon default in payment, the seller can repossess goods that have not been irrevocably delivered or consumed.
  • Right of stoppage in transit: When a seller notices that a buyer is insolvent, he may stop the goods in transit to avoid loss of goods without being paid. For example, a business sells machinery to another company for which payments are extended over several months. If the buyer defaults on these payments, the seller can take the machinery with him with the retention of title clause without facing any loss.
  1. Tensions between consumer protection and rights of the sellers
  • Non-refundable deposits vs. consumer refund rights: A seller has the option to ask for a non-refundable deposit as protection against last-minute cancellations. However, this can sometimes go against the consumer protection laws that may demand for complete refunds.
  • Repossession and consumer hardship: In the event of a consumer default in paying for goods, the right of repossession by the seller may lead to considerable hardship for the latter, especially if such goods are essential (e.g., home appliances or vehicles).
  • Digital goods and services: How this balance works in the digital marketplace between consumer protection and the rights of sellers becomes even more complicated. A consumer could demand a refund for a ‘digital’ product; it might be impossible for the seller to repossess the product or prevent its further use, making the enforcement of the rights of an unpaid seller difficult to implement. For example, a customer purchases an expensive licence for certain digital software and then disputes the charge. The customer is entitled to a refund under consumer protection laws. However, due to the lack of any legal system to support it, it is a challenge for the seller to revoke the customer’s access to the software. 
  1. Legal and practical resolutions
  • Clear contract terms: The conflict can further be avoided if the terms of payments and refunds, as well as those of ownership conditions, are clearly stated by sellers in their contracts. To consumers, clarity about return rights and conditions under which goods can be repossessed or payments withheld is very important.
  • Balancing legislation: A balance needs to be struck between consumer protection and the rights of sellers to arrive at a just framework that attends to the interests of both parties. For example, the establishment of specific rules with respect to refund policies, especially for high-value non-refundable deposits, or the laying down of conditions with regard to the repossession of goods, would be helpful.
  • Digital transaction details: Clear guidelines on the right of the seller to revoke access and the right of the consumer to refunds/exchanges in digital transactions should be developed to promote fairness while recognising the differences between physical and digital goods. For example, the legislature can frame a law that in the case of specific digital content, a partial refund system would be in place in cases where a consumer withdraws after a certain period of product use. By doing so, the seller would be partially protected against total loss, while the consumer rights are nevertheless respected.
  1. Jurisprudence
  • Unbalanced consumer protection causing distress to the seller: When the law of consumer protection is biased to one side, there are situations where undue hardship may befall the seller. It causes big losses for the sellers when the customers take advantage of the return policies, for example- returning the used goods during the trial period. In this case, sellers might end up with goods that cannot be resold as a new product. 
  • Consumer injustice due to leading seller rights: On the other hand, when the rights of sellers are given too much importance, it is the consumers who would suffer. These scenarios include enforcing non-refundable deposits with stringency and stringent repossession practices that harm consumers, especially during economically trying times. For instance, a consumer purchased an automobile and then became unemployed. When one payment was late, the seller repossessed the car, but public outcry might arise over whether or not such processes could or should be deemed fair, particularly under consumer protection laws to show clemency during hard times.

Consumer protection and the rights of sellers, more importantly those of the unpaid seller, must maintain a delicate balance. The consumers need protection against unfair practices, and the sellers require protection against non-payment of dues. It is only possible when legislation is clear, agreements are well thought out, and the laws are adaptive to the peculiar challenges of both physical and digital transactions. There is a requirement for fair play on both sides and assurance of trust and stability in the marketplace.

Role of Alternative Dispute Resolution for resolving dispute between an unpaid seller and a defaulting buyer

Litigation as a mode of dispute resolution has been facing a lot of difficulties in the present times. This has ultimately given rise to the resolution of disputes with the help of alternative dispute resolution mechanisms (hereinafter referred to as “ADR”). Therefore, ADR has become a go-to method for resolving a dispute in case of commercial transactions. These mechanisms provide for speedy resolution of disputes, take lower costs and it also aids in maintaining a cordial relationship between the disputing parties. In ADR there is no win-loss situation;, rather, it is a win-win situation. As both parties benefit from the final result, it helps in maintaining the business relationships. 

