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Arbitration and Conciliation Act, 1996

By
Sneha Mahawar
-
0

This article is written by Monesh Mehndiratta, a student of BA LLB, Graphic Era Hill University, Dehradun. This article talks about arbitration and conciliation as alternate forms of dispute resolutions and gives an overview of Arbitration and Conciliation Act, 1996. 

This article has been published by Sneha Mahawar.

Introduction

ADR means Alternative Dispute Resolution which includes various methods of settling a dispute without getting into the intricacies of the court. It is a method where parties try to resolve their disputes privately in front of a third-person expert. The decision is binding on the parties like the decision of the court. It includes methods like arbitration, mediation, conciliation and negotiation. These work on the principles of justice, legal aid and speedy trial as given under Article 39A of the Indian Constitution. Even Section 89 of the Code of Civil Procedure, 1908 provides settling disputes by way of ADR. The proceedings are flexible and creative. It provides satisfying solutions with reduced cost and time and thus, is an emerging field in Law. The Parliament felt the need and passed an act regarding this matter. The article deals with an act on arbitration and conciliation known as Arbitration and Conciliation Act, 1996. It lays out the object, extent and applicability and discusses the important provisions under the Act.  

Applicability of the Arbitration and Conciliation Act, 1996

The Act applies to the whole of India but Part I, Part II, Part III and Part IV will extend to Jammu and Kashmir only if they relate to international commercial arbitration or conciliation. The Act was enforced on 22nd August 1996 but the ordinance was promulgated by the President on 16th January 1996. The other two ordinances i.e., Arbitration and Conciliation ordinances were passed on 26th March and 21st June 1996 respectively. 

Objectives of the Arbitration and Conciliation Act, 1996 

Earlier, the law on arbitration was dealt with under 3 acts which eventually became outdated. As a result of which the bodies of trade and industry and experts of arbitration demanded and proposed amendments to make the Act responsive and at par with the needs of the society. It was felt that the economic reforms in the country can only be dealt with if domestic and international commercial disputes and their settlement are not outside the purview of such reforms. The United Nations in 1985 adopted the Model Law on International Arbitration and Conciliation and asked all the countries to give due importance to it. This resulted in the enforcement of the said Act. The various objectives of the Act are:

  • Cover international and domestic commercial arbitration and conciliation comprehensively.
  • Make a procedure which is fair, efficient and capable of meeting the needs of the society for arbitration and conciliation. 
  • Provides reasons by the tribunal for granting any arbitral award.
  • Ensure that the tribunal does not exercise its jurisdiction beyond the limits. 
  • Minimise the role of courts and reduce the burden on the judiciary. 
  • It permits the tribunal to opt for arbitration and conciliation as a method of dispute settlement. 
  • It makes sure that every award is enforced in the same manner as the decree of the court. 
  • It provides that the conciliation agreement reached by the parties has the same effect as the award granted by an arbitral tribunal. 
  • It also works on the enforcement of foreign awards. 

Scheme of the Arbitration and Conciliation Act, 1996

The Act is divided into four parts:

  • Part I (Sections 2-43) – Applies to the place of arbitration in India. The award granted is treated as a domestic award. 
  • Part II (Sections 44-60) – Enforcement of foreign awards.
  • Part III (Sections 61-81) – Conciliation
  • Part IV (Sections 82-86) – Supplementary provisions

It contains three schedules:

  • Schedule I – Convention on the recognition of foreign awards of arbitration. 
  • Schedule II – Protocol to be followed on arbitration clauses.
  • Schedule III – Convention for the execution of foreign arbitral awards. 

Definitions under the Arbitration and Conciliation Act, 1996

Section 2 of the Act gives various definitions of some important terms given in the Act. These are:

  1. Arbitration – Section 2 (1)(a) of the Act defines arbitration as to any arbitration which is either administered or not by a permanent arbitral institution. 
  2. Arbitration agreement – Section 2(1)(b) of the Act says that for arbitration agreement Section 7 of the Act must be referred. 
  3. Arbitral award – this has not been defined clearly in Section 2(1)(c) but mentions that it includes interim award. 
  4. Arbitral tribunal – it means a sole arbitrator or panel of arbitrators who help in arbitration. (Section 2(1)(d))
  5. Courts – Section 2(1)(e) defines courts. It includes civil courts having original jurisdiction in a district and the High Court having jurisdiction to decide issues related to the subject matter of the arbitration. 
  6. International commercial arbitration – defined under Section 2(1)(f). It means arbitration in disputes arising out of a legal relationship, whether contractual or not and where one party is a national of another country, a body corporate in another country, company under the control of any other country or government of a foreign country. 
arbitration

Legal analysis of the Arbitration and Conciliation Act, 1996

Arbitration (Part I)

It is defined under Section 2 (1)(a) of the Act. It is an alternative to litigation in courts and is advantageous as it provides flexibility and confidentiality. According to Black Law Dictionary, it means a method of resolving disputes which includes two parties and a neutral third party whose decision is binding on both parties. 

Section 8 of the Act talks about the powers of any judicial authority to refer a case to arbitration. It must be followed by an arbitration agreement. The Hon’ble Supreme Court in the case of P. Anand Gajapati Raju v. P.V.G Raju (2000) gave certain requirements necessary for referring parties to arbitration:

  • An arbitration agreement must be there. 
  • A party must bring an action in court against others.
  • The subject matter must be the same as in arbitration.
  • One party demands arbitration in court. 

In another case of Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. (2011), it was held that there is no time limit to file an application but it should be filed before submission of the first statement related to the dispute. Further, Section 9 provides that the parties to arbitration may at any time refer to the court for interim measures. 

Types of Arbitration

  1. Domestic arbitration – It means that the proceedings of arbitration will take place as per Indian laws and be subject to Indian jurisdiction. 
  2. International and commercial arbitration – This is done in cases involving disputes out of a legal relationship where one of the parties is a foreign national, body corporated in some other country, a company or group which is under the control of some other country and government of a foreign country. 
  3. Institutional arbitration – It is administered by arbitration institutions like the Indian Council of Arbitration, the International Centre for Alternative Dispute Resolution (ICADR) etc. 
  4. Statutory arbitration – some acts provide for the resolution of disputes by arbitration. In case there is any inconsistency between any Act and Part I of the Arbitration Act then the provisions given in that Act will prevail. 
  5. Ad hoc arbitration – It means an arbitration where parties agree without any assistance from the Arbitral tribunal. 
  6. Fast track arbitration – It is also called documentary arbitration. The arbitration proceedings are very fast and time-saving. It is solely based on the claim statement by one party and its written reply by another. 
  7. Look–sniff arbitration – It is a combination of an arbitral process and the opinion of an expert. There are no formal submissions and hearings under this. 
  8. Flip–flop arbitration – It is also called pendulum arbitration. The parties in this type of arbitration create the cases before and then invite the arbitrator to decide any one of the two options. 

Advantages of arbitration 

  • A person appointed as arbitrator is based on the whims of the parties.
  • If parties agree only then an arbitral tribunal is taken into matter. 
  • It is inexpensive and saves time. 
  • It ensures a fair trial. 
  • Gives freedom to the parties from judicial intervention. 
  • Parties choose the place of arbitration themselves (Section 20).
  • The proceedings are kept private and confidentiality is maintained. 
  • The arbitral award is enforced in the same way a decree of the court is enforced. 

Disadvantages of arbitration

  • It does not always guarantee an expeditious resolution. 
  • The procedure is at times uncertain. 
  • It cannot give remedies like punishment, imprisonment, injunction, etc. which are given in courts. 
  • Due to flexibility, it is ineffective. 
  • The method cannot be easily used in disputes involving multiple parties. 

Cases not referred to arbitration

Generally, cases of civil rights where the remedy is the damages are referred to arbitration but Section 2(3) of the Act gives the list of such cases which cannot be submitted to arbitration. These are:

  • Winding up proceedings of any company. (Haryana Telecom Ltd. v. Sterlite Industries (1999);
  • Disputes that have to be determined by any particular tribunal as the law may provide;
  • Proceedings related to insolvency; 
  • Probate proceedings;
  • Question of will and genuineness;
  • Guardianship matters;
  • Succession disputes;
  • Disputes related to immovable property; 
  • Illegal transaction cases;
  • Proceeding under Section 145 of the Code of Criminal Procedure; and 
  • A criminal case cannot be referred to arbitration;

Arbitral tribunals

Composition of tribunals

It is the creation of an agreement which conforms with the law. Section 10 of the Act enables the parties to determine freely the number of arbitrators to settle their dispute. The only restriction is that the number of such arbitrators must not be even. If the parties are not able to decide then there will be only 1 arbitrator. But if there are even number of arbitrators then the agreement cannot be held invalid merely on this ground. (Narayan Prasad Lohia v. Nikunj Kumar Lohia, 2002) 

Procedure for appointment of arbitrators

Further, Section 11 of the Act provides the procedure for the appointment of arbitrators. The valid requirements for any such appointment are:

  • Party must give proper notice of appointment to the other party. If it does not do so, the appointment is held invalid. 
  • A person appointed as an arbitrator must be duly informed and his consent must be taken. 
  • The consent must be obtained before finalising his appointment. 

It also says that if the parties fail to appoint an arbitrator within 30 days of the request or if two arbitrators are appointed and not the third one, then the appointment will be made by Chief Justice or any person on his behalf designated by him but with the prior request of the parties. 

Termination of arbitrator

The grounds for termination are given under Section 14 and Section 15 of the Act. These are:

  • If he is not able to perform his functions without undue delay (whether de jure or de facto),
  • If he  withdraws or is terminated by the parties,
  • He shall be terminated where he withdraws himself or by agreement of the parties. 
  • On his termination, a substitute arbitrator will be appointed as per Section 15. 

Jurisdiction 

Section 16 of the Act provides that the tribunal will act in its jurisdiction. If the arbitral tribunal has no jurisdiction then a plea will be raised but not later than when the statement of defence is submitted. It also provides that in case a party is not satisfied with the arbitral award, it can make an application to set it aside according to Section 34 of the Act. The Supreme Court in the case of Centrotrade Minerals and Metals v. Hindustan Copper Ltd. (2006), held that any issue related to the jurisdiction can be raised by people in the proceedings or anyone from outside. But if it is made by the party then it must be done during the proceedings or at the initial stage.  

Arbitral award 

It is a final determination of a claim or a part of it or a counter-claim awarded by the arbitral tribunal. It must be written and duly signed by the members of the arbitral tribunal as given under Section 31 of the Act. The Section further gives the power to the tribunal to make interim awards for any matter. In case of payment of money, it can award the interest which seems reasonable, just and fair to the tribunal. 

Section 32 of the Act empowers the arbitral tribunal to terminate the proceedings by making a final arbitral award. The procedure for any correction in the award or its interpretation is given under Section 33 of the Act. It also gives the power to the tribunal or the arbitrator to amend, correct or remove any errors of any kind within 30 days but is silent on judicial review. The tribunals cannot exercise their jurisdiction beyond whatever has been mentioned in this section. 

Types of arbitral awards

  1. Interim award – It is the determination of any issue arising out of the main dispute. It is a temporary arrangement to satisfy a party and is subject to the final award. 
  2. Additional award – According to Section 33 of the Act, if the parties find that certain claims have been missed out by the arbitral tribunal and they were present in the proceedings then it can after notifying other parties, make a request to the arbitral tribunal to make an additional award and cover the claims which have been left. 
  3. Settlement awards – It is made if the parties agree on certain terms of the settlement. As per Section 30 of the Act, the arbitral tribunal may use any method of dispute resolution like mediation, conciliation or negotiation to bring a settlement between the parties. 
  4. Final award – It is an award which finally determines all the issues in a dispute. It is conclusive unless set aside by courts and binding on the parties. 

Recourse against arbitral awards

Under Section 34 of the Act, a party if not satisfied can make an application to set aside the award granted by an arbitral tribunal. The time limit to make such an application is not more than 3 months from the date the arbitral award was made. The grounds are:

  • Incapacity of parties.
  • Non-existence of the agreement of arbitration.
  • Did not follow the due process. 
  • Error on the part of the arbitral tribunal to exercise its jurisdiction. 
  • Improper composition of the arbitral tribunal.
  • The subject matter is not capable of being referred to arbitration. 
  • It is against public policy. 
  • Fraud or corruption.

Section 37 of the Act provides that if a person is not satisfied with the order passed by the tribunal, he/she can appeal to the court.  However, there are no provisions for a second appeal once an appeal has been made. In the case of Pandey and Co. Builders Pvt. Ltd. v. State of Bihar (2007), it was held that the appellate authority in any case which is referred to arbitration must be decided from the definition of court given under Section 2 of the Act.  

Foreign awards (Part II)

Foreign awards are given in the disputes arising out of some legal relations which can either be contractual or not and are considered under any commercial law of the country. In simple terms, it means the awards given in International commercial arbitration.  Foreign awards are granted in foreign countries and are enforceable in India under the Act. It is divided into two chapters:

The foreign award related to the New York Convention is given under Section 44 of the Act and that related to the Geneva Convention under Section 53 of the Act. The conditions to enforce these awards in the country are given under Section 48 and Section 57 of the Act respectively. 

Conciliation (Part III)

It is a process in which a third party helps the parties in dispute to resolve it by way of agreement. The person authorised to do so is called a Conciliator. He may do it by giving his opinion regarding the dispute to help parties reach a settlement. In other words, it is a compromise settlement between the parties. 

Features of conciliation

  • The person assisting the parties to come to a compromise is called a conciliator. 
  • Conciliators give their opinion regarding the dispute. 
  • The process of conciliation is voluntary. 
  • It is a non-binding process.
  • The main difference between arbitration and conciliation is that, unlike arbitration, the parties in this process control the whole procedure and the outcome. 
  • It is a consensual party and the desired outcome is the final settlement between the parties based on their wishes, terms and conditions. 
  • A conciliator can become an arbitrator on the wish of the parties if no compromise could be reached by the process of conciliation. This is known as Hybrid Conciliation. 
  • The settlement agreement will have the same importance and status as the arbitration award. (Section 74)

Proceedings of Conciliation under the Act

  • Section 62 of the Act provides that in order to initiate the conciliation proceedings one party to the dispute has to invite the other party in writing for conciliation. However, there will be no proceedings if the other to whom notice/invitation is sent, reject it or does not reply. 
  • The general rule states that there must be one conciliator but in the case of more than one conciliator they have to function together with each other as per Section 63 of the Act. 
  • The appointment of the conciliator like an arbitrator will be done by the parties themselves under Section 64 of the Act. 
  • A party according to Section 65 of the Act is under an obligation to submit in writing the nature of the dispute and all the necessary information related to it to the conciliator. 
  • The proceeding can be terminated following any of the procedures given under Section 78 of the Act. 

Role of conciliator

It is mentioned under Section 67 of the Act:

  • He must be independent and impartial. 
  • He must assist the parties to come to a settlement.
  • He is not bound by the procedure given under the Code of Civil Procedure, 1908.
  • He must adhere to the principles of fairness and justice. 

Supplementary provisions (Part IV)

Landmark case laws

Haryana Space Application Centre (HARSAC) v. Pan India Consultants Pvt. Ltd. (2021)

Facts of the case 

In this case, an application was filed under Section 29 A(4) of the Act wherein it was stated that the decision of the arbitral tribunal was ready to be pronounced by the authorities. Also, the required cost was paid to the tribunal. On this, the other party argued that the application must be denied on the ground that it lacks reasons for extension under the Section. However, the argument was rejected and an extension of 3-months was granted. HARSAC in a response filed a revision in the High Court. But it again granted a four-month extension. To this, a special writ application was filed to the Supreme Court. 

Issue involved in the case

Whether the extension be given to the party or not?

Judgement of the Court

It was ruled by the court that the clause given in Section 12 is obligatory when it is dealt together with the Schedule of the Act. It was also held that the Principal Secretary is not qualified to be an arbitrator. If been the one, he would probably influence HARSAC. The court also directed to appoint another arbitrator who will continue the proceedings and help them come to an agreement within 6 months. 

Indus Biotech Pvt. Ltd. v. Kotak India Venture Fund (2021)

Facts of the case

Indus Biotech issued some preference shares which are convertible at the option to funds of Kotak India. A clause was added in the agreement of shareholders but they could not agree on how to convert these shares into paid-up equity shares. As a result, Kotak India filed an application when the other party failed to redeem those shares. 

Issue involved in the case

Whether the subject matter of the dispute falls in those that could be referred to arbitration if the case is pending in NCLT?

Judgement of the Court

The Supreme Court opined that the case cannot be referred to arbitration if the process is in rem. It further stated that if any proceedings are pending before NCLT under Section 7 of IBC, then any application under the Arbitration and Conciliation Act, 1996 will not be entertained. In the instant case, the Supreme Court held that the decision of NCLT was reasonable and the case (Indus Biotech Pvt. Ltd. v. Kotak India Venture Fund, 2021) was successfully referred to an arbitral tribunal. 

Oriental Structural Engineers Pvt. Ltd. v. State of Kerala (2021)

Facts of the case

In this case, there was a contract to upgrade the segments of roads. The contractor demanded extra interest for any late payment. But in the letter, there was no such provision of any interest on late payments. 

Issue involved in the case

Whether the contractor must get such interest even when it is not mentioned in the letter?

Judgement of the Court

The Supreme Court held that if the tribunal wishes, it can grant interest as a compensatory award to the contractor. It also referred to the case of G.C. Roy v. Secretary Irrigation Department (1991). The fact that the payment of interest in such cases was not excluded particularly in the agreement was taken into consideration. But the rate on such payment was missing and not agreed upon by the parties. The High Court in this same asked the parties to fill up the blank details that they left in the appendix. The Supreme Court held that this decision was incorrect and impermissible. It ruled that the tribunal was right in providing compensation as there was no clause in the contract which mentioned exclusion of payment of interest if the payment was delayed.  

Conclusion 

The Act deals with alternate dispute resolution methods which are effective, cost-friendly, and time-saving. Due to the pendency of cases and rigid procedural laws of the courts and to prevent litigation, people nowadays generally prefer settling a dispute outside the courts with the help of ADRs like arbitration, conciliation, mediation etc. The Act provides the procedure to be followed in arbitration proceedings, arbitral tribunal, the conduct of the tribunal along with the arbitral awards to be made in a dispute. The decision is binding on the parties and given in the form of an arbitral award in an arbitration agreement. It also prescribes the procedure of appeal to courts in case of discrepancies. 

Frequently asked questions

What is arbitration?

According to Black Law Dictionary, it means a method of resolving disputes which includes two parties and a neutral third party whose decision is binding on both parties. 

What were the previous acts related to arbitration in the country?

There were 3 acts dealing with the arbitration in India:

  • The Indian Arbitration Act, 1940
  • The Arbitration (Protocol and Convention) Act, 1937
  • Foreign Awards (Recognition and Enforcement) Act, 1961

However, these Acts have been consolidated into one and repealed by The Arbitration and Conciliation Act of 1996. 

Which law is the basis of the Act of 1996?

It is based on Model Law on International Commercial Arbitration adopted in 1985 UNCITRAL. 

What is the difference between conciliation and mediation?

Unlike in conciliation, the mediator in mediation does not give his opinion regarding the dispute. Neither he is given the power to impose a settlement but a conciliator has this power. His only function is to resolve the deadlock and encourage parties to reach a reasonable settlement. 

In how many parts and schedules has the Act been divided?

The Act is divided into four parts:

  • Part I (Section 2-43) – Applies to the place of arbitration in India. The award granted is treated as a domestic award. 
  • Part II (Section 44-60) – Enforcement of foreign awards.
  • Part III (Section 61-81) – Conciliation
  • Part IV (Section 82-86) – Supplementary provisions

It contains three schedules:

  • Schedule I – Convention on the recognition of foreign awards of arbitration. 
  • Schedule II – Protocol to be followed on arbitration clauses.
  • Schedule III – Convention for the execution of foreign arbitral awards. 

What do you mean by foreign award?

Foreign awards are granted in foreign countries for any dispute referred to arbitration in international cases and are enforceable in India under the Act. It is divided into two chapters under the Act:

  • The New York Convention
  • The Geneva Convention 

References 

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Property disputes and memorandum of settlement in India with a view on family disputes

By
Sneha Mahawar
-
0

This article is written by  Tulna Rampal, 5th Year BBA LLB(H) student of Vivekananda Institute of Professional Studies, New Delhi pursuing a Diploma in US Intellectual Property Law and Paralegal Studies. This article has been edited by Ojuswi (Associate, Lawsikho). 

This article has been published by Sneha Mahawar.

Introduction

An old saying, “Blood is thicker than water” is an accepted notion in our society, where immense importance is given to family members before any other relatives or friends. Such a notion gets tainted once the family is involved in court disputes over the partition of their property. Things that could be amicably sorted out with the help of mutual understanding, get dragged to the courts, thus disintegrating their cordial ties and creating a rift between the members.

In such situations, The Memorandum of Family Settlements (also known as MOFS) is a great instrument to adopt for mutually deciding on terms of distribution of the property. It consists of orally agreed terms of the division of properties between them. It is the best solution against a lengthy tenure in the litigation process. This article focuses on the family disputes arising because of property and also talks about how the memorandum of family settlements has completely changed the perspective on property disputes in India.

Property disputes between blood relations

Property disputes are a very common occurrence among Indian families, especially joint families. Ancestral property is divided among the legal heirs and thus the problem escalates when one member of the family intends for partition while the other member objects to their proposal. It has now become a part and parcel of every family dispute. What most people don’t realize is that the litigation process for family disputes takes a long course in court battles and becomes a very tedious and expensive procedure that in the end, does not even guarantee sufficient or adequate results. Even the Indian judicial system cannot give the assurance whether the current generation or the generations to come will get the desired outcomes, and that too is in their favour or not. There are innumerable suits for partition pending before our judiciary that are still waiting to be disposed of. Hence, such a long, tiring, and complex procedure hinders families from entering this judicial arena. 

Concept of memorandum of family settlements

In layman’s terms, a Memorandum of Family Settlements refers to a written document that states the arrangement between family members and acts as a record of the mutual agreement regarding the terms of the division of property. It is done for mutual benefit and to avoid tedious litigation resulting in bad blood and discourse among family members. One can avoid the hardships and shortcomings of lengthy, time-consuming legal procedures with this Memorandum of family settlements. This is the best tool available for harmoniously solving family disputes. Some people confuse this with the Partition deed. However, there exists a distinctiveness between the two. The MOFS records the already orally agreed terms and conditions regarding the property whereas partition deeds only state the rights and titles on the property, which is eventually mandatory to register. If the MOFS alters any rights and titles to the property, the registration becomes mandatory. There exist certain essentials for family settlements which are laid down in the Supreme Court’s judgment in the landmark case of Kale vs Deputy Director of Consolidation, [1976 AIR 807] wherein it states that

  • Family settlements should be bona fide 
  • Family settlements must be voluntary and should not be induced by fraud or coercion or undue influence
  • The said settlements maybe even oral, wherein no registration is mandatory
  • Registration is only necessary when the family settlement is reduced to writing
  • There should exist an intention to resolve the dispute and the existing antecedent title 

Apart from this landmark case, there are numerous judgments upholding the validity of the Memorandum of family settlements, thus deeming it to be of higher judicial hold.

Process and legal requirement of family settlement

The essential conditions have already been explained but there also exist some legal requirements for family settlements. First and the foremost step is to execute the Memorandum of family settlement with the help of a third person, usually a senior member /lawyer. The lawyer helps in understanding both parties’ contentions and mutually agreeing on common grounds. Furthermore, it must be signed by all the parties/ family members involved in the settlement dispute. Then the next step would be to register the MOFS under section 17 of the Indian Registration Act, 1908 (which is optional if it is an oral agreement). It is pertinent to mention that this instrument should not be treated as a sale deed or gift. While a duly executed memorandum of family settlement cannot be revoked, except with a court decree, it can be challenged. 

Case study and judicial analysis

Khunni Lal & Ors. vs Kunwar Gobind Krishna Narayan & anr,1911 (13) BOMLR 427

In this judgment, the Bombay High Court stated that if the family relinquishes all their claims in the property disputes so as to appear as if they have concluded a settlement between the family members, the court will deem it to be a family settlement and it is the duty of the courts to uphold such arrangements.

S. Shanmugan Pillai & ors. vs K. Shanmugan Pillai & ors.,1972 AIR 2069

In this case, the Supreme Court inclined toward family arrangements that bring about harmony, by way of amicable settlement of any property dispute arising between the close relations. Further, the court shall be reluctant to disturb any peaceful settlement that may arise through mutual consensus of the parties involved.

Tek Bahadur Bhujil vs Devi Singh Bhujil, 1965 AIR 1966 SC 292

The Supreme Court in its judgment validated oral family arrangements and held that registration is compulsory if the arrangements are in writing.

Mt. Mahadei Kunwar vs Padarath Chaube & anr., AIR 1937

In this judgment, The Allahabad High Court held that some family arrangements could consider the transfer of property and settlement of a dispute. It is to the discretion of the court whether a family arrangement requires compulsory registration or not. In the end, it was concluded that if the family arrangement involved a declaration of rights, then, it requires registration.

The present position of law with regards to mofs

The most recent Supreme Court case on this subject is that of Ravinder Kaur Grewal & Ors. vs Manjit Kaur & Ors. 31st July 2020, A Three-judge bench eradicated the error in deciding this case by the Hon’ble High Court of Punjab and Haryana by reversing their judgment. The facts of the case are:

A family settlement was drawn between closely related parties with the intervention of their known people and family members. In the said settlement, the plaintiff was accepted and acknowledged to be the exclusive owner. However, after execution new issues were raised.
Thereafter, the parties filed a plea in the court claiming that they were the owner of the property according to the terms of the Memorandum of Settlement. The first Appellate court in its judgment allowed the appeal filed by the petitioner and decreed the suit. This urged the defendants to file a second appeal in the High Court of Punjab and Haryana. The High Court in its judgment reversed the decree of the Appellate court stating that registration is required for a document that creates a right in favour of the plaintiff for an immovable property in which he had no pre-existing rights Aggrieved by the judgment of the High Court, the petitioner approached the Supreme Court. 

The Supreme Court in its observations concluded that the High Court did not deal with the factual aspects of the matter properly. The apex court further observed that between the parties, not only a univocal family arrangement had been established but also the same had been actively performed by them. In its ruling, the Supreme Court reiterated that a Memorandum of family settlement is just a recording of the terms of settlement between the parties which was previously agreed between them, and in such a case, the registration of such document is not compulsory yet valid before the law as it in itself does not create or extinguish any right or title. The Hon’ble Supreme Court heavily relied upon the jurisdictional court’s judgment in Kale (supra) to conclude that a family arrangement should be considered legal instead of invalidating the same on technical grounds and further that the Memorandum of Settlement, which is prepared after a family arrangement has been entered into and solely exists for the purpose of the record or for information of the court for making necessary mutation, did not have to compulsorily be registered under Section 17 of the Indian Registration Act, 1908.

This case was also earlier referred to a three-judge bench to answer the issue of whether a person claiming the title by virtue of adverse possession can maintain a suit under Article 65 of the  Limitation Act,1963 for a permanent injunction seeking protection of his property. The three-Judge bench in its observation had concluded that there is no bar on the petitioner under Limitation Act,1963 and he can sue in the case of infringement of any rights.

Conclusion

As it is rightly said, where wealth accumulates, moral values decay. The tussle for property has blindsided family members and close ones as they are bent upon distorting their harmonious and amicable relations over property disputes by lingering on a suit for partitions in courts. The best alternative for such family disputes is the Memorandum of Family settlements, which has time and again proven to be more beneficial in saving cordial ties with our loved ones while simultaneously saving judicial time. The execution of MOFS should be done carefully as the registration requirement would entirely depend on the drafted terms of the MOFS. It should not be open to interpretation as that would attract provisions of partition deed and further attract payment of stamp duty. The Supreme court has also given many judgments upholding the validity of the Memorandum of family settlements, thus deeming it to be of higher judicial hold. Thus, in conclusion, MOFS has been a game-changer in family disputes over property by curating a much better alternative than the arduous task of litigation.

Reference

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

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

https://t.me/lawyerscommunity

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

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Criminal defamation

By
Rachit Garg
-
0
Mischief

This‌ ‌article‌ ‌has‌ ‌been‌ ‌written‌ ‌by‌ ‌‌Sujitha‌ ‌S‌,‌ ‌pursuing‌ ‌law‌ ‌at‌ ‌the‌ ‌School‌ ‌of‌ ‌Excellence‌ ‌in‌ ‌Law,‌ Chennai.‌ ‌This article focuses on criminal defamation, its relevant legal provisions, punishments, the recent debate on decriminalization and their position in other countries, highlighted with case laws.

It has been published by Rachit Garg.

Table of Contents

Introduction

“Every man is entitled to have his reputation preserved inviolate.” -Blackstone J.

Our democratic setup guarantees us a number of fundamental rights, the most essential of which are the right to freedom of speech and expression [Article 19(1)(a)] and the right to life (Article 21). Including these rights, the law imposes various limitations to safeguard harmony and security, including Sections (499–502) of the IPC and Article 19(2) of the Constitution. It may be determined that unrestricted rights are detrimental to the community. We live in a modern age where everyone has the right to live with dignity, honour, and integrity, and thus, the right to reputation should be treated equally to our other fundamental rights such as life, liberty, and property. To guarantee this, certain legal provisions against defamation were included in our legislation. Besides, defamation is a civil as well as a criminal offence in India.  This article deals with criminal defamation, which is incorporated under the Indian penal code.

Defamation

The Latin word “Diffamare” is the root word for the term “defamation,” which means ‘spreading a malicious word about someone.’ In simple words, defamation is nothing but undermining another’s reputation. Here are a few definitions to help you out.

  • In Parmiter v. Coupland (1840), Parke B. defined defamation as a publication made without justification or valid excuse with the intent of injuring another’s reputation by presenting him to hate, contempt, or ridicule.
  • According to the Faulks Committee in England in 1975, defamation is defined as the publishing of a matter to a third party which, under all the circumstances, would likely impact a person negatively in the opinion of reasonable persons.
  • In the English case of Scot v. Sampson (1882), Justice Cave defined defamation in the most straightforward way possible. He defines it as “a false statement made  on a man for his discredit.” This definition is shorter, but it captures the essence of the term.

As said before, defamation is both a civil and a criminal offence. Further, while there is a codified criminal law on the matter, there is no codified civil law on defamation. To be specific, Sections 499 to 502 of the Indian Penal Code, 1860, deal with defamation. Moreover, defamation as a civil wrong is protected under the Law of Torts. It is solely dependent on precedents and principles of common law.

Difference between criminal defamation and civil defamation

SubjectCriminal defamationCivil defamation
ObjectiveThe objective is to punish the wrongdoer, to ensure that no other person does the same.The objective is to amend the wrong committed by the person.
Branch of lawIndian Penal CodeLaw of torts
Codification of lawCodifiedUncodified
Legal provisionsSections 499-502 of IPCNo concerned provision
JudgmentJudgment is based on penal provisions.Judgment is based on precedents and common law principles.
PunishmentImprisonment or fine or bothCompensation

Criminal defamation

new legal draft

Moving on to criminal defamation, the main feature distinguishing a criminal from a civil defamation case is the objectives they strive to accomplish. To be more clear, criminal defamation is clearly elaborated in Indian law under Section 499 of the Indian Penal Code (IPC).

Section 499 IPC

  • According to Section 499, defamation can take place through words spoken or intended to be read, signs, and visible representations published or spoken about a person with the intent of damaging that person’s reputation, or with the sufficient knowledge to believe that the imputation will affect his reputation.
  • Illustration: ‘A’ is questioned about who took B’s watch. ‘A’ makes a gesture toward ‘Z’, implying that ‘Z’ has stolen B’s watch. Unless one of the exceptions applies, this constitutes defamation.
  • The words “makes or publishes” are highlighted in this section. The essence of the offence is the spreading of injurious imputation. When a defamatory remark is published, not only the publisher but also the maker is held liable. It is essential that the imputation be transmitted to a third party in order to establish the offence, because the purpose is to incite hatred of others.

Essential ingredients of Section 499 IPC

Reference to an aggrieved party

  • An imputation about a specific person or individual whose identity may be ascertained must be included in the remarks. It is not necessary for the person to be a single individual.
  • In CL Sagar v. Mayawati (2003), the accusation was that the vice president of a political party defamed the complainant by saying in a public assembly that the party’s member with a lengthy mustache was a corrupt person. The complaint was unable to demonstrate that he was the only party member with a lengthy mustache. There was no such statement in the meeting’s press report. So, there was no offence. 

Intention

  • The words, signs, and imputations made by the person must either be intended to injure the reputation of an individual, or the accused must rationally know that his or her behaviour might cause such injury to constitute defamation.
  • In S Khushboo v. Kanniammal (2010), since the appellant’s statement in the news magazine was a rather general acknowledgment of pre-marital sex and her comments were not directed at any individual or even a corporation, an association, or a collection of persons, it was held that it could not be construed as a personal attack on anyone’s reputation. 

The statement must be defamatory 

  • Whether a remark is defamatory or not is determined by how right-thinking people in the community interpret it. It is no defence to claim that the comment was not intended to be defamatory if the foreseeable impact was an injury to the plaintiff’s reputation. For example, the statement that ‘X’ is an honest man who has never stolen my watch in a sarcastic tone may be defamatory if the people who hear that, so believe that ‘X’ is a dishonest man who has stolen the watch.
  • In Goutam Sahu v. State of Orissa (1999), the appellant married the plaintiff in a temple by exchanging garlands. He stayed with her for several days before demanding money and describing her as an unchaste woman with bad looks. According to the Orissa High Court, the components of Section 500 were prima facie established, and the accused was consequently subject to prosecution.

Forms of defamation

  • Such an imputation must have been made by
  1. Words, uttered or intended to be read; 
  2. Signs/gestures; or 
  3. Visible representations
  • In Jacob Mathew v. Manikantan, (2013), the complainant claimed that four images of an event were published in a newspaper, one of which revealed the complainant more or less undressed, causing defamation and injury to him. As the images were taken spontaneously to cover the event and not aimed to cover any particular person, it can never be said that the images were published in the newspaper with the intent, knowledge, or cause to think that they would hurt the complainant’s reputation. Proceedings are liable to be quashed.

Making or publishing any imputation

  • The term “publication” refers to making the defamatory matter known to someone other than the individual who has been defamed. Imputations on a charge sheet delivered to the employee, for example, do not constitute publishing. Furthermore, communicating an imputation merely to the individual who has been defamed is not the same as publishing.
  • In Sukhdeo v. State (1932), the president of the Municipal Committee sent a letter under a Municipal Act to a specific person, who responded with defamatory claims against the president. The president filed this response in the official file, and the members of the committee reviewed it. It was determined that the defamation had been published. The President’s placement of the reply on the official file was not a spontaneous or voluntary act on his behalf; it was his responsibility, and the accused knew or must have known that the contents of his reply would be disclosed to committee members.

Exceptions to Section 499 IPC

First Exception: Imputation of truth which public good requires to be made or published

  • It is not defamation to imply anything that is true about another person if the imputation is made or published for the public benefit. It is an issue of fact, whether it is for the public interest or not.
  • To qualify for this exception, the accused must demonstrate that the statement he made was truthful in both substance and effect, not only in part. To prove that the statement was published for the public good or not, an investigation must be conducted into whether the publication aimed to provide any benefit to the whole or part of the public.
  • In Rajendra Vishwanath Chaudhary v. Nayantara Durgadas Vasudeo (2012), there was a civil dispute between the parties over the property where the complainant’s school is located and managed. While the dispute was underway in civil court, the accused’s warning to the parents to enrol their children at their own risk in the summer program could not be regarded as defamatory or damaging to the complainant’s reputation. So, the aforesaid caution notice may not be regarded as imputations actionable under Section 499 of the IPC, 1860.

Second Exception: Public conduct of public servants 

  • It is not defamation to state in good faith any view about a public servant’s conduct in the performance of his official responsibilities, or about his character, to the extent that his character shows in that conduct, and no further.
  • Every person has the right to speak on public officials’ actions that affect him as a citizen of the country, as long as their comments are not wrapped in hatred. In order for a comment to be fair,
    • It should be based on the true facts.  
    • It should not impute corrupt or dishonest motives to the person whose conduct or work is being criticised unless such imputations are justified by the facts.
    • It must be an honest and fair observation of the writer’s true perspective.
    • It must be for the common good.
  • In Radhelal Mangalal Jaiswal v. Sheshrao Anandrao Lad (2011), the Bombay High Court stated that any comment voiced in good faith by a government servant while engaging in the execution of his responsibilities would not be considered defamation. This suit focuses on a comment made by a Panchayat member. A member of the Panchayat helping a court of justice is included in the term of “public servant” under Clause 5 of Section 21 of the Indian Penal Code, 1860. As a result, members of the Panchayat’s view, given in good faith to help the Court of Justice, does not constitute defamation.