ADR can be used to protect the rights of an unpaid seller. The following features of ADR will be beneficial for protecting the interests of an unpaid seller:

  • Speedy resolution of the dispute: Rather than following a long stretched litigation in a court, it is easier to resolve the dispute through ADR. Generally, small businesses aim to maintain liquidity. Hence, it is beneficial for those businesses to resolve their disputes speedily and obtain the payment quickly. 
  • Economical and lucrative: An unpaid seller is already suffering loss of finance due to not receiving the payment from the buyer. Going through litigation will saddle the seller with additional economic constraints. Hence, obtaining ADR will be economical and lucrative for the disputing parties to resolve their disputes. 
  • Confidentiality: We live in a society where any kind of dispute can lead to loss of reputation for the parties. If an unpaid seller takes the dispute to the court, it will come into the knowledge of the general public. It could amount to a loss in business relationships with other buyers. However, confidentiality is one of the crucial features of ADR. Hence, this confidentiality will assist in maintaining the interest of the unpaid seller. 
  • Flexibility: In ADR, the unpaid seller has the flexibility and the control over the process and outcome of the process. The unpaid seller can negotiate the settlement with the buyer. By the process of negotiation, the parties can agree to give payment in instalments or repossession of the goods.
  • Business relationships can be maintained: Mediation and negotiation assist in maintaining the business relationship of the parties in dispute. These dispute resolution methods save the day for continuing commercial relationships between the parties even when there is a dispute between them. 
  • Awards are enforceable: There are enforceable awards wherein the same has been passed in an arbitration and have the force of a decree passed by a civil court. Therefore, it is legally binding on the parties. In other words, if an award has been passed in favour of an unpaid seller, he shall be entitled to the payment from the buyer.
  • Custom arbitration clause: The seller and buyer may modify the arbitration agreement according to their needs. This would be a precautionary measure and would help to determine the evidentiary issues of disputes beforehand when any dispute arises. 
  • Neutrality: Parties have the autonomy to choose their arbitrator who will decide the matter without any biases. This will be beneficial in cases of international transactions, where the unpaid seller might be subjected to bias in a foreign court.
  • Negotiation and Conciliation: These methods help the parties to reach a mutually decided result. An unpaid seller will be able to recover the amount through compromise while keeping the business relationship intact. It will also save the cost and time that will be wasted by dragging the dispute into a formal process. 

Disadvantages of ADR

  • Execution of award through cross-border: While an award is generally executable across the world, the enforcement of the award across jurisdictions is rather more difficult. Even with the high point of enforceability of ADR agreements, enforcing these awards can be a bit difficult. These can be more difficult especially when the buyer is in another jurisdiction that does not recognize such agreements.
  • Binding vs. Non-Binding outcomes: The result of the arbitration is binding and thus helpful to the seller who needs closure. Most ADR methods, including mediation, are not binding upon the two parties unless the terms of the outcome from the ADR method are agreed upon by the two parties. In that case, there may be a lot of water left in the river for the unpaid seller if the buyer does not keep their end of the mediated agreement.
  • Power imbalance: In the ADR system, negotiation and mediation included, there may be power imbalances between sellers and buyers. When one party is much larger or more powerful than the other, it will probably affect settlements less favourably for the unpaid seller. Example: A small supplier dealing with a large retailer may be forced to accept an unfavourable agreement in a mediation, for instance, a significant discount or more liberal payment terms. purely as a result of the desire to avoid the litigation process.

Recommendations for best practices

A set of best practices would be advantageous for an unpaid seller to protect his rights and avoid part of the risks associated with non-payment. These practices include contract management, risk assessment, dispute resolution, and adherence to legal standards. Below are some of the best practice recommendations to safeguard the rights of an unpaid seller:

  • Strong contractual provisions: The agreement should highlight the due dates of payments and a schedule for the same. A late payment penalty and interest on overdue amounts may be useful to make both parties aware of their roles. Retention of title clauses should be included to ensure ownership of goods remains with the seller until full payment is received. Pre-agreed arbitration clauses to resolve a dispute also offer clear dispute resolution methods.
  • Carrying out comprehensive credit and risk checking: This would include extending credit checks on prospective buyers by means of checks on their financial stability, as well as keeping an eye on industrial situations, which may affect the buyer’s paying ability. A credit control policy has to be formulated by the seller, including laying out limits of credit and requesting advance payments from buyers considered to be risky.
  • Proactive monitoring and communication: It is very critical to have proactive monitoring and communication. Modern payment tracking systems automatically monitor the status of payments in real-time. They can quickly detect any delays. This communication helps in building trust between the buyer and the seller. It also allows for negotiation regarding adjustments to payment plans to keep the things on track.
  • Legal and technological tools: This includes the institution of immediate legal action, where necessary, and recourse to experienced counsel in the assertion of rights to the unpaid seller. In the case of electronic products, the institution of digital rights management would imply that a seller has the right to withdraw access to the products should his payment not be made. Smart contracts and blockchain technology are also useful methods of automating payment and delivery mechanisms.
  • Preparation for international transactions: This includes learning about jurisdictional differences in laws regarding the rights of an unpaid seller when cross-border deals go bad. A seller should use a ‘choice of law’ clause to state the law that controls the transaction. The seller should also arrange for pre-drafts of payment such as letters of credit, bank guarantees, or export credit insurance to secure payment.
  • Continuous review and improvement: This includes periodic auditing of the contractual terms with respect to legal and industry changes, followed by updates to reflect such changes. Additionally, strategies for risk management and training of staff in protecting seller rights through periodic reviews will provide teams with enough knowledge and tools to handle non-payment risks.

Through the adoption of such best practices, unpaid sellers will be able to protect their rights, reduce exposure to the possibility of non-payment, and ensure that business interests are best protected. Applying these methods is important in finding one’s way through a flexible commercial landscape while being able to continuously maintain professional relations in a positive light.

Conclusion

The Sale of Goods Act, 1930 has provided a detailed regulatory framework to safeguard the rights of sellers where they suffer minor or major losses due to a buyer’s failure or refusal to make payment. The provisions contained in the Act towards both, against the goods and against the buyer— are such that they ensure that the seller does not lose his financial security along with sticking to a fair pricing structure that does not cause loss to the seller. Several legal resources enumerated in the Act throw light on the fact that it is highly important for a seller to secure his payments. Whenever a seller feels that his payment may not be made timely or not made at all, he can turn towards the courts to seek justice. 

No transaction can take place in the modern day if good faith is missing. Buyers and sellers need to trust each other and must believe that even when the other fails to discharge his promises, the legal structure in the country is such that they won’t be deprived of something that they are entitled to receive. Following this, the Sale of Goods Act, 1930 has time and again lived up to its legislative intent and smoothened the process of commercial transactions between buyers and sellers. 

Frequently Asked Questions (FAQs)

Are there any remedies available to unpaid sellers against the buyer?

An unpaid seller has the following remedies:

  • An unpaid seller can terminate the contract
  • Sue the price of the goods provided if the ownership has passed to the buyer.
  • Sue for damages if the buyer wrongfully refuses to take or pay for the goods.

Will the unpaid seller’s right to stop goods in transit apply under international trade?

The right to stop goods in transit is applicable to both inland and foreign trade. However, the seller may consider, in an international transaction, some factors like issues of jurisdiction and legal impediments in the buyer’s country.

If the payment made by the buyer has been dishonoured, what will be the result?

In case the payment made by the buyer has been dishonoured, and the possession of the goods has not been passed to the buyer, the seller can withhold the possession of the goods. In case the goods have already been passed to the buyer, then the seller can sue for the price of the goods and the damages.

Whether an unpaid seller can claim interest on delayed payments?

Yes, if the contract between the buyer and the seller provides for the same. Otherwise, the seller has to claim compensation through a suit.

Under what circumstances, can the right of possession be exercised?

The right of possession can be exercised under the following circumstances:

  1. Whenever the seller sells the goods on the basis of cash and the seller doesn’t pay full amount.
  2. Whenever the seller sells the goods on the basis of credit and the buyer does not clear the payment during the term of credit.
  3. Whenever the buyer declares insolvency during the period he was supposed to make the payment.
  4. As long as the goods remain in the possession of the seller who is yet to be paid, he has the lawful right to exercise his right of possession. 

References

https://www.cvs.edu.in/upload/BUSINESS%20LAW3.pdf
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