Third Exception: Conduct of any person touching any public question

  • It is not defamation to express in good faith any view on any person’s conduct in respect to any public issue, and to respect his character only to the extent that his character is revealed in that conduct. Publicists who participate in politics or other problems affecting the public might be criticised in good faith.
  • Comparative advertisement: A commercial advertisement is a type of speech, and “commercial speech” is protected by Article 19(1)(a) of the Constitution as part of the right to freedom of speech and expression. Comparative advertising is a form of advertising in which one party promotes his or her goods or services by contrasting them with those of another. The marketer has the right to brag about its technological superiority over the competitor’s goods. He cannot, however, degrade the competitor’s goods while doing so. Negative marketing is not permitted if the advertisement is a suggestive campaign against a competitor’s goods.
  • In Nippon Sheet Glass Co., Ltd. v. Raman Fibre Sciences Pvt. Ltd. (2011), the claim was that an advertisement by the petitioner and associated traders disparaged the respondents’ company. The associated traders confirmed that they carried out the supposed advertising on their own and that the petitioner company had no involvement. The petitioner is not charged with a crime under Section 500 of the Indian Penal Code (1860).

Fourth Exception: Publishing reports of court proceedings

  • Publication of a substantially true report of a Court of Justice’s proceedings, or the result of any such proceedings, is not defamation.
  • When judicial proceedings take place in an open court before a legally constituted judicial panel, the publishing, without malice, of a fair and accurate report of what happens before that tribunal is privileged.
  • In Maksud Saiyed v. State Of Gujarat & Ors. (2007), the appellant had business with the respondent company. Dena Bank had given the appellant a loan. As the loans were not recovered, an initial application was brought against him before the Ahmedabad Debts Recovery Tribunal for the recovery of Rs. 120.13 lakhs. Meanwhile, based on the pending suit, the respondent firm brought claims against the appellant business’s Managing Director. The Supreme Court concluded the statement that the issue was pending before the Debts Recovery Tribunal instead of the City Civil Court in Ahmedabad, could not be considered defamatory in and of itself, given the fact that a suit was pending.

Fifth Exception: Merits of the case decided in Court or conduct of witnesses and others concerned

  • It is not defamation to express in good faith any opinion about the merits of any case, civil or criminal, that has been decided by a Court of Justice, or about the conduct of any person as a party, witness, or agent in any such case, or about the character of such person, to the extent that his character appears in that conduct, and no further.
  • The court’s decision, the jury’s verdict, and the conduct of the parties and witnesses can all be made open to public debate. However, critique must be expressed in good faith and in a fair manner.
  • In Harbans Singh v. State of Rajasthan,(1998), the topic of whether the word “shatir” was defamatory was considered. According to the Rajasthan High Court, the term “shatir” may be offensive and disagreeable, but it is not always defamatory. The court’s decision to dismiss the case was upheld.

Sixth Exception: Merits of public performance 

  • It is not defamation to express in good faith any view on the merits of any performance that its author has presented to the public’s judgement, or about the author’s character, so far as it is shown in such performance, and no further.
  • The purpose of this exception is to allow the public to be assisted in its evaluation of the public performance under review. All types of public performances can be legitimately criticised as long as the criticisms are presented in good faith and in a fair manner. Under this exception, good faith does not require logical infallibility, but rather proper care and attention.
  • In Ranganayakamma v. K Venugopala Rao (1987), the appellant criticised the complainant’s preface to a book. In his defence, the appellant used exceptions 6 and 9 of Section 499. The Andhra High Court noted that the section of the petitioner’s critique that uses two defamatory terms has nothing to do with the substance of the complainant’s ‘Preface.’ The defamatory statements cannot be deemed to have been made in the public interest. As a result, the court determined that the petitioner was not protected under either the sixth or ninth exceptions.

Seventh Exception: Censure passed in good faith by a person having lawful authority over another

  • It is not defamation for a person who has power over another, whether given by law or growing out of a legitimate contract, to pass in good faith any criticism of the other person’s behaviour on issues to which such valid authority pertains.
  • This exception authorises a person under whose control others have been put, either by their own accord or by law, to criticise, in good faith, those who have been placed under his authority, inasmuch as that authority relates to the situation at hand. However, if this privilege is abused in any manner, the crime will be constituted.
  • Even if a man makes a good faith report to a servant’s master about the servant’s behaviour, he is not secure if he publishes the complaint in a newspaper.
  • A spiritual superior may be guarded by privilege when reciting and publishing a sentence of expulsion as long as the publication is limited to what is necessary to accomplish the purpose for which the privilege is granted, such as the censure of a member in religious matters or the communication of a sentence he is authorised to pronounce to those who are to be guided by it. 
  • In ADM Stubbings v. Shella Muthu, (1972), the plaintiff was dismissed from service after a full domestic inquiry in which the plaintiff was given the chance to protect himself. The result of such a domestic inquiry saying that the allegation was true could not form the basis of a defamation case because it is fully protected by exceptions 7 and 8 of Section 499, IPC, 1860. Holding otherwise would result in the administration of justice being hindered.

Eighth Exception: Accusation preferred in good faith to an authorised person

  • It is not defamation to make in good faith an accusation against someone to anybody who has authorised jurisdiction over that person in relation to the subject matter of the charge.
  • In order to establish a defence under this exception, the accused would have to show that the person who lodged the complaint had legal authority over the person who was being charged in the situation at hand. Besides, in a criminal defamation case, even defamatory allegations stated in a plaint are not completely protected.
  • In Yadav Motiram Patil v Rajiv G Ghodankar (2010), the accused No. 1 and other members of the society reached out to the police because the message they received contained some indecent images and defamatory statements against the accused No. 1’s daughter, and they expected assistance, which could include necessary action against the criminal. The issue is clearly protected by exception 8, and no case under Section 500 of the Indian Penal Code, 1860, could be brought out.
  • To be eligible for this exception, the charge must be made to a person in power over the person accused, and it must be made in good faith.

Ninth Exception: Imputation made in good faith by a person for the protection of his or others’ interests

  • Making an imputation on the character of the other person is not defamatory if the imputation is made in good faith to defend the interests of the person making the imputation, or anybody else, or for the public good.
  • According to this exception, the party to whom the information is communicated has an interest in safeguarding the person making the accusation. Apart from the maker’s bona fides, the person to whom the imputation is communicated must share a shared interest with the imputation maker that is served by the communication.
  • This exception applies to any imputation made in good faith, whereas the first exception only applies to genuine imputation for the public benefit. The accused must show that he responded in good faith.
  • In Vedurumudi Rama Rao v. Chennuri Venkat Rao (1997), a bank’s regional manager sent a private circular to his region’s branch managers, instructing them to exercise caution when dealing with people on the list, including the complainant. In the public interest and on orders from the Central Office, he published the directive in his executive capacity. According to the Court, the circular was protected under Exception 9. As a result, even if the accusations in the complaint were true, no violation of Section 500 would be established.

Availability of protection

  • Club committee: This exception provides protection to the members of a social club or committee, even if they are wrong, without which such a group would be unable to exist.
  • Communication by a member of a caste: If a member of a caste publishes a caste recommendation to all of its members in the performance of a duty, the law considers the occasion of the publishing to be privileged. However, the member who publishes must act in good faith, i.e., it must be demonstrated that the publication was done with proper care and attention.
  • Privileges of Judges, etc.: This exception covers the privileges of parties, counsel, attorneys, pleaders, and witnesses. It also protects statements made in pleadings and reports to supervisory officials. 
  • Witness: Relevant remarks made under oath or solemn affirmation in a court hearing are not totally shielded in a defamation case, but are governed by exceptions laid down in Section 499.
  • Vicarious liability: When it comes to a partnership firm, if the complainant did not state anything against the other partners under oath, then the other partners could not be held vicariously liable.
  • Communication with one’s counsel for legal advice is not a publication: Due to their close relationship, communication between a client and his lawyer is not published. When it comes to legal obligations, the lawyer and the client are one and the same.
  • Reports: This exception covers a report written by an officer in the course of his duties, under his superior’s directions, that makes defamatory imputations about others but does not appear to have been made carelessly or unjustifiably. A completely fake report, on the other hand, will not be protected.

Tenth Exception: Caution intended for the good of a person to whom it is conveyed or for the public good

  • It is not defamation to send a caution to one person against another person in good faith, provided that the caution is meant for the good of the person to whom it is conveyed, or for the good of someone in whom that person has an interest, or for the benefit of the public.
  • In David Paul Moradith v. Judith Maria (2002),  the petitioner was in control of the school’s day-to-day operations. The petitioner and the board are reported to have received the respondent’s resignation. Eventually, the petitioner sent a letter suspending the respondent for the alleged theft of school money. On the same day, the petitioner sent a letter to all of the parents, informing them of the situation. He also informed the parents that he had no choice but to take action because the school’s financial situation was poor. Following that, the respondent filed a complaint. The petitioner contended that the issuance of the letter to all parents falls under exceptions 1, 9 and 10, and therefore the complaint contains no evidence of an offence. The court, on the other hand, rejected the petitioner’s defence and found him liable.

Punishment for defamation

Defamation is punished under Sections 500, 501, and 502 of Chapter XXI of IPC. The offence is non-cognizable and bailable, according to the Criminal Procedure Code (1973), which sets forth the procedural parts of the legislation. 

Section 500 IPC

  • If a person is convicted of defamation under Section 499 of the IPC, the punishment is specified in Section 500, which includes simple imprisonment for up to two years or a fine, or both.
  • To constitute the offence of criminal defamation, the accused’s words, signs, or imputations must either be meant to injure the reputation of a person or the accused must have reasonable knowledge that his or her behaviour may do so.
  • In Subhash K Shah v K Shankar Bhat (1993), the respondent, a weekly editor, wrote a piece in his publication containing defamatory allegations about the petitioner, a Class I officer from a reputed business family. Until his conviction, the editor offered no apologies. Subsequently, the sentence was increased from a fine to rigorous imprisonment of two months and a fine of Rs. 2,000.

Section 501 IPC

  • The printing of defamatory content is prohibited under Section 501 of the Indian Penal Code. It states that anybody who prints or engraves a matter of defamatory nature, knowing or having cause to suspect that such a matter is defamatory, would damage the person’s reputation and bring embarrassment and disgrace to his or her character.
  • In simple words, this section checks for printed defamatory content and makes sure that the person who printed it is punished. 
  • This section provides for a maximum sentence of two years in prison, a fine, or both.
  • In Editor, Deccan Herald, Bangalore v. Prof. M. S. Ramaraju (2005), the petitioner printed a news item stating that the principal and two staff members of Sheshadripuram Law College had been suspended as a result of an episode involving a student being caught by the vigilance squad while writing the examination at a lodge. The petitioner published a news item in the Deccan Herald based on the Secretary’s press release. According to Section 200 of the Cr. P.C., the respondent filed a private complaint saying that the accused had defamed him. According to the High Court of Karnataka, the petitioner’s actions do not amount to an offence under Sections 500 and 501 of the IPC.

Section 502 IPC

  • Anyone who sells or intends to sell any printed information that he knows or has reason to suspect includes defamatory material is punishable under Section 502 of the Indian Penal Code.
  • The penalty will be either a fine or imprisonment that can be extended to two years. Both can be applied in some cases.
  • In B.R.K. Murthy v. State of AP, (2013), the editor of a newspaper published defamatory comments comprising imputations without sufficient care and attention or any attempt at verification prior to publication, and the same was not published in good faith. The Court found the allegations brought against the accused under Sections 500, 501, and 502 of the IPC, as well as Section 34 of the IPC, 1860 to be true and held him liable.

Famous defamation cases

Defamation case between Ambani brothers

Anil Ambani filed a defamation suit against Mukesh Ambani in 2008, seeking Rs 10,000 crores in damages. This was owing to Mukesh’s interview with the New York Times. Mukesh stated that the intelligence outfit managed by his brother, which comprised a network of lobbyists and spies, set Reliance apart from its competitors. They had infiltrated New Delhi in order to identify insignificant facts and other loopholes in the bureaucracy in order to obtain more control. After a few years, the case was dropped due to a brotherly truce.

Defamation case on Kangana Ranaut

Facts: In November 2020, lyricist and writer Javed Akhtar filed a suit with the Andheri magistrate, stating that Ranaut made defamatory allegations against him in a television appearance, damaging his reputation. He alleged that  Ranaut pulled his name for no reason while discussing the presence of a “coterie” in Bollywood in the wake of actor Sushant Singh Rajput’s reported suicide in June 2020.

Latest developments: Kangana Ranaut has filed applications in the 10th Magistrate Court in Andheri, demanding the cases be transferred. The court denied Kangana Ranaut’s request for a transfer of her ongoing defamation case with lyricist and writer Javed Akhtar.  Kangana’s application claimed that the Magistrate hearing the case wasn’t being fair.  Magistrate Khan stated in the ruling that Ranaut had come on two occasions, one to take the matter on board and the other to make a claim of prejudice against the court. Further, he added that she has not appeared in Court with the intention of cooperating with the court in the trial of the claims levelled against her to date.

Defamation case on Tata

Facts: In 2016, industrialist Nusli N Wadia lodged a criminal defamation suit against Tata Sons, interim chairman Ratan Tata, and some directors in the court of the additional chief metropolitan magistrate in Mumbai for alleged defamatory and offending components in a special resolution prepared to pursue his removal from 3 Tata Group firms. He  alleged that this had damaged his position as an independent director in several other firms and would continue to have a cascading impact on his image and goodwill in Indian and international business circles. Ajay G Piramal, Amit Ranbir Chandra, Ishaat Hussain, Nitin Nohria, Vijay Singh, Venu Srinivasan, Ralf Speth, N Chandrasekaran, and Ranendra Sen are among the directors charged in the case, along with Ratan Tata, who was reinstated as Chairman of Tata Sons after Mistry was unexpectedly removed on October 24.

Latest developments: Ratan Tata and the others were served with summons by the Mumbai magistrate court in 2018. Tata appealed to the Mumbai High Court, which overturned the ruling. Eventually,  Wadia appealed the ruling to the Supreme Court. The supreme court had directed the industrialists to settle their disputes a week before the case was to be heard in 2020. A bench led by Chief Justice SA Bobde and Justices BR Gavai and Surya Kant ordered both sides to discuss and settle the dispute, emphasising that this was only a proposal, not a ruling. Nusli Wadia eventually dropped all defamation proceedings, including the Supreme Court case for Rs 3,000 crore in damages against Ratan Tata and others.

R. Rajagopal v. State of Tamilnadu (1994)

Facts: Auto Shankar, a convicted murderer, authored an autobiography, while in prison, which included his dealings with a number of top prison officials, some of whom were his co-conspirators. With the consent of the authorities, he provided the autobiography to his wife, who subsequently submitted it to the Nakkeran magazine for publication. The petitioners consented to publishing it when the prisoner requested it. The first three episodes had already been published when the Inspector General of Prisons wrote to the publishers, claiming that the autobiography was baseless, that publishing was against prison rules, and that if they continued to publish, they would face legal action under privacy and defamation laws. The editor, printer, and publisher of Nakkeran filed a petition in the Supreme Court, requesting that the responsible authorities of the Tamil Nadu government stay from taking any action to prevent the publishing of the convicted prisoner’s autobiography in their magazine.

Issue: Whether the petitioner has the right to publish?

Judgment: The Supreme Court held that public officials (in this case, police and prison officers) don’t have the right to sue for defamation damages for acts they perform in the course of their public duties unless they can show that the publication is untrue and was made with actual malice by the defendant. As a result, the petitioners had the right to publish those sections of Auto Shanker’s autobiography that emerged in public documents without permission.

Constitutionality of the offence of criminal defamation

  • The argument about whether Sections 499-500 of the IPC constitute a “reasonable restriction” has ignited a debate about the  decriminalisation of defamation. Besides, a segment of the political class opposes the decriminalisation of defamation, contending that “reputation” is man’s greatest asset and that freedom of expression must be moderately regulated to safeguard it. The Central government, as well as several state governments, are determined to keep Section 499 of the IPC in place.
  • The Supreme Court has long believed that the constitutionality of Sections 499 and 500 of the Indian Penal Code, which constitute defamation as a criminal offence, should be settled once and for all. In the case of R. Rajagopal vs. State of Tamilnadu (1994), the bench of Justice B. P. Jeevan Reddy and Justice S.C. Sen clearly made their point.
  • In light of 27 writ petitions brought in the Supreme Court by a television channel, journalists, and politicians, including BJP leader Mr. Subramanian Swamy, Congress Vice President Rahul Gandhi, and Delhi Chief Minister Mr. Arvind Kejriwal, the discussion over criminal defamation has heated up recently. All of the applications have been consolidated by a two-judge bench of the Supreme Court, which has begun the process of assessing the constitutional validity of the penal provisions.
  • The Supreme Court’s decision in the Subramanian Swamy case (2016), is an important judgment in this regard. In this case, Dr. Subramanian Swamy alleged Ms. Jayalathitha of corruption in 2014. The Tamil Nadu State Government subsequently filed defamation suits against him. Following that, Dr. Swamy and other prominent politicians in India challenged the validity of Sections 499 and 500 of the Indian Penal Code (IPC). The case was resolved by a two-judge Supreme Court bench consisting of Justices Dipak Misra and P. C. Pant.
  • Further, the verdict observed that these sections are not arbitrary limitations on the right to freedom of speech and expression. Besides, it added that whatever affects a person, impacts society as a whole. As a result, it declared defamation to be a public wrong, supporting the legality of Sections 499 and 500.

Global perspective on criminal defamation

England

The Defamation Acts of 1952 and 1996 are the two most significant Acts in England that govern defamation law. There is a difference between libel and slander in English law. There are two explanations for this. To begin with, libel, not slander, is a criminal offence. Slander, in reality, is not a crime. As a result, libel is always actionable. Second, in most slander cases, a  distinct injury must be demonstrated. Slander is enforceable under tort law, but only in extraordinary circumstances with proof of special injury.

United States

Owing to the enforcement of the First Amendment, defamation law in the United States (US) is far less plaintiff-friendly than its European counterpart.   In addition, there is no distinction between slander and libel. This is due to the fact that interpretations differ from state to state. Some states combine the definitions of slander and libel into a single piece of legislation. Some states have criminal libel laws on the books, although they are outdated statutes that are rarely enforced.

Australia

Defamation laws differed from state to state in Australia until 2006, when uniform laws were implemented. Companies with ten or more workers are barred from suing under uniform defamation laws. Persons or groups of individuals employed by or linked with that firm, such as corporate directors, CEOs, or managers, can still sue if their identities are revealed in the publication. No matter how many workers or members a non-profit organisation has, it can still sue for defamation.

Pakistan

The Defamation Ordinance, 2002, governs defamation in Pakistan. Libel and slander are both punishable offences. In the instance of libellous material being published, there is no requirement to establish special damages. A breach of the legislation will result in compensatory damages of at least 300,000 rupees for the culprit. The definition, explanation, exceptions, and penalty for defamation are detailed in Sections 499–502 of the Pakistan Penal Code, 1860, which is the same as the IPC, 1860.

Conclusion

In India, civil and criminal defamation charges might be brought simultaneously or sequentially. The purpose of the laws on defamation  is to safeguard a person’s reputation. In a democratic country, freedom of speech and expression are seen as essential rights that are not unlimited but subject to some reasonable restrictions, one of which is defamation. Both of these interests are held in high esteem in our culture, the former as possibly the most cherished attribute of our society, and the latter as the bedrock of a democratic society. Its primary issue is how to balance this aim with conflicting demands for freedom of speech and expression, which the judiciary has to take into account. As a result, defamation must be examined from a different perspective, with a different attitude, and with a distinct capability to decipher the meanings of words. It also must not be overlooked that the judiciary makes every effort to provide a harmonious structure in such cases.

FAQs

What is the punishment for defamation in India?

The punishment for defamation under Section 499 of the IPC is outlined in Section 500, which includes simple imprisonment for up to two years or a fine, or both.

Is it possible for ordinary people to initiate a defamation case?

Yes, in India, anybody whose reputation is harmed directly or indirectly by comments uttered, written, or published can lodge a defamation suit. Moreover, he/she can sue for defamation as  a civil as well as a criminal offence.

What are the essential ingredients to judge defamation cases?

The offence of defamation has three basic components.

  • Making or publishing any imputation regarding any person;
  • Any imputation must have been made by (a) words, either uttered or intended to be read; or (b) signs; or (c) visible representations.
  • The imputation must have been made with the intent/knowledge of affecting the reputation of that person.

References

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

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All you need to know about legal environment

By
Rachit Garg
-
0
Famous cases

The following article has been written by Ishani Samajpati, pursuing B.A. LL.B. (Hons) under the University of Calcutta. This article provides a composite insight on legal environment as well as the classifications and implications of legal environment on business and the way legal environment can influence any business. 

It has been published by Rachit Garg.

Table of Contents

Introduction

Legal environment acts as an important factor for setting up or running any business activities by an individual or any organisation in a particular country.  The legal environment in one country is different from another country.

Legal environment decides the ways of how business activities of any particular country are able to flourish or may get constrained by the laws of the nation. It also influences in estimating the useful economic life of an intangible asset.

The components of the legal environment and how it affects any business is further discussed in this article.

What is the legal environment of a business 

The term ‘legal environment’ of a business refers to the strategies adopted by any government to help, manage or constrain the business ecosystem of the country. 

Legal environment of a business includes –  

  • various legislations enacted, amended or repealed by the government,
  • administrative orders proclaimed by government authorities,
  • decisions issued by various commissions and agencies of the central, state or local government as well as judicial activities, and
  • The legal environment in India includes various laws regulating business activities like Companies Act 2013, Consumer Protection Act, 2019 and many other such legislations, policies relating to licensing and approvals, foreign trade etc.

In every country, the government frames its legal systems according to its definite purposes and priorities in order to  regulate the business ecosystem of the country.  The government may also limit the business activities by regulations. These factors, in turn, create the legal environment of a business.

The legal environment of a business indicates a twofold purpose set by the government which helps the business to flourish which, in turn, benefits the citizens either by generation of employment or by any service. In negative connotation, the legal environment, specially in socialist or mixed economies may constrain or hinder the growth of the business.

new legal draft

Different aspects of legal environment 

Rather than simple compliance with the law of the land, the legal environment of business also implies understanding the legal frameworks which dictate the business operations. 

The various laws that comprise the legal environment of a business are discussed below:

Anti-trust law 

Anti-trust law is also known as competition law. It promotes or seeks to maintain competition by regulation of the anti-competitive conduct of the companies. Anti-competitive behaviour by companies includes monopoly or oligopoly which imply an imperfect market structure. Companies agree between each other that they will act unethically and not in the favour of the customers.  Anti-trust law is also known as anti-monopoly law in China and Russia.

Anti-trust law is aimed to provide fair competition in the market so customers will not be in a disadvantageous position.

Monopoly

The practice of monopoly is when a particular business organisation dominates a particular industry by excluding all other potential competitors. Following are the ways through which a business organisation may establish monopoly in a particular business area:

Mergers and acquisition

A company may have a lot of mergers and acquisitions. As a result, it can be the only one that provides one particular product in the market.

Unnatural increase in the prices of the products

Oligopoly refers to the uncompetitive practices between the business organisations or firms when several of them agree to increase prices artificially altogether. It violates the anti-trust law. Hence , the regulations of the anti-trust law also helps to keep this situation in control.

Implications for monopolies for consumers

Monopoly can also be good or bad. 

  • Good monopoly provides lower prices and new products, being the only one in the market and it acts in the benefit of the customers.
  • There might be a bad monopoly when there are higher prices, limited choices, less investment on new products, etc. it does not provide any diversity for the customers.

Anti-trust legislations and policies also prevent unfair price discrimination amongst consumer.

Anti-trust laws in India

The very first anti-trust law in India was The Monopolies and Restrictive Trade Practices Act, 1969 to restrict monopolistic practices in the market. It was repealed in 2009 and subsequently was replaced by The Competition Act, 2002.

Under this Act, the Competition Commission of India was established to prevent anti-competitive business activities in India.

Environmental protection laws

Environment protection laws are formulated in order to save the deterioration of the environment from the unlawful activities of human beings. Regulations on the environment impact the business directly or indirectly. On the other hand, it also ensures that the environment is not affected by the business.

Stringent environment protection laws may force the business organisations to change their business operations and activities or to relocate to another place with less stringent environmental regulations. However, there is a two-fold effect of these environmental laws in businesses as businesses might get carried away with less stringent laws in place.   

Environment protection laws prioritise saving the environment and the business organisations need to adjust with the regulations.

  • In pollution and energy-intensive sectors, environment protection laws may cause reduced employment and productivity.
  • There is hardly any possibility of huge negative effects of environmental regulation on business. However, for highly polluting industries, the possibility of effects of environmental regulations cannot be ruled out.
  •      
  • The myriad benefits of environment protection laws largely outweigh the so-called losses in the business operations and activities.

Compliance to environment protection laws

Compliance to the existing environment protection laws of a particular country requires a business organisation to execute the following actions:

Environmental auditing

Environmental auditing is used to assess the impacts of business activities and operations on the environment against set criteria or standards. An environmental audit helps in:

  • identification to reduce impacts of business on the environment,
  • prioritise sustainable business activities, and
  • demonstrate accountability to government, customers and shareholders and concerns for the environment.

India is the very first country to make environmental auditing in industrial units compulsory. The concept of environmental auditing in India was first formally introduced in 1992. The Supreme Audit Institution (SAI) in India is headed by the Comptroller and Auditor General (CAG) of India performs environmental auditing in India.

Setting up an environmental management system

Some businesses may require to set up an environment management system for the following:

  • Objectives and targets of the business by means of protection of the environment;
  • Finding out the impact of the business on the environment.;
  • Practising environmental sustainability;
  • Figuring out responsibilities to protect the environment and running the business; and
  • Identification of business areas for improvement.

Proper monitoring and reporting on impacts on the environment

For most of the businesses, the monitoring and reporting the impacts of the business on the environment is not mandatory. But for some energy intensive industrial sectors, the monitoring and reporting includes the following:

  • Levels of Carbon and greenhouse gas emissions;
  • Level of waste materials and residue disposed in the water bodies; and
  • Triple bottom line reporting. This includes evaluation in social, environmental and financial framework.

Compliance to government requirements

Many countries have administered their own environment protection laws. How these will affect the business depend upon the type and nature of the business. Some businesses also may require licensing and permission from the government. 

Environment protection laws in India

The environmental consciousness and ethics of Indian civilisation traces back to the Ancient Vedic era. The same ethics is also followed in modern age while framing acts and regulations regarding the protection of environment

India has six major laws related to the protection of the environment as a whole and the protection of the components of it. These include: The Environment (Protection) Act, 1986; The Forest (Conservation) Act, 1980; The Wildlife Protection Act, 1972; Water (Prevention and Control of Pollution) Act, 1974; Air (Prevention and Control of Pollution) Act, 1981 and The Indian Forest Act, 1927. 

The Green Tribunal formed under the National Green Tribunal Act, 2010 in 2010 supervises the cases relating to the environment in India.

Labour Law

Labour law mediates the relationship between the government and employers, employees and trade unions. Labour law ensures that the following rights of the employees are properly protected:

  • Minimum wage: The minimum wage is the lowest amount which the employers should pay their employees. Each country around the world has a fixed minimum wage set by the labour law. The employers are required to take into consideration that they should agree to pay the minimum wage to any employee and should not exploit by paying less than that amount.  
  • Fixed working hours: The international standard working hours for a full-time employee is 8 hours, 5 days per week and a total 40 working hours a week. Many countries may have their own set standard of working-hours which the business organisations need to comply with. If a person works more than the mentioned hours which are not written in the contract, the employer is bound to pay overtime for that particular employee for working more.

Section 51 of the Factories Act, 1948 provides that no worker should be allowed to work more than 48 hours in a week.

  • Public holidays: In labour law, it is strictly mentioned how employer and employee should act during the public holidays. During public holidays, an employee usually has a day off and the employer can only invite the employees for overtime.

The weekly holidays in India are governed by Section 52 of the Factories Act, 1948 as well as by the Weekly Holidays Act, 1942 .

  • Maternity leave benefits: With more women joining the workforce, the need for maternity leave arose prominently during the 1970s internationally. In case of female employees, labour law mandates them to provide maternity leave with payment during and after the birth of a child for a particular time. After that period, maternity leave may still be available but without payments. The stipulated duration of maternity leave varies from country to country. This ensures the security of a mother’s job and proper care to the infant.

In India, maternity leave benefits are governed by The Maternity Benefit (Amendment) Act 2017.

  • Workplace discrimination: There are other factors that the labour law supervises. Anti-discrimination laws offers protection against any discrimination based on race, class, creed, caste or gender.

Currently, India lacks an exhaustive legislatio on anti-discrimination laws which can cover up a broas dimension. India has a few different laws dealing with specialised protection against discrimination in any particular case. 

The anti-discrimination laws in India include: 

Further, any discrimination based on religion is a criminal offence under Section 153A of the Indian Penal Code, 1860.

The Industrial Disputes Act, 1947 prohibits commission of certain ‘unfair labour practices’, which offers protection against discrimination and showing favoritism or partiality to any individual or a group of workers regardless of merit.

Labour laws in India

Apart from the pieces of legislation mentioned, India has a long list of labour laws to protect the employees. Many activities by the various trade unions have also contributed to it. It is impossible to put all the legislation here for the paucity of space. The concerned pieces of legislation can be found from the official website of the central government under the  Ministry of Labour and Employment.

Health and Safety Promotion Law

Health and safety promotion  law ensures that every single employer takes the responsibility of the health and safety of the employees during the time at the workplace. The employer needs to make sure that during the work, all the employees are provided with proper and relevant safety measures.

Health and safety promotion law

The National Policy on Safety, Health and Environment at Work Place details the position of the Indian government regarding the health and safety concerns of the workers. India has few important pieces of central acts governing the health and safety of the employees. i) The Fatal Accident Act, 1855 governs the compensation paid to the relatives of the deceased in case of an accidental death.  ii) The Factories Act, 1948 protects the labourers in factories. iii) The Mines Act, 1952 regulates the safety of labourers in mines. iv) The Dock Workers (Safety, Health And Welfare) Act, 1986 inspect the “safety, health and welfare” of dock workers.

Apart from all these, the The Occupational Safety, Health And Working Conditions Code, 2020 intends to regulate the occupational safety, health and working conditions of employees.

More composite details regarding the health and safety promotion laws in India can be found out here.

Contract Law

Contract law governs every aspect of business arrangements. Contract law allows standardisation of contracts setting out the rights and obligations of the government. 

While laws relating to contract of sales sets the legal framework for exchange of goods, the laws which deal with delivery of goods. Contract laws also include laws relating to business partnerships.

Contract laws in India

The sole law governing the contracts in India is the Indian Contract Act, 1872. The law governing exchange of goods is The Sale of Goods Act, 1930 and The Partnership Act, 1932 defines the law relating to the business partnership.

Laws on consumer protection

Consumer protection laws include a variety of laws and organisations formed to protect the rights of the consumers as well as to ensure fair trade practices, competition and accurate   product information in the marketplace. It is the right of the consumers to be protected from all the unfair means and adulteration of business.

Consumer protection law ensures that a consumer gets a product without any manufacturing defects or faults. Consumer law covers major factors like warranty and prohibits false or misleading advertisement.

Business organisations need to take into consideration that they cannot provide defective goods or mislead the consumers about the product through false or misleading advertisements.

Warranty

Under consumer protection law, consumer goods come with a warranty from the manufacturer. Warranty means the written guarantee provided by the manufacturer or the seller giving assurance to the longevity and quality of the product upto a certain period. If the product does not last as promised, it is the duty of the manufacturer or the seller to either replace or repair it   free of cost.

Warranty also covers any defects in the goods upto a certain time.

False/ misleading advertisement

Consumer law strictly regulates false or misleading advertisements. Manufacturers cannot falsely represent or mislead the consumers in terms of price and characteristics of the product through advertisements. Because of the consumer law, they have to provide valid information in terms of advertisements.

Consumer protection laws in India

The government protects the rights of the consumers from any exploitations through the proper implementation of the consumer protection laws. The Consumer Protection Act, 2019 is one of the major acts to protect the interests of consumers and to establish Consumer Forums in district, state and national levels to address and redress consumers’ disputes.

Apart from that,The Standards of Weights and Measures Act, 1976 regulates weight and measures in any goods. The Essential Commodities Act, 1955 and The Prevention of Blackmarketing and Maintenance of Supplies of Essential Commodities Act, 1980 are the two acts that deal with regulations of essential commodities, especially food crops. 

Apart from the mentioned acts, India also has a number of acts and regulations regarding consumer protection which can be accessed from the official website of the Ministry Of Consumer Affairs, Food and Public Distribution.

Intellectual Property Laws

Intellectual property law deals with the laws to secure and enforce the legal rights to inventions, designs and artistic works. The intellectual property law provides an opportunity to protect the unique ideas and inventions in a business  so that no one except the creator or the owner can imitate or produce it. As a result, it helps to recognise the hard work behind an innovation and competitive advantage as well. Intellectual property is especially important in case of branding and advertisement of any product. Laws relating to Trademarks, Copyrights and Patents fall under the category of intellectual property law.

Intellectual property laws in India

Intellectual property rights in India are governed by the following Acts: i) Trade Marks Act, 1999; ii) The Patents Act, 1970; iii) The Copyright Act, 1957.

Impacts of legal environment on businesses 

A stable legal environment is an indispensable factor for any business to flourish. The laws, rules and regulations by the government form the legal environment of any business. The impact of legal environment on business are as follows:

  • Taxation on the business by the government is one of the regulatory measures which determines the course of the business. Higher rate of taxation will impact the business negatively while a low taxation rate helps the business to earn more profit
  •  A proper legal environment helps to promote economic growth. The taxation imposed by the government and other regulatory measures help in promoting economic growth. These also protect the rights of the consumers and save them from exploitation and other illegal factors. 
  • Legal environment directs the businesses to protect the rights of consumers from any exploitations, unfair means and fraud. 
  • It  determines the rate of success of any business.
  • Legal environment includes some regulatory activities such as limits and restrictions  on environmental pollution, laws regarding employment regulations and minimum wages laws, regulations relating to the safety of foods and medicines to protect both the consumers as well as the entrepreneurs.

Impacts of legal environment on businesses in India

The government of India has formed some strict regulations in connection to selling of certain tobacco or alcoholic products under the act of the Cigarettes And Other Tobacco Products (Prohibition Of Advertisement And Regulation Of Trade And Commerce, Production, Supply And Distribution) Act, 2003. It also includes the regulations for selling the substitute for mother’s milk under The Infant Milk Substitutes, Feeding Bottles And Infant Foods (Regulation Of Production, Supply And Distribution) Act, 1992. All of these regulations are mandatory for the manufacturers, advertisers and sellers to follow.

Some of the regulations for protecting the interests of the consumers framed by the Indian government is illustrated below:

  • Advertisement of alcoholic beverages at public places is prohibited. 
  • Advertisements of cigarettes must carry the statutory warning. The warnings must also be printed on the packets of cigarettes.
  • Advertisements and packets of tobacco products and products like pan masala must also carry a statutory warning.
  • Advertisements and packets of baby food and substitute foods for mother’s milk must necessarily inform the potential buyer that mother’s milk is the best, as laid down in Section 6(a) of the Act.

Government legislations and policies governing legal environment

In democratic countries, with the varying public demand and political structure, legislations and public policies are constantly subjected to change. Proper scrutinisation of the programs and policies of the ruling government by the opposition parties and peer groups is required.

Through the direct use of democratic process,  large business houses often try to influence the government and public servants so that the newly enacted laws help the business to flourish.

The administrative wing of the government is also an integral part of the legal environment since it enacts the laws, rules and regulations.

Taxation is one of the important public policies of the government which determines the success of any business.

Business activities and the related laws

To perform any business activity, it is mandatory to keep the related law in mind. A brief generalised insight of the types of laws associated with any particular business activity is mentioned below in the form of chart:

Business activityRelevant important laws Related acts in India
Establishing a business organisationCompany laws determining the legal entities of any businessCompanies Act, 2013The Partnership Act, 1932Limited Liability Partnership Act, 2008Industries (Development and Regulations) Act 1951Foreign Exchange Management Act, 1999
Acquiring resources or raw materials and business operationsProperty laws, Laws relating to Contract, Environment protection lawsTransfer of Property Act, 1882Indian Contract Act, 1872The Environment (Protection) Act, 1986The Forest (Conservation) Act, 1980 Water (Prevention and Control of Pollution) Act, 1974 Air (Prevention and Control of Pollution) Act, 1981 
Marketing Plans and Brand RecognitionLaws relating to trademark and copyrightThe Copyright Act, 1957The Trade Marks Act, 1999
Hiring employeesLabour laws, laws relating to employment, health and safety lawThe Industrial Disputes Act, 1947The Industrial Disputes (Central) Rules,1957The Plantation Labour Act, 1951The Industrial Employment (Standing Orders) Rules, 1946The Industrial Employment (Standing Orders) Act, 1946The Trade Unions (Amendments) Act, 2001The Trade Unions Act, 1926
Offering services to customers and selling outputs Consumer protection laws, Laws of contractThe Consumer Protection Act, 2019 The Standards of Weights and Measures Act, 1976 The Essential Commodities Act, 1955 The Prevention of Blackmarketing and Maintenance of Supplies of Essential Commodities Act, 1980
Growth of businessLaws governing mergers and acquisitions, Antitrust lawsThe Competition Act, 2002

Legal environment of business

India follows a common law system, also known as precedential legal system, i.e. a legal system based on previously recorded judicial precedents. India has a plethora of laws governing the business ecosystem.

Ignorance or wilful non-compliance of laws can make the business entrepreneurs face legal consequences. 

To run a business properly in India, a basic knowledge of Companies Act, 2013; Industries (Development and Regulations) Act 1951; Foreign Exchange Management Act, 1999; Factories Act, 1948; Trade Union Act; 1926; Workmen’s Compensation Act, 1923; Competition Act, 2002 and such other legal enactments as amended or repealed from time to time by the Parliament, is required amongst others.

India has improved a lot in terms of ease of doing business due to various reformations and improvement of proper legal environment in business.    

Liberalisation and globalisation in the 90s

The economic liberalisation in India in 1991 is the perfect example of how a suitable legal environment helps the businesses to grow and flourish. The liberalisation and globalisation, even after some negative effects, during the 90s has helped India a lot in this regard.

During the 90s global political and economic trends shaped Indian policies and regulations towards becoming more open to private businesses and enterprises. Some of the individuals including then Prime Minister P. V. Narasimha Rao and  the Finance Minister in his cabinet Dr. Manmohan Singh supported the reformist moves of liberalisation and globalisation. Liberalisation aimed towards less stricter regulations in the market for private individuals through de-licensing and freeing up licensing controls from the private sectors.

Globalisation

Along with economic liberalisation in India, globalisation was also introduced in 1991. It opened up the Indian market to a large number of international brands and also attracted Foreign Direct Investments (FDI).

These actions, in turn, strengthened the Indian economy and increased the flow of capital, made good-quality products available at comparatively lower prices etc.

Benefits of studying legal environment of a business 

It is vital for the management of any business organisation or enterprise to obey the existing laws of the land. Consequently, a proper and adequate knowledge of the rules and regulations framed by the Government acts as a pre-requisite for improving the business performance. Non-compliance of these can land the business in trouble and may spoil the growing prospects of it.

The benefits of studying the legal environment of a business are:

  • It helps to decide how to perform the business properly.
  • Proper studying of the legal environment helps to maximise the margin of profit.
  • It aids in planning a proper business strategy.
  • The studying of the legal environment contributes to successful business.
  • It helps to get introduced to the legal agendas of a country which, in turn, helps in taking managerial decisions in the future.
  • A proper legal environment contributes to forming a strong and healthy economy.     

Limitations of studying legal environment of a business

As mentioned beforehand, it is mandatory to know the laws of the land to comply with them while setting up or running any business. While studying the legal environment is a pre-requisite for any business, it does ot guarantee anything regarding the success, failure or growth of the business. The limitations of studying the legal environment of any business are as follows:

  • Studying the legal environment fails to predict any financial, operational, reputational or security risk factors of business. It only safeguards any business from compliance risks such as legal penalties, void contracts, responsibilities towards employees etc.
  • A thorough study of the legal environment helps in gathering a lot of information which may create confusion in practical situations.
  • Too much studying of the legal environment makes one very cautious and it may discourage from taking strategic risks in business.
  • Studying the legal environment does not provide any explanation of uncertain events in business. 

Conclusion

A proper legal environment for a business helps a business ecosystem to flourish. Alternatively, a strict legal environment may hinder business activities, too.

It can be concluded that behind a flourishing business, there is an appropriate legal environment. It also ensures the safety and security of the consumers. The legal environment, with suitable labour legislation, may also help in generation of employment and subsequent elevation of financial status. Proper regulations in business also help in the development of the economy. 

Legal environment also makes sure that the relation between the society and the business organisation is based on welfare terms.

Frequently Asked Questions (FAQs) on legal environment 

What is the relation of the legal environment with a business?

The legal environment of business surveys the role of how legislation and government policies affect all aspects of business and management.

What comprises the legal environment?

The legal environment includes various laws and regulations enacted, amended or repealed by the government, policies relating to licensing and approvals, policies related to foreign trade, strategies adopted by the government to improve the business ecosystem are the examples of legal environments.

How do the factors of the legal environment affect the business activities?

A proper legal environment is responsible for a successful business ecosystem. In a properly suitable legal environment, a business can touch its actual profitability point. Foreign investors are also attracted in a proper legal environment. 

On following proper business ethics, the external investors feel secure about their investments in the market.

The best example of how a proper legal environment helps any business to flourish is the liberalisation and globalisation of the Indian economy during the 90s.

What are legal frameworks?

Legal frameworks comprise of legal documents like the constitution, existing, repealed or amended legislations, rules and regulations. Court judgements also act as legal frameworks in the precedential legal system.

What are the objects to study the legal environment of a business?

Studying the legal environment of a business helps to grow the business properly. For an entrepreneur initially starting the business, the studying of the legal environment helps him or her to understand various factors like success or failure, growth or diminishment of the business. It is also important for individuals or any business organisation to study properly in order to expand the business.

It also helps one to decide the loss or profitability of the business.

References 

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

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

https://t.me/lawyerscommunity

Follow us on Instagram and subscribe to our YouTube channel for more.

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Analysis of copyright issues in cyberspace

By
Sneha Mahawar
-
0

This article is written by  Mili Kanoujiya pursuing a Diploma in International Business Law. This article has been edited by Ojuswi (Associate, Lawsikho). 

This article has been published by Sneha Mahawar.

Introduction

The more technological advancements, the more threats to Copyright in Cyberspace. Intellectual property has become increasingly important in today’s world of entertainment, information and technology. The magnitude and diversity of IPR violations are increasing as network and Internet technologies advance. Copyright is one of the most important kinds of intellectual property rights, and technology and the Internet have had a big effect on it.  The Internet is unavoidable in various aspects of life, including business operations and giving up on cyberspace cannot be an option to deal with copyright problems.

Copyright laws have been evolving in response to technological advancements since their inception. Like many advancements, these technologies are both hopeful and potentially damaging to diverse parties involved in the usage and exploitation of works of authorship, including books and music to films and web pages. Without a doubt, the challenges of striking the right balance between these interests in the light of recent developments are daunting, and they can rightfully be described as “new” or “unique.”

In this article, the author has tried to highlight the Copyright Issues in Cyberspace. As the number of content creators is increasing, this is an effort to make them aware of the challenges that exist in protecting the content.

Copyright in cyberspace

Copyright is similar to other property rights, such as land, in that the landowner owns everything on the land, from the sky to the ground. Copyright works on the same basis, but with several constraints. Copyright enforcement in cyberspace is hampered by the usage of computers, and the internet, including downloading, uploading, copy-cut-paste, deep linking, and peer-to-peer file sharing. New forms of creative expression in the creative arts have emerged as a result of the progress of information, all of which have been subjected to copyright protection. The fundamental principles of copyright law are constantly challenged in the digital context by copyright work protection. The infringement of copyrights via the Internet is one of them. Law is a response to a problem, whether it is social, economic, or technological. This general rule also applies to copyright law.

Because of its ease of transmission from creator to viewer, and then from viewer to viewer, the Internet is an ideal medium for artists and authors to advertise their work. At the same time, technology allows any of these viewers to edit, alter, distort, or disseminate an original work quickly and readily without the author’s permission. The internet and digital technology have produced a copyright dilemma known as the “digital problem.” Users can use digital technology to create an infinite number of perfect digital copies of music, books, or videos, and then distribute them around the world at the speed of light via the internet. As a result of digitalization, the question of copyright on the internet has taken on a new dimension. It makes it easy, cheap, and quick to make high-quality copies, which can then be sent to potentially millions of people in seconds.

It was rightly stated in the case of Religious Technology Center v. Netcom Online Communication Services Inc., that because of the Internet, piracy is much more of a silent and private activity than it is in a bookstore. Since the Internet has reached PCs and even mobile phones, preventing such infringements has become increasingly challenging. Authors of copyrighted materials on the internet encounter several hurdles. Internet policing is at the top of the priority list. According to the Copyright Act, infringement happens when someone uses another’s copyrighted work without permission.

  1. Allows the illegal use of another’s copyrighted work with knowledge;
  2. Makes a profit from an activity that involves the use of another’s property as well as
  3. Makes use of any of the copyright rights that are only available to the copyright owner.

Thus, a copyright is only infringed when someone else conducts any of the countless actions that the copyright owner has exclusive rights to, such as producing the work in any tangible form, including storing it in any medium via technological means. Digitising a work without the permission of the copyright owner is an infringement. The internet is a global system for sending and copying information. This makes it possible for copyright to be disturbed in ways that no one could have thought of before and poses several problems for copyright law.

Characteristics of digital technologies with copyright implications

Digital storage and transmission of works are the technologies that are currently causing concern for copyright law. The following are some of the elements of these technologies that have significance for copyright law:

Reproduction ease

Once a work has been rendered in digital form, it may be replicated quickly, cheaply, and without sacrificing quality. Each duplicate can then be reproduced multiple times without losing quality. In this way, a single digital copy of a work can meet the needs of millions of people.

Ease of dissemination

The rise of global digital networks has enabled the quick and global dissemination of digital creations. Digital networks, like social media platforms, allow information to be distributed to many people from a single location (although, unlike broadcasting, digitised materials need not reach each individual simultaneously). Digital networks, on the other hand, allow each recipient on the network to participate in further transmission of the work, allowing it to spread at a geometric (often referred to as “viral”) rate. Because of this, and the ease with which works can be reproduced, a single digital copy of a work can be duplicated thousands of times all over the world in a matter of hours.

Ease of storage

Digital storage is dense, and it’s getting denser every year. Increasingly large amounts of material can be stored in a decreasing quantity of space.

Current issues in the cyberspace

Since the emergence of the internet and the development of related information technologies, copyright breaches have been rampant. Copyright violations are not restricted to a few blockbusters; they are widespread in cyberspace and damage a variety of digital items. Furthermore, severe copyright violations are only the tip of the iceberg when it comes to the many dangers to Intellectual Property Rights (I.P.R) on the internet. The emergence and spread of the internet have resulted in the creation of cyberspace, an unruly and anarchic realm that poses grave challenges to copyrights. Copyright owners have made technical protections like the Electronic Copyright Management System (ECMS) to stop works from being copied and spread.

Copyright violation

Caching

Determining the line between private and public use is one of the most basic copyright issues on the internet. The Indian Copyright Act, 1957 distinguishes between reproduction for public use and reproduction that can only be done with the permission of the right-holder. The right to reproduce on the internet raises some fundamental issues. Because of the fundamental nature of internet transmission, this is the case. Every stage of transmission involves reproduction. Temporary copying (also known as caching) is an important part of the internet transmission process without which messages would not be able to travel through the networks and reach their intended destinations. According to Indian law, reproduction must be in a physical form, but it also includes “storing it in any medium by electronic means,” making caching a copyright violation.

Plagiarism

Copying copyrighted content has become much easier because of technological advancements. As a result, copyright infringement has been difficult, if not impossible, to control. Books, movies, films, and music can all be easily reproduced, and thousands of copies can be generated and distributed. Digital technology has made it possible to copy content from one site, edit it, or simply reproduce it. I have thrown the usual way that the Copyright Act is used to protect individual rights and the rights of others into chaos.

Illegal  use of database

Under Section 2(o) of the Indian Copyright Act 1957, “Databases” are protected as “Literary Works.” For the first time in the Information Technology Act of 2000, the phrase “computer database” was defined. A person who violates the copyright and online regulations can be fined up to one crore rupee under Section 43 of the IT Act of 2000. Section 43 of the Act criminalises a wide range of offences, including computer trespass, digital copying, invasion of privacy, data theft, and so on. The IT Act of 2000, Section 66, also has criminal penalties for this kind of thing.

Illegal use of computer software

A computer programme is defined as a “collection of instructions represented in words, codes, schemes, or any other form, including a machine-readable medium, capable of enabling a computer to do a certain task or accomplish a particular result,” according to Section 2(ffc) of the Copyright Act. The Copyright Act defines computer software as a “computer programme.” Computer programmes now qualify for copyright protection, as well as other types of Intellectual Property Rights protection, under the T.R.I.P.S (Trade-Related Aspects of Intellectual Property Rights) accord.

Under the Copyright Act, computer programmes are included in the definition of literary work. The owner of computer software has a variety of rights, including the ability to award software licences. Freeware licences, open-source licences, demoware licences, and other forms of software licensing exist.

Actions that need to be protected in cyberspace

Uploading & downloading

Copyright infringement occurs when someone uploads copyrighted content without permission. The quality of illegally downloaded music, movies, and video games is low, and the act of illegal downloading or uploading without authority is punishable under India’s Copyright Act. Even if no financial benefit has been received, the individual who uploaded the content is responsible. When an uploader uses his ingenuity to update, amend, or alter copyrighted information, he assumes responsibility. Illegal downloading is most common in the film, video, music, gaming, and software industries. Piracy is a major issue in India’s media and entertainment business, with annual losses of over $4 billion owing to copyright infringement. According to Justice Gautam Patel of the Bombay High Court, only when a user prejudicially distributes, exhibits, or lets for sale or hire copyrighted content without adequate authority does the user commit an offence.

Linking

Today’s world is dominated by the internet. The website contains a wealth of information in the form of words, pictures, graphics, audio, and video, among other things. As a result, the copyright law protects the website. The site’s focus is on the electronic publication of content. Designing or producing a website takes a lot of time, effort, money, and thought. Consequently, protecting a website’s contact information from infringement is critical. Linking allows users to quickly move from one site to another and access information in a short amount of time. It informs people about the existence of work by providing a simple website address.

Linking is a feature that allows access to a third-party website by clicking on a location on the linking site without having to enter any location information or using a search engine. Links are usually highlighted, underlined, or prominent text or images. There are two types of linking:

  1. Surface linking: Surface linking is when the site’s home page is linked.
  2. Deep linking: Deep linking is when a link skips the home page and goes straight to an internal page within a favourite website.

Only when it comes to ‘Deep-linking,’ which aids in the distribution of other people’s creative material, do legal issues arise. Copyright infringement is defined as duplicating, releasing, or communicating work to the public without authority or permission. Deep linking sites are not directly accountable for infringement because the reproduction of work is done by the user who visits the linked page via the link, not by the linking site. Making any work available for the public to see, hear, or enjoy directly or through any means of display is considered communication to the public under Sec.2(ff). The Copyright Act does not expressly prohibit deep linking, but the term “by any means of display,” as defined in Section 2(ff), includes communication of website contents over the internet.

Communication of material without permission is considered a copyright violation under Section 51. Deep linking without the owner’s permission is considered copyright infringement. Contributory Copyright Infringement occurs when someone creates a link that is likely to promote unauthorised copying of copyrighted material, and the party who created the link had reason to know about the unauthorised copying. Some websites, such as Amazon.com, welcome linking or deep linking because it increases traffic, advertising rates, and revenue. Deep linking or linking is a technique for quickly accessing information. Deep linking without permission entails the electronic publication of contents, copying, and communicating to the public without permission, all of which constitute copyright infringement.

Peer to Peer (P2P) file sharing 

In general, file sharing refers to the electronic sharing of digital files (music, audio recordings, movies, television shows, games, and computer software, for example). Peer-to-peer is a method of exchanging files without the use of a middleman server. P2P technology was not designed to facilitate copyright infringement, but it is increasingly being used to download illegally copyrighted materials. Some P2P technologies, such as Napster, Gnutella, and Kazaa, are well-known and allow users to share, transmit, and download files over the internet without sacrificing quality. MP3 technology involves compressing sound files to a small size and distributing them over the internet in a short period of time.

The growth of MP3 necessitated the creation of a system for transferring files over the internet, which led to the creation of Napster. Only music files, particularly MP3 files, were associated with Napster. The user gets automatically connected to Napster’s central server after downloading the software, which contains only a list of music files available on Napster members’ computers. Simply type the name of the song or artist to get a list of what’s available, and then download music from another user’s computer who is online in a matter of seconds. As a secondary infringer, the court ordered Napster to stop distributing copyrighted music and shut down its website.

In India, anyone operating a network similar to Napster is liable under Sections 14 and 51(a)(ii) of the Copyright Act, 1957. It resulted in the demise of Napster and the emergence of better P2P networks. Any person who allows any place to be used for public communication of the work where such communication constitutes an infringement is liable for copyright infringement under Sec.51(a)(ii). The term ‘any place’ also includes virtual locations. Infringement occurs when someone makes copies of a work or communicates the same work to the public, according to Sec.14.

The individual who downloads a copyrighted work file is reproducing the work without the permission of the copyright owner. As a result, he has committed copyright infringement. In short, P2P technology is a problem for the copyright sector, which includes the music, sound recording, and software industries, because it lets protected works be copied and shared over the internet.

Copyright infringement on social media

Not surprisingly, anything that could be considered copyright infringement in general, when a work is used or shared without the owner’s permission is likely to be copyright infringement on social media. One can post almost anything on Twitter, Facebook, Instagram, Pinterest, and Tik Tok because they don’t check posts for copyrighted material. This opens the door to all kinds of copyright violations in the digital world.

Many people see social media as a place where they can post whatever they want, but everyone needs to be aware that copyright violations can still happen on social media. Even though copyright is used in the digital world, it is still against the law and may be against the platform’s terms of service. One can report if someone is using their content without their permission.

On the other hand, if one uses content to improve the image of their brand, this could be a violation of copyright, depending on where they got the content. Therefore it’s best to use images that the individual took themself or that are in the public domain. This will also keep the company from getting sued for copying someone else’s work. 

Remedies of violation of the copyright in cyberspace

When copyright is infringed, the owner of the copyright has the right to sue for damages, injunctions, profit of accounts, and delivery of infringing goods. Copyright holders whose rights have been violated can get their rights back in a number of ways from Indian courts. One of these steps is to order that all copies that don’t follow the rules, even master copies, be taken away and destroyed.

Copyright holders can also get monetary compensation from the courts. This can come in the form of monetary damages, statutory damages, court costs, and attorney fees. The Copyright Act of 1957 gives three options for what to do if someone breaks the rights of others:

  1. Civil Remedies (Sections 54–62),
  2. Criminal Remedies (Sections 63 and 63B), and
  3. Administrative Remedies.

The Act gives the person who has been wronged the following legal options:

  1. Injunction
  2. Damages
  3. Account Conversion
  4. Restrictions
  5. Destruction of Infringing Copies

When Copyrighted contents are used without permission, the owner of the copyright has a number of options for civil remedies. He has the right to sue the person who broke his rights and ask for monetary damages. Damages for infringement are mostly based on how much the value of the copyright has dropped because of the infringement. Damages for conversion, on the other hand, are directly related to how much money the person who did the infringement made since the infringing copies are made by the copyright owner’s property. Civil remedies are meant to make up for the loss that the copyright owner has suffered because of the infringement.

Challenges faced in making laws for copyright protection in cyberspace

Intermediary liability

When it comes to enforcing liability, it’s critical to determine who is responsible: the party that gets the work, the Internet service provider, or the person who transmits the work. There is no responsibility under Section 79 of the Information Technology Act of 2000 if the subscriber establishes that the breach or crime was committed without the knowledge of a person or that a person had exercised all reasonable diligence to prevent the commission of such breach or offence.  To hold an Internet Service Provider (ISP) liable for the infringement or aiding in the infringement of another’s copyright, the ISP must have knowledge of the infringement; otherwise, the ISP is immune from prosecution.

As the Internet is a worldwide phenomenon, a person will only be held accountable if any action on the internet is considered a crime under their respective local legislation, making it extremely difficult to govern, as the message would transit through several nations before reaching its intended recipient. As a result, the ISP may not be liable in the country of destination or origin but may be found liable in a transit country. Secondary liability theories of contributory or vicarious infringement make software creators potentially accountable for copyright infringement. A provider must either directly violate copyright or indirectly violate the copyright in some way, such as by contributing to or being a party to a violation.

The Delhi High Court held in Super Cassettes Industries Ltd v. Myspace Inc and Anr. that the provisions of section 79 of the Act had no effect on copyright infringements relating to internet wrongs where intermediaries are involved, and that the same provision, Section 81 of the IT Act, had no effect. As a result, even though an intermediary is protected under Section 79 of the Information Technology Act, the copyright owner may still sue the intermediary under the Copyright Act of 1957. Even though the Information Technology Act of 2000 doesn’t talk about copyright or anything else related to intellectual property rights, it does try to control how intellectual property is shared.

Jurisdictional issues

In India, the laws do not shed enough light on Internet jurisdiction. A court’s decision is useless and has no meaning if it doesn’t have the power to make it. There are two types of jurisdictions: subject matter jurisdiction and personal jurisdiction. For a judgement to be made, these two things must be true at the same time. Without this authority, a court’s decision would be questionable, to put it mildly. It doesn’t help much or at all. It has been thought for a long time that jurisdiction is based on either where the defendant lives or where the cause of action happened. But it is said that this is not true for transactions on the Internet. It’s not easy to prove that either of the two places is the right one. It has been thought for a long time that jurisdiction is based on either where the defendant lives or where the cause of action happened. But it is said that this is not true for transactions on the Internet. It’s not easy to prove that either of the two places is the right one.

Evidentiary challenges

There are a lot of problems with how proof works on the Internet. Computers that can easily copy digital information aren’t that expensive compared to the equipment needed to make a lot of physical copies of tapes and discs. This makes it very hard to get proof from the end-user of copyright violations on the Internet. Because of this, there is a lot of piracy. Also, it is hard to find the person who downloaded content that was protected by intellectual property rights and then made copies of it to sell. Copyright violations on the internet are hard to catch because, unlike in the real world, they happen behind closed doors in cyberspace. Section 64 of the Copyright Act says that the police can take action against copyright infringement even without a Magistrate’s order. However, they don’t do so, either because they don’t know how to prosecute these crimes or because they don’t care about them.

Conclusion

Copyright has changed over time because of changes in technology. With the growth of the Internet, especially the World Wide Web (WWW), copyrights are now being used in new cyberspace. When copyright in cyberspace is looked at, new opportunities and threats are found. But these new changes come with new risks, many of which also hurt the rights of people who own copyright. Most of the time, these threats are bigger than the opportunities that cyberspace offers. This means that cyberspace needs more rules to protect copyright.

As cyberspace is always changing, it makes it hard for the law to respond quickly. The major types of Intellectual Property Rights (IPR) in cyberspace, copyright seems to be the most important and controversial. This has led to calls for more regulation of cyberspace from international copyright regimes. There needs to be more international cooperation to regulate cyberspace and protect copyrights.

Also, it’s up to society to teach people about why copyright protection is important so that any unauthorised use can be checked, controlled, and stopped. A lot of people today are making digital content that needs to be kept safe. Netizens need to learn a lot more about why copyright protection is important on all levels to stop people from using things without permission.

Suggestions

An individual cannot stop someone from taking and using their original content from the start, but they can report it if they see it being used somewhere else. An individual could add a copyright statement to their content when they put it out there to help protect it. It’s important to tell someone right away if they see their content being used without their permission. Getting takedown requests quickly can help if they end up having to sue the person who did the wrong thing. But if they want to take legal action beyond a “takedown” request, their work must be officially registered as copyright protected.

References

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

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All about a tacit contract

By
Rachit Garg
-
0

This article is written by Vedika Goel of OP Jindal Global University, Haryana. This article talks about the types, approaches to tacit contracts, and the difference between tacit and imputed tacit terms. The article also gives a small brief on the various factors one must consider while drafting these contracts.

It has bee published by Rachit Garg.

Introduction 

Tacit, as per the dictionary language, means something that is not expressly stated but is rather implied. For instance, if one goes to a shop and presents money to buy a particular product, the act of presenting money is a tacit term. This is because the conduct of the person clearly shows that the intention was to enter into a contract of sale. Therefore, tacit terms in a contract are those terms that are not expressly given in the agreement but are derived from the common intention of the parties, which in turn is derived from the express provisions of the agreement as well as its surrounding circumstances. Contrary to verbal and written contracts, tacit contracts are contracts that draw inference from the conduct of the parties to an agreement. Even though tacit contracts are not defined under the Indian Contract Act, 1872, it is important to remember that tacit contracts can have the same effect as that of express provisions in a contract or agreement.

This article discusses the various types of tacit terms, various approaches to such agreements, along with some crucial factors that must be taken into consideration while drafting such contracts.

Types of tacit / implied terms 

Tacit terms or implied terms in a contract can be of various types. The three most common types of tacit terms are terms implied by the intention of parties, terms implied by law, and terms implied by trade or industry. These are discussed below in this section.

Terms implied by the intention of the parties

Such terms are not expressly provided anywhere in the contract. Therefore, in simple words, these terms are not agreed upon by the parties but still form an essential part of the contract simply due to the intention of the parties to a contract.

Terms implied by law

As the name suggests, these types of terms will automatically come into operation by law. Therefore, unless they are expressly excluded from the contract, such terms automatically come into effect. The case of Starways Trading v. Pearl Island Trading (2018) is the most famous case to illustrate how terms implied by law function. The main cause of dispute between the parties was regarding the purchase of sugar that was distributed to third parties. The supplier of sugar was allowed certain discounts on the duty of the sugar. Section 59 of the South African Competition Act,1988 clearly states that whenever duty is withdrawn or decreased on any goods and such goods are delivered to the purchaser before such withdrawal or reduction, the seller of such goods in the absence of any agreement to the contrary, will be entitled to deduct any benefit it may have received at the contract price due to the said withdrawal or reduction of the duty price. As per this provision, the seller was entitled to reduce the price of the sugar with that of the reduction it received. This was however contended by the seller in the court. The Court ruled that Section 59, being an application of the law, would apply. The Court opined that terms that are implied by law do not have to automatically apply to the contract since such terms can be specifically excluded to cut off the applicability of the contract. However, the exclusion of such terms also cannot render the contract inconsistent with the applicable laws and contractual principles.

Terms implied by trade or industry

There can be certain terms in a contract that automatically apply to contractual relationships. These terms apply simply because they are an established trade or industry practice. Therefore, by assumption, these terms form a part of the contact in that particular trade or industry.

Tacit Contracts and Implied Contracts

While implied contracts are expressly defined under Section 9 of the Indian Contract Act, 1872, tacit contracts on the contrary are nowhere defined in the Act. According to Section 9 of the Indian Contract Act, 1872, an implied contract is made according to the intention, conduct or actions of the parties to a contract. Implied contracts create a legally binding relationship between the contracting parties. Such contacts exist without there being any written or oral agreement between the parties. For instance, if a customer enters a restaurant, the owner of the restaurant is obliged to serve the food to the customers. In return, the customer is required to pay for the ordered food. Therefore, this creates an implied contract between the customer and the restaurant owner. Clearly, even in this case, there was no contract created orally or in writing. The contract was created merely on the basis of the conduct and actions of the parties.

Tacit contracts, on the other hand, are not explicitly agreed upon by the parties but still form a part of the contract based on the express provisions and the surrounding circumstances of the contract. Tacit contracts are contracts that draw inference from the conduct of the parties to an agreement. One can say that tacit contracts are similar to implied contracts. It is also possible to say that tacit contracts are a subset of implied contracts, and therefore both the contracts go hand in hand.

Existing approaches to tacit contracts

Traditional approach 

It is commonly believed that tacit agreements are a direct product of contractual agreements. This understanding and belief largely arise out of the traditional approach. The traditional approach test was based on three important criterias:

  • Firstly, the tacit contract must only extend to the contemplated parties.
  • The act between the parties must be unequivocal.
  • The person on whom the tacit contract is fixed should have complete knowledge of the circumstances connected to the transaction.

This strict criteria was, however, contested as imposing a higher standard of proof on the parties in such contracts. However, this also means that tacit contracts should not be taken lightly by the contracting parties.

Objective approach / Modified declaration theory

The objective approach theory, also known as the modified declaration theory, is based on the premise of a declaration of intentions between the parties. However, in tacit contracts, the theory proposes taking an objective approach. The theory says that in the absence of a declaration of such an intention in tacit contracts, this intention is inferred from the facts of the case. Since discerning objective concurrence of intention is not a plausible approach, the courts will be automatically inclined to look into the facts of the case to determine whether the party who is denying the enforceability of the contract manifested any sort of conduct that could easily infer an ‘objective assent’ to the terms in question despite there being an absence of explicit or apparent consent.

Reliance Theory

This theory, also known as the ‘doctrine of quasi-mutual assent’. As per this doctrine, there is no true consensus between the parties, i.e., no consensus ad idem. So, for instance, if the defaulting party says that no consent with respect to certain terms was given, the court can say that even if no explicit consent was given, the conduct of the defaulting  party led the other party to believe that such terms were agreed upon. Therefore, this conduct will be treated as if the terms were agreed upon by the defaulting party. 

This doctrine was formulated in the English case of Freeman v. Cooke(1848) wherein, the court clarified that, if one keeps aside the intention of the party and if the conduct of the party clearly implies agreement to certain terms in the eyes of a reasonable man, then in consequence, if the other party, based upon this conduct, enters into an agreement, the party whose conduct is in question will be equally bound by the contract as if he had explicitly intended to agreed upon such terms of the party to a contract.

Rule of Estoppel

The reliance theory and estoppel go hand in hand. This essentially means that the former is derived from the latter. While this theory is also applied under similar circumstances as the reliance theory. As per this theory, if the rules of estoppel are fulfilled, the person who breaches or denies the enforceability of the contract can be estopped from denying consent to an apparent or obvious contract. In situations where the reliance theory cannot be applied,  the rules of estoppel can be. The main difference between the reliance theory and the rule of estoppel is that the former deals with representations that are ‘factual’ in nature, while the latter deals with representations that are based purely on ‘intention’.

Difference between tacit and imputed tacit terms 

There are two types of tacit terms. These can be classified into-

Consensual tacit terms

Consensual tacit terms are those terms upon which an agreement has been reached by the parties.

Imputed tacit terms  

Imputed tacit terms are those terms on which an agreement would have been reached by the parties provided their attention was called to such terms before the agreement was concluded.

Factors to be considered while drafting a tacit contract

It is important to note that tacit contracts must be carefully drafted, keeping in mind that the legal enforceability is the same when it comes to express or implied contracts. In order to prove the existence of tacit terms in a contract, the onus of proving the same lies on the party who alleges the existence of such terms. There are certain tests that can be applied when one is drafting such contracts. 

Official bystander test

This test was given recognition in the case of Alfred McAlpine and Son (Pty) Ltd v. Transvaal Provincial Administration(1974) wherein the Court held that a tacit term can be equated to an unexpressed provision in a contract that is inferred by the court from the express provisions and the surrounding circumstances of the contract. The Court referred to the common law test to check whether a tacit term exists in a contract or not. The Court also referred to it as the official bystander test. Accordingly, the test is to see whether a tacit term would apply to a contract, according to an ‘official bystander’. The bystander is required to ask the parties whether a particular term should be added to the contract. 

Business efficacy test

Another test to determine whether there exists a tacit term in a contract or not is the business efficacy test. The main consideration in this test is to see whether the tacit term is required in a contract to make it commercially viable. If the answer is yes, the tacit term would be applicable in the contract.

Reasonable person test

This test takes into consideration the intelligence of a reasonable man. This means what would a reasonable man of average skill, judgement and intelligence believe about the existence of a particular tacit term in a contract. The reasonable man test applies an objective standard of comparison.

Conclusion 

It is extremely important for the parties to a contract to be aware of the various tacit terms that could be applied to the contract before it is made legally enforceable. This will prevent the possibility of breaches as well as lengthy and costly legal disputes. It can also compel the party to perform certain terms of an agreement to which it may not have consented. Therefore, it is extremely crucial that both parties have knowledge and awareness of such terms and the legal consequences they may create. Tacit contacts are a reality and it is time that the consequences, as well as the scope of such terms in a contract, are given statutory backing and legal recognition.

Frequently Asked Questions (FAQs)

  1. Are tacit contracts legally enforceable?

Even though such contracts are not explicitly defined anywhere in the Indian Contract Act, 1872, it still has the same effect as that of express provisions in a contract.

  1. What is the main difference between tacit contracts and implied contracts?

Tacit contracts and implied contracts go hand in hand. Tacit contracts are a subset of implied contracts. Therefore, all tacit contracts are implied contracts.

  1. How can one determine whether a contract contains tacit terms?

In order to know whether a contract contains tacit terms or not, one can apply the bystander test, the reasonable man test or the business efficacy test. 

References 

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

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

https://t.me/lawyerscommunity

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

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Legal Metrology Act, 2009

By
Rachit Garg
-
0
Famous cases

This article is written by Jaya Vats, a practising advocate, Delhi. In this article, the author provides a detailed study on all the aspects related to the Legal Metrology Act, 2009. The article provides an in-depth analysis of the meaning, and applicability of the Legal Metrology Act along with its relevance.

It has been published by Rachit Garg.

Introduction

The science of measuring is known as metrology. It covers theoretical and practical issues, the realisation of units of measurement and their physical representation, as well as measuring tools and their application fields. Legal metrology refers to any applied metrology that is governed by legislation or government order. The scope of legal metrology differs from nation to nation. Legal metrology in most nations involves measurements for individual financial, health, and environmental protection. 

Legal metrology has applications in three major sectors, according to international practices: 

  • Commercial transactions, 
  • Measures needed to ensure the public health and human safety, and 
  • Industrial measurements. 

Legal Metrology is a legislative department of the Department of Consumer Affairs that deals with the implementation of rules, regulations, requirements, and processes pertaining to measurement and measuring devices. The Department of Legal Metrology is part of the Government of India’s Department of Consumer Affairs, Food, and Public Distribution. It regulates the trade and import of weighing and measuring tools in India. Previously known as the Department of Weights and Measures, the Legal Metrology Act, 2009 superseded the Standards of Weights and Measures Act, 1976, as well as the Standard Weights and Measures (Enforcement) Act, 1985.

The Legal Metrology Act, 2009

The organisation of weights and measures was founded in 1958 to achieve weight and measure uniformity in conformity with international standards to ease trade and commerce. 

In 1976, the Standards of Weights and Measures Act was adopted, which provided for the establishment of standards of weights and measures, as well as the regulation of inter-state trade or commerce in weights and measures and other items sold by weight, measure, or number. The Standards of Weights and Measures (Enforcement) Act, 1985 was passed in 1985 to enforce weights and measures standards set by or under the 1976 Act.

Since the fast growth of science and technology, as well as the globalisation of economies, there has been a great increase in weighing and measuring procedures, which has broadened the scope of weights and measures. The Legal Metrology Act, 2009 was enacted on 1-4-2011 with the intent of establishing weights and measures standards, regulating trade and commerce in weights and measures and other commodities sold or distributed by weight, measure, or number, and for matters connected with or incidental thereto.

Objectives of the Legal Metrology Act

The Act went into effect with the following goals:

  • To govern weights and measure trade and commerce.
  • To establish and enforce weight and measurement standards.
  • Weights, measurements, or numbers are used to govern the manufacturing, sale, and usage of items.
  • To rationalise the Indian Metric system (metre, kilogram, etc.).

Applicability of the Legal Metrology Act

Legal metrology provisions apply to the following:

  • Individuals that use any weight or measure in any transaction, industrial production, or protection.
  • Manufacturer, retailer, wholesaler, dealer, repairer of any weight or measure, importer, and/or packer of any weight, measure, or number-related item.

Nature of the Legal Metrology Act

The Legal Metrology Act of 2009, in particular, provides for the following:

  • Weight or measure regulation used in a transaction or for protection;
  • Approval of a weight or measurement model;
  • Verification of stipulated weight or measurement by a government-approved testing facility;
  • Specifying the qualifications of legal metrology officials appointed by the Central or State Governments;
  • Exemption from weight and measure regulations for export items;
  • Fees for certain services are levied;
  • Nomination of a director by a corporation who will be accountable for enactment compliance;
  • Penalty for offences and offences combined;
  • Appeals against various agencies’ decisions; and
  • Empowering the central government to create regulations for upholding the enactment’s provisions

Overview of provisions of the Legal Metrology Act

The organisation of weights and measures was founded in 1958 with the goal of achieving weight and measuring uniformity in conformity with international standards in order to ease trade and commerce.

In 1976, the Standards of Weights and Measures Act was adopted, which provided for the establishment of standards of weights and measures, as well as the regulation of inter-state trade or commerce in weights and measures and other items sold by weight, measure, or number. The Standards of Weights and Measures (Enforcement) Act, 1985 was passed in 1985 to enforce weights and measures standards set by or under the 1976 Act.

Since the fast growth of science and technology, as well as the globalisation of economies, there has been a great increase in weighing and measuring procedures, which has broadened the scope of weights and measures. The Legal Metrology Act, 2009 was enacted on 1st June 2011 with the intent of establishing weights and measures standards, regulating trade and commerce in weights and measures and other commodities sold or distributed by weight, measure, or number, and for matters connected with or incidental thereto.

Administrative mechanism of legal metrology in India

  1. Department of Consumer Affairs under Ministry of Consumer Affairs, Food and Public Distribution

The Department of Consumer Affairs, which is part of the Ministry of Consumer Affairs, Food and Public Distribution, is in charge of developing policies for monitoring prices, the availability of essential commodities, consumer movement in the country, and the oversight of statutory bodies such as the Bureau of Indian Standards (BIS) and weights and measures.

The Department of Consumer Affairs Weights and Measures Unit is the primary authority for dealing with the issue and is responsible for all concerns falling under the scope of the Central Government. Furthermore, it must direct, coordinate, and monitor the state enforcement apparatus’s actions.

The duty for weights and measures is divided by the Centre and the states. The Central Government is responsible for matters of national policy and other associated duties such as uniform legislation on weights and measures, technical regulations, training, precision laboratory facilities, and implementation of the International Recommendation. The state governments and Union Territory Administration are in charge of enforcing the laws daily.

  1. Directorate of Legal Metrology

The Directorate of Legal Metrology in each state is in charge of enforcing the Standards and Weights and Measures Act, which is essentially a three-tier organisation comprised of Inspectors of Legal Metrology at the field level, Assistant Controllers of Legal Metrology at the district level, and the Controller of Legal Metrology with four Deputy Controllers sitting at the state level. The four Regional Reference Standard Laboratories (RRSL) situated in Ahmedabad, Bhubaneswar, Bangalore, and Faridabad calibrate the legal weights and measures of the states and union territories. These labs also offer calibration services to enterprises in their respective regions. They have recognised laboratories for performing model approval testing on weights and measuring devices.

Legislations enacted by the government to regulate Legal Metrology

The Legal Metrology Act, 2009 was adopted because it became necessary for the government to merge the contents of the previous two Acts in order to eliminate anomalies and simplify the laws. It also became vital to maintain regulation realistic to the amount required to defend consumers’ interests while also keeping the sector free of unnecessary intrusion. Recognition of certain “Government-authorised Test Centres” with the authority to verify stipulated weight or measure was also necessary. 

Certain Legislations enacted by the government to regulate Legal Metrology Act are as follows:

Important terms under the Legal Metrology Act

Under Section 2 (f) of the Act, any written, marked, stamped, printed, or graphic information adhered to or appearing on any pre-packaged item is referred to as a “label.”

Under Section 2 (k) of the Act, “Protection” is used as a reading from any weight or measure to determine any action that must be done to ensure the well-being of any human being or animal, or to protect any product, vegetation, or item, whether individually or collectively.

A pre-packaged commodity under Section 2 (l) of the Act, is placed in packaging of any type, whether sealed or not, without the presence of the customer, such that the product contained inside has a predetermined amount.

A stamp under Section 2 (t) of the Act, is a mark formed by impressing, casting, engraving, etching, branding, or affixing a pre-stressed paper seal on any weight or measure to —

  1. confirming that such weight or measure complies with the standard prescribed by or under this Act, or
  2. showing that any prior mark certifying that such weight or measure complies with the criteria set by or under this Act has been erased;

A weight or measure under Section 2 (w) of the Act, prescribed by or under this Act, including weighing or measuring equipment, is referred to as a “weight or measure.”

Standard weight or measure 

Chapter II of the Act enunciates the standard weight or measure will be any weight or measure that conforms to the standard unit of such weight or measure (based on the metric system or prescribed derived units) and also conforms to the provisions of Section 7 (i.e., the physical characteristics, configuration, construction details, materials, equipment, performance, tolerances, period of re-verification, methods or procedures of tests shall be such as may be prescribed). Non-standard or unverified weights and measures are subject to seizure and forfeiture.

Appointment of the Controller and other legal metrology officers

The state government shall appoint officers under Section 14(1), but their qualifications will be set by the Central Government under Section 52(2). 

Pre-packaged commodities declaration

Under Section 18 of the Act, manufacturing, packaging, selling, or importing any pre-packaged item is illegal unless it is in a standard amount and has all required disclosures. Any advertising that mentions the retail price of a packaged commodity shall also include the net quantity or number of commodities contained in the package.

Approval of model

Under Section 22 of the Act, except for cast iron, brass, bullion, or carat weight, beam scales, length measure (but not measuring tape), and capacity measures up to 20 litre capacities, any weights or measures will require model permission before manufacturing or importing.

Licence

Under Section 23 of the Act, without a licence from the Controller of Legal Metrology, no one may produce, sell, or repair any weight or measure. A licensee is expected to keep proper records and registers. He must also present the records and registrations during the examination.

Weights and measures verification

Before using any weights or measures in a transaction, they should be validated. The Central Government will specify the weights and measurements that must be verified by Government Approved Test Centres. The Central/State Governments will notify the Test Centres.

Offences added together

On payment of a predetermined price, certain offences may be compounded before or after the commencement of a prosecution. No offence can be compounded if the offender committed the same or comparable offence within three years of the date of the first offence that was compounded.

Recent developments with respect to the Legal Metrology Act

Any person who uses a weight or measure in a transaction or for protection must provide the weight or measure for verification at the following locations:

  • At the legal metrology officer’s office at the state of manufacturing, state of import, or place of installation.
  • The legal metrology official in the state where the weight or measure is used must re-verify and stamp it at regular intervals.
  • Weights and measurements that are utilised by industries for internal purposes and do not influence the quantity given to the customer do not need to be re-verified.
  • Declarations are essential for all web portals.
  • If a package includes a commodity,  ‘Best before’ or ‘Use by Date, Month, and Year’ must be marked.

Offences under the Legal Metrology Act

Certain offences covered by the Legal Metrology Act, 2009 are as follows:

Compounding offences

Section 48 of the Act states that certain acts may be compounded either before or after the commencement of a prosecution for a fee. However, no offence can be compounded if the offender had previously committed the same or a comparable offence within three years of the date of the first offence that was compounded.

Offences by companies

Under Section 49 of the Act, a firm may appoint someone to be in charge of the company’s operations. Any such nomination should be reported to the Director of Legal Metrology or the appropriate Controller. The nominated individual and the firm shall be held liable for any violations of the Act’s requirements. When no one is nominated, the person in control or responsible for the firm is held accountable. Even if a person is nominated, any other person who is responsible to the firm and whose cooperation or negligence resulted in the violation will be held culpable for any crime committed. When a firm is convicted, the court may order that its name and the nature of the offence be published in newspapers at the company’s expense.

Penalties under the Legal Metrology Act

The Act’s offences and penalties are outlined in Chapter V:

Section 27 of the Act states that the manufacturing or sale of non-standard weights or measures is punished by a fine of up to 20,000 rupees for the first offence, imprisonment for up to three years for the second or subsequent offence, or both.

Section 36(1) of the Act allows for a punishment of up to twenty-five thousand rupees for the first crime, a fine of up to fifty thousand rupees for the second offence, and a fine of up to one lakh rupees for the third violation.

Section 36(2) of the Act allows for a penalty if a pre-packaged item is manufactured, packed, or imported with an error in net quantity as stipulated. The punishment may consist of a fine of not less than ten thousand rupees but not exceeding one lakh rupees, imprisonment for a term not exceeding one year, or both.

Section 38 of the Act establishes a penalty for non-registration of weights and measures by importers. The offence is punished by a fine of up to twenty-five thousand rupees, and for the second consecutive offence, by imprisonment for a term of up to six months, or by fine, or by both.

Section 32 of the Act imposes a penalty on the commodity’s maker, packer, or importer for failure to register under the Rules’ requirements or for violating any other rule.

Appeal under the Legal Metrology Act

Under Section 50 of the Act, Appeals may be lodged to the next higher authority within 60 days after the date of the order or decision by an officer of legal metrology.

Benefits under the Legal Metrology Act

Measurement is critical in trading processes. The need for efficient commerce is visible, resulting in a balance between traders and consumers.

  • Lowers transaction costs: Revising faulty measuring techniques is often expensive and time-consuming. They have an impact on both enterprises and consumers. Initiating legal action against a trader who has the chutzpah to violate measuring regulations is also costly. However, when measures are taken precisely and correctly, following all of the requirements of the Legal Metrology Act, it saves money and time.
  • The supporting trade: Legal Metrology Act is in charge of policing any illegal or unfair trade activities. This Act strives to ensure that measuring devices are in good working order and can fulfil their intended function while meeting international standards.
  • Obtaining government funds: The government generates money through excise fees paid on goods manufactured, sold, imported, and exported, as well as measurement taxes. The Legal Metrology Act assures that no injustice is done to both the government and businesses when it comes to tax collection. The deal by a percentage of mass commodities may be a significant amount of both export and national pay, particularly in things such as wood, rice, coffee, palm oil, coal, iron-mineral, gold, jewels, and natural gas.
  • Reduces trade technical barriers: The Legal Metrology Act decreases the burden of technical impediments while promoting measuring confidence and clarity. Fewer obstacles boost national morale and encourage people to engage in the global commerce system, which boosts national economic progress. A merchant can eliminate unnecessary hurdles in the process of adopting and applying technical laws, standards, and conformity assessment procedures by using the Legal Metrology Act.
  • Increase consumer trust: When a consumer learns they are receiving a product that has been validated according to particular norms and regulations, it increases their faith in the businessman, ultimately leading to a successful trading connection.

Conclusion

The Legal Metrology Act of 2009 is the primary piece of legislation dealing with Legal Metrology law. Legal Metrology legislation establishes standards for weighing, measuring, and measuring devices. It safeguards consumers, the environment, and traders, and is particularly concerned with fair trade in India. It is based on the capacity to track measurements and measuring tools. It tries to instil trust in customers, the government, business people, and merchants. It regulates unfair trade practices.

FAQs

  1. How can I register with Legal Metrology?

Importers of measuring instruments who compete for business in the Indian market must register to get the Certificate of Registration of Importer of Weights and Measures. The applicant must file a registration application in Schedule X under Rule 15 and get it under Section 19 of the Legal Metrology Act 2009.

  1. Is it possible to transfer the licence obtained under the Legal Metrology Act?

No, it possible to transfer the licence obtained under the Legal Metrology Act

  1. Is it required to show the verification certificate?

Every certificate of verification granted under the Act should be displayed prominently on-premises where such weights or measures are being, or are intended to be, or are likely to be used in any transaction or for protection.

  1. How can a customer tell if weight or measurement is standard or not?

Each weight and measure is manufactured in accordance with the specifications and models developed by the Government of India. Weights and measurements used by dealers are validated and approved by the Legal Metrology Department Inspector, after appropriate confirmation, with a seal to ensure the honesty of the stamp of Inspector and quarter where it is certified.

References

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

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

https://t.me/lawyerscommunity

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

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The Legislative Council

By
Sneha Mahawar
-
0

This article is written by Ms Sushree Surekha Choudhury from KIITT School of law. The article gives a thorough overview of the bicameral legislature in India. It talks in detail about the Legislative Council which is otherwise known as the upper house of a state legislature.

This article has been published by Sneha Mahawar.

Introduction

India is a Secular, Democratic, Republic State. Three organs or ‘pillars’ of government, namely, the legislature, the executive and the judiciary help in the functioning of various administrative duties. It is pertinent to note that the media, which is considered as the fourth pillar of democracy in India, has gained recognition among lawmakers and policymakers in the country. All these pillars work on the basis of independence, natural justice and separation of powers, yet are united with the common goal of upholding democracy. 

The legislature is a crucial pillar which takes charge upon a host of duties such as making laws, scrutinising the annual budget, power to amend the Constitution if need be, etc. In this article, we will learn about how the Indian government performs its administrative functions with the help of a bicameral parliament at the centre.

History of legislative councils in India

The present-day legislative council has its roots in the British era. The Regulating Act (1773) governed administration and it made provisions for appointing a the Governor-General and his council (Governor General’s Council). By 1853, when the Charter Act of 1853 was enacted, the members of Governor-General of India’s Council started to be called as legislative councillors. The Indian Councils Act was passed in 1861 and it renamed the Governor General’s Council to ‘Imperial Legislative Council’ or ‘Indian Legislative Council’ (ILC). During the Morley-Minto Reforms (Indian Councils Act, 1909) and Montagu-Chelmsford Reforms (Indian Councils Act, 1919) the concept of elections was introduced for the first time and the number of members in ILC increased pertinently. Thereafter, came the Government of India Act of 1935 and the present day bicameralism derives its root from here. It established a Federal Legislature which consisted of two houses – the federal assembly and the council of states. The council of states was a permanent body which could not be dissolved but one-third of its members retired every two years. This principle is still in existence for Rajya Sabha and legislative councils. Post-independence, the names were changed and the federal council came to be known as the Parliament with Rajya Sabha and Lok Sabha as its houses and state legislatures were set up for every state. The Indian legislature is bicameral. Bicameral legislature or bicameralism refers to a type of system which practices functioning through two houses of Parliament. The Indian legislature is bicameral at the centre, dividing it into the Lok Sabha (House of People) or the lower house and the Rajya Sabha (Council of States) or the upper house of the Parliament. Each house is entrusted with a host of powers and duties and they work unitedly to achieve common objectives. In a similar manner, certain states in India follow bicameralism whereas the others continue to be unicameral. Bicameral legislation are divided into Vidhan Sabha (Legislative Assembly) or the lower house and Vidhan Parishad (Legislative Council) or the upper house. 

Currently, six Indian states have a legislative council. They are:

1. Uttar Pradesh Legislative Council

2. Maharashtra Legislative Council

3. Karnataka Legislative Council

4. Bihar Legislative Council

5. Andhra Pradesh Legislative Council

6. Telangana Legislative Council

For better understanding, let us look at these state legislative councils in detail. 

Uttar Pradesh Legislative Council

It is the biggest state legislative council in India. It currently has a total of 100 members, 90 out of which are elected by local authorities, graduates, teachers and MLAs and the remaining 10 have been nominated by the Governor of Uttar Pradesh. The Uttar Pradesh Legislative Council had been formed via the Government of India Act, 1935 and had its first meeting in 1937. It has been a permanent body ever since with one-third of its members retiring every two years. 

Andhra Pradesh Legislative Council

It came into existence in 1958 but was abolished in 1980. Thereafter, it was revived by the President’s assent in 2007 and is then active till today. Although the state’s legislative assembly has passed a resolution for abolition yet again in October 2021, the same has not yet been assented or approved. It comprises 58 members at present.

Bihar Legislative Council

One of the oldest legislative councils of the nation, Bihar Legislative Council has been existing since 1912 and is active till today. 75 members form this council. 

Karnataka Legislative Council

With a number of 75 MLCs at present, the Karnataka Legislative Council has been in existence since 1907. It was established as the Mysore Legislative Council which is now known as Karnataka Legislative Council. 

Maharashtra Legislative Council

After independence and post abolition of Bombay Legislative Council, the province of Bombay was disintegrated and two separate states were formed – Gujarat and Maharashtra. While Gujarat chose to be unicameral, Maharashtra reformed its legislative council. It currently has 78 members.

Telangana Legislative Council

After the division of Andhra Pradesh into two different states- Andhra Pradesh and Telangana, both the states reformed their legislative councils as they opted for bicameralism. The Telangana Legislative Council was then established in 2014 and currently has 40 members which is the minimum limit of members in a state legislative council. 

Role of a Legislative Council 

  • The role of the state legislative council is essentially advisory in nature. Its core function is to give suggestions, and recommendations and hold discussions on matters, bills and policies presented to it or that have been sent to it for suggestions, recommendations and discussions by the legislative assembly. 
  • Bills presented in the legislative assembly are sent to the legislative council for approval.
  • However, in case the council does not give its approval, the assembly has the power to reconsider it. In this case, the legislative assembly resends the bill to the legislative council. 
  • The legislative assembly can send the bill again to the legislative council for consideration, with or without implementing the amendments that may have been suggested by the legislative council. When the bill is sent for the second time, and if it has already been passed by the assembly, the bill shall be deemed to be passed by the council if it retains the bill for any longer than a month.
  • When the bill is sent for the first time, the council can retain the bill for a period of up to 3 months and not beyond that. 
  • The powers of the legislative council are limited. It has no right to participate in the formation or dissolution of the government. A no-confidence motion cannot be initiated in a legislative council as it can be, in a Rajya Sabha.  
  • A legislative council can delay the procedure of passing a bill. It can retain the bill for a period of 3 months in case of a non-money bill and 14 days in case of a money bill but it cannot stop the legislative assembly from passing if the legislative assembly decides to pass it. When a non-money bill is resent to the council, it can retain the bill for a period of 1 month after which the bill shall be deemed to have been passed by the council.
  • The legislative council plays a crucial role in recommending changes to the bills presented. It is mandatory for the legislative assembly to send a bill to the legislative council before passing it, though its recommendations are not binding. 
  • An ordinary bill can be introduced in the legislative council. However, the ultimate decision is made by the legislative assembly. 
  • It can recommend changes to a money bill. However, a money bill cannot be introduced in a legislative council. 
  • Members of the council can become ministers. A member of the council is eligible to become the Chief Minister. It is one of the most important powers of the members of the legislative council. 
  • Although the council does not exercise legislative control over the state executive like the legislative assembly does, debates can take place in a legislative council and it can also ask questions to the executive ministers. 

Privileges and immunities of Members of Legislative Councils

As embedded under Article 194 of the Constitution of India, the members of state legislatures enjoy privileges and immunities in certain cases. Those can be seen as follows: 

Freedom of Speech

The members of state legislatures are granted freedom of speech in the house of legislature and immunity against legal proceedings for anything said or a vote given in favour or against a particular bill in the legislature. They cannot be held liable for the same. Unlike the freedom of speech which is granted to Indian citizens under Article 19(1)(a), MLC’s privilege of freedom of speech is absolute in nature, i.e., it is not subject to any reasonable restriction as mentioned under Article 19(2). These privileges are limited to things spoken or votes given within the house of legislature and not beyond. 

Making rules

The state legislature is also granted a right to make laws, but they must be in consonance with the Constitution of India. However, it’s only the legislative assembly that makes final decisions and the legislative council only holds discussions. 

Freedom from being arrested

The members are immunised from being arrested while the sessions are in motion. Even if they have been arrested previously, they must be freed to attend when the sessions are in motion. 

Punishment for contempt

The Chairman of the legislative council is vested with the power to punish any member of the legislative council for contempt or misbehaviour during sessions. 

Composition of a Legislative Council 

Article 171 of the Indian Constitution describes the composition of the legislative council. It states that the states which have a bicameral legislature shall have one-third members as that of the legislative council of that state.

Further, for these members, the manner of election is as follows:

  1. One third shall be elected by electorates of local authorities, 
  2. One-twelfth shall be elected by university graduates of the state, 
  3. One-twelfth shall be elected by the teaching population of the state who teaches secondary level education or higher, 
  4. One-third shall be elected by the members of the legislative assembly and the rest of the members are nominated by the governor of the state.  

Therefore, the composition of the legislative council = 1/3rd members of the legislative assembly. In no case shall the total number of members in the council be less than 40 members.

NumberElected by
One-third Local Authorities
One-twelfthGraduates
One-twelfthTeachers
One-thirdMembers of Legislative Assembly
Remaining Governor
Total40 members (minimum)

Members elected to the legislative council are called Members of the Legislative Council (MLC) whose term of office is of six years. State legislative council is a permanent body and one-third of its members retire every two years, as provided under Article 172(2) of the Constitution of India (1950). 

Qualifications and disqualifications of Members of Legislative Council (MLC)

Qualifications

As has been provided under Article 173 of the Indian Constitution, the following are the mandatory prerequisites/ eligibility criterion for membership in the legislative council:

  • He/she must be an Indian citizen,
  • He/she must have attained an age of 30 years or above,
  • Any other eligibility criteria as may be prescribed by the State Government from time to time.

Disqualifications

Mentioned below are the grounds on which Members of the Legislative Council can be disqualified:

  • He/she must not be holding an office as a Member of Parliament, 
  • He/she must not hold any office of profit under the Government of India or any State Government, with certain exceptions,
  • He/she must not be an undischarged insolvent,
  • He/she must not be declared to be of unsound mind by any competent court or authority,
  • He/she must not have obtained foreign citizenship/ nationality,
  • He/she must not be disqualified by any other criteria as has been laid by the Parliament.

Creation of a Legislative Council 

India has adopted a bicameral legislature. Just as there are two houses of Parliament at the centre, the states are at volition to adopt bicameralism too. Provisioned and empowered by Article 169 of the Indian Constitution, states can create a legislative council.

Process of creation of a State Legislative Council

Step 1: Presenting a bill in the legislative assembly of the respective state

Step 2: After the bill is introduced in the legislative assembly, a meeting is called upon for voting on the same

Step 3: Voting is conducted. For the bill to be approved, a special majority is needed at the legislative assembly voting. 

The special majority here denotes the following:

  • A majority of total members of the assembly,
  • Not less than two-thirds of the members present and voting in favour of the bill.

Step 4: If and when a special majority is obtained, the legislative council can be established.

Step 5: A resolution is passed in this regard backed by a special majority.

Step 6: The bill along with the resolution is sent to the Governor for his assent.

Step 7: If and when the Governor assents, the bill is passed and approval for establishing a state legislative council is obtained.

Step 8: A legislative council is formed and its members elected. 

Dissolution of a Legislative Council 

A state legislative council is a continuing chamber, meaning, it is a permanent body and hence, cannot be dissolved. Members stay in power for a term of six years and one-third of such members retire every two years, but the house is never dissolved.

It can, however, be abolished, if it is deemed fit and necessary. Several states have, with time, abolished their legislative councils, such as, Assam, Punjab, Jammu & Kashmir, etc. The prerequisites for an abolition to take effect has been embedded in Article 169 of the Constitution of India, 1950. 

Once formed, a legislative council cannot be dissolved. It can however be abolished. States where a legislative council is already present, can be abolished if deemed fit and proper, by a similar manner of voting and special majority. A resolution for abolition is presented to the legislative assembly of the state, as per provisions of Article 168 of the Indian Constitution.

Like many other things, the system of a bicameral legislature is a Britishers gifted system. During the era of British raj in India, there used to be a bicameral legislature, at union level and at provincial level. The names have changed since, but the idea remains the same. 

The abolished legislative councils can also be reestablished. For instance, the West Bengal Legislative Council which was existent since the British era, was abolished in the year 1969 under the West Bengal Legislative Council (Abolition) Act of 1969. A resolution regarding the same was passed by its legislative assembly. It took place in the following manner:

  1. A bill was introduced in the state legislative assembly in the year 2021.
  2. Total number of members in the West Bengal Legislative Assembly were 294 and the number of members present and voting were 265 while this bill was introduced for voting. 
  3. Out of these 265 members,  169 members voted in favour of the bill and 69 voted against it. This obtained a special majority in favour of the bill.
  4. The resolution was thus passed by the TMC government’s legislative assembly. 

The opposition party was highly critical of this motion and has been opposing the formation ever since. Time will tell whether or not the Mamata Banerjee led government will be able to switch from unicameralism to bicameralism. 

Why are legislative councils criticised in India

Even though bicameralism has been an age-old concept in India, very few states have chosen to adopt it. Many states have also abolished their legislative councils and opted for unicameralism. These statistics are indicative of the upper house not being as popular for state legislatures as it has been for the union. At times, legislative councils are heavily criticised by lawmakers and policymakers. Some prominent criticisms are:

  1. In a practical scenario, the decisions taken, the bills and the policies made depend more on the nature of the composition of houses than on merit. For instance, when a bill is introduced in the legislative assembly of the state and the same is sent to the legislative council for approval, the members belonging to the ruling party will give their assent and the opposition party members will not. The bills are often passed or not passed due to these grounds and not truly on the merits of it. If the ruling party forms a majority in the legislative council, the bill will be passed even if it is not expedient to do so. And if the opposition party forms a majority, they will tend to cause unnecessary delays in the passing of the bill, not for its demerit but for political innuendo. 
  2. Another reason for criticism is its unnecessity. The legislative council is only advisory in nature and it discusses bills sent to it by the legislative assembly to make recommendations. These recommendations are not even binding on the assembly and it can pass a bill without implementing those recommendations. Thus, the legislative council is believed to be unnecessary, unuseful and inefficient. 
  3. It delays the making of laws, even those which require immediate action.
  4. It is seen as a means to park defeated politicians. 
  5. It creates a financial burden on the state’s budget. Setting up, everyday functioning, travel, institutional expenditures, and remunerations, are all high set financial expenditures and it creates a heavy burden on the state’s budget. 
  6. It has extremely limited powers and functions. 
  7. It has no control over the state executive, unlike the legislative assembly. 

Conclusion 

Part VI, Chapter III of the Indian Constitution gives a detailed description of state legislatures in general and state legislative councils in particular. Articles 169-212 deal with the creation, abolition, composition, powers and functions, etc., of legislative councils. Chapter III also deals with the manner in which a bill is passed in these houses and the powers of the legislative council when it comes to the passing of a bill. Although the legislative council is the upper house of the state legislature, which is believed to be similar to Rajya Sabha at the centre, unlike Rajya Sabha, its powers are rather limited. Lawmakers, policymakers, and academicians,l have a mixed opinions on this. Some believe that the legislative council is a crucial organ of governance as it helps maintain checks and balances in passing essential bills and making laws by scrutinising the work of the legislative assembly and acts as a scrutinising and suggestive body upon the proposals and decisions of the lower house. While others believe that it can be used as a tool to delay the procedures, put obstacles in the path of justice and can be used as a tool to fight against corruption. Currently, six Indian states have a legislative council as has been established under Article 169 of the Indian Constitution. Several other states have abolished their legislative councils for a host of reasons. It would be interesting to see more states adopting bicameralism and watch how that pans out. 

Frequently Asked Questions (FAQs) 

  1. Is it mandatory to have a legislative council for every state in India?

No. The Indian Constitution does not make it a mandatory requirement for every state to have a bicameral legislature. It is left to the discretion of the states.

  1. What is a bicameral legislature?

Bicameral legislature or bicameralism is a practice where states are at the centre, there exist two houses of Parliament for legislative purposes, one being the upper house and other, the lower house of Parliament.

  1. How many states in India have a bicameral legislature?

Six Indian states have a bicameral legislature, namely, Bihar, Uttar Pradesh, Maharashtra, Karnataka, Andhra Pradesh and Telangana. 

  1. How is a legislative council different from a legislative assembly?

A legislative council is a permanent body which cannot be dissolved. It is mutatis mutandis to Rajya Sabha at the centre. Whereas, a legislative assembly is not a permanent body and it can be dissolved, same as the Lok Sabha at centre. 

  1. Is the legislative council the upper house?

Yes. Legislative Council (Vidhan Parishad) is the upper house of a state legislature and the lower house is the Legislative Assembly (Vidhan Sabha).

  1. How is a legislative council created?

A legislative council is created as per provisions of Article 169 of the Indian Constitution, by a special majority from the legislative assembly.

  1. What is the minimum number of members in a legislative council?

There must be at least 40 members in a legislative council.

  1. What is the maximum number of members in a legislative council?

There is no upper limit or maximum limit when it comes to members of a legislative council. Uttar Pradesh legislative council has a number of members as high as 100 members. 

References 

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

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

https://t.me/lawyerscommunity

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

Download Now

Earnout agreements in M&A

By
Sneha Mahawar
-
0

This article is written by Shubham Bhatnagar a student of 2nd year-3 year llb- Faculty of Law, DU pursuing a Diploma in M&A, Institutional Finance and Investment Laws. This article has been edited by Ojuswi (Associate Lawsikho). 

This article has been published by Sneha Mahawar.

Introduction

An earnout is a contingent value payment that is made typically by a buyer of a company to a seller of a company. It is a mechanism that is typically used to bridge value gaps that exist typically in M&A deals. The seller views that the future potential of the company could create a lot more value than the buyer is probably willing to pay today and the buyer also recognizes the future value potential of the company. Therefore, it is a kind of consideration that the buyer contractually binds itself to pay the seller based on future performance metrics of the business. It is a tool to bridge the valuation gap between buyers and sellers and is a commitment that a buyer makes to pay the seller based on future metrics.

Earnouts are an important device used in M&A Transactions to deal with future uncertainty in the performance of the acquired business. Earnouts are of importance to both parties in an M&A transaction, they are important to buyers because they mitigate the risk of uncertain business performance. They are important to sellers because they provide an opportunity to maximise the sale consideration a bit conditionally in this way earn-outs are the potential bridge between buyers and sellers. 

The article shall be focusing on the pros and cons of earnouts, key taxation issues, regulatory issues, factors and benchmarks one should be mindful of while structuring earnouts and the impact of Covid on earnouts clauses in M&A transactions.

Pros and cons of earnouts

There are both advantages and disadvantages for buyer and seller in an earnout. It is a great tool to bridge expectation gaps on valuation. One of the big reasons for using earnouts is to bridge the gap between valuation arising out of high growth scenarios. In a business where the intellectual property resides with the management team or the founders, these become a way to retain them and keep them excited about the business and the growth. It helps in bridging the gap in management capability with the incoming founder team by integrating them effectively with the management team going forward.

From a seller’s perspective, no seller wants earnouts, they want all the money upfront if they are looking to capture the full value of the future potential of the business. This is why they are very reluctant to agree to earnouts and performance metrics, thereby making it a relatively long and arduous process. When a business tries to boost sales, they set up very large aggressive business plans about how bright the future is. However, earnouts as well as putting a value associated with the performance, result in reasonably long cycles of negotiations. An earnout makes post-acquisition operations more complex irrespective of integration strategy. Whether it is full integration, or, partial integration, or, standalone operations trying to agree on operating covenants and operating principles in the business for the future, it is a big challenge when substantive value is associated with future performance. People talk about control and their rights, and at the same time buyers that once invested significant capital into the business,  also want control of that business. Thus, establishing a structure for earnouts that fits most of the requirements is essential.

Tax considerations 

Key taxation issues one should be mindful of while structuring earnouts 

In any structuring tax considerations play a pivotal role and structuring earnouts is no exception.

Taxation of earnouts in M&A is complex not just from a seller’s perspective who earns income and is therefore required to pay taxes on it but also from a buyer’s perspective who makes payments.

S.noThere are mainly 2 tax issuesFROM SELLER’S PERSPECTIVEFROM BUYER’S PERSPECTIVE
1Nature of earnouts From a tax perspective is it additional capital gain income that the seller earns or is it just an employment linked incentive or performance-linked incentive that the seller earns and of course taxability would change substantially depending on how earnouts are viewed from tax perspectiveHow should the buyer be treating these payments in its hands? Is it an additional cost basis that the buyer gets in shares or is it just the sunk cost for the buyer?
2When is it taxableIs it taxable upfront when the shares are sold by the seller or is it taxable when the deferred payments are based on going earnouts is actually received by the seller?                                                                             On this particular issue, there have been contradictory rulings as per one ruling the payments are taxable upfront and as per another ruling, the payments should be taxable in the year in which the seller is actually receiving them because the court appreciated the fact that these payments could be conditional and until those conditions are satisfied the seller cannot be considered as having earned that income. If the share sale transaction is subject to withholding taxes, is the buyer required to withhold tax on the total consideration upfront plus deferred or just the upfront consideration?  

Solution to the above-mentioned issues from buyer’s and seller’s perspective answered jointly

When looking at applicable tax provisions there are no specific provisions dealing with these tax issues. Therefore, there are these grey areas both for the seller as well as the buyer. For buyers, the issue is that there are no judicial precedents as of yet which clarify some of the aspects of issues. Given these tax issues and concerns, it makes sense to look at structures that could help mitigate these issues to some extent, which could essentially help to deal with earnouts based payments from the upfront share sale. Some of the examples of such a structure could be:

Where instead of selling all the shares upfront, the seller sells the shares in tranches and whatever is paid for a particular tranche is then taxable at the time when the tranche is sold and not at the time of the first upfront sale itself. From the buyer’s perspective as well, the structure should work better because it will have clarity concerning the buyer’s cost basis (is it an additional cost basis that the buyer gets in shares or is it just the sunk cost for the buyer), and whatever the buyer pays for a particular tranche, should be available to the buyers as cost basis and shares.  The other structure could be, let’s say the seller sells all the shares upfront but subscribes to a new instrument, for instance, a redeemable preference share instrument in the company at the nominal consideration and then the deferred component is structured as part of the redemption premium on redemption of preference shares. This also helps to deal with earnout based payments from the upfront share sale.Another structure could be, let’s say earnout based payments are identified and recorded as employment linked incentives payable to the seller when parties report this income as salary income linked to the employment exercised by the seller, when these payments are offered to tax as salary income, of course, the tax rate will be higher because employment income is taxable as. Ordinary income at higher rates compared to capital gains income but still, this structure will have that clarity that the seller won’t have to go out of pocket to pay taxes without having earned that income and will be paying taxes only when there is clarity that seller is going to earn that income now when we track about structures of this nature, of course, there could be other nuances each structure may have even in terms of other tax issues, for example, taxation of redemption premium on preference shares is an issue in itself that needs a closer look and evaluation. Employment structure whether it makes sense to structure it as a consultancy instead of an employment model is also something that could be looked at in detail.

While there could be these nuances and even the legal aspects would need attention, broadly structures like this could help mitigate the tax issue for the seller where the seller won’t have to go out of pocket at the time of share sale upfront, where the subsequent payments may be uncertain but he will be paying taxes upfront without having the ability to recover those taxes later on.

There are 3 important related structuring elements for an exercise of this nature:

1. Substance 
Given that tax laws have an anti-abuse regime now it’s important that whatever the structure is finalised and can pass muster under the general Anti-Abuse Rules. 

2. Documentation 
Whatever structure is finalised needs to be adequately and properly documented in the transaction documents because documents will be key in any defence proceeding before the tax authority. 

3. Valuations                                                                                                                     
 Share deals are required to satisfy certain tax specific valuation report requirements therefore those would also require attention.

However, a word of caution that there is no one-size-fits-all when it comes to structuring agreements an M&A earnout, what may work in one deal may not be appropriate in another and therefore optimum tax earns structure needs to be bespoke from the transaction every deal may have different commercial drivers, different requirements, different circumstances even the legal and other tax considerations may vary depending on those circumstances.

Regulatory issues 

What are the regulatory issues that are relevant to structuring earnouts and how should they be dealt with.

Listed companies 

Where we see fewer earnouts but there are SEBI norms that regulate incentives or upside sharing arrangements where board and shareholder approval of people who are not interested is required.

Sub-regulation (6) to Regulation 26 (which pertains to obligations with respect to directors and senior management) to provide on the following lines:

“No employee, including key managerial personnel, director or promoter of a listed entity shall enter into any agreement with any individual shareholder(s) or any other third party with regard to compensation or profit-sharing unless prior approval has been obtained from the Board as well as shareholders by way of an ordinary resolution”.

“Provided that all such existing agreements entered into prior to the date of notification and which may continue beyond such date shall be informed to the stock exchanges for public dissemination and approval obtained from shareholders by way of an ordinary resolution in the forthcoming general meeting. Provided further that in case approval from shareholders is not received, all such agreements shall be discontinued.”

Unlisted public companies 

The Securities Contracts (Regulation) Act, 1956 also known as SCRA is an Act of the Parliament of India enacted to prevent undesirable exchanges in securities and to control the working of stock exchange in India

Where SCRA needs transactions to close on the date when the share is transferred to the next day, therefore, a purchase price cannot be deferred in a public company situation often it is ignored as normally people associate SCRA with listed companies but unlisted public companies are also governed by SCRA.

Private companies 

The challenge is primarily when there is a non-resident shareholder and the challenge stems from the fact that the foreign exchange norms require that as a non-resident one cannot hold back more than 25% of the purchase price for a duration of 18 months from the date of signing of the agreement that leaves a non-resident who is looking to structure earnout perhaps arguably with not enough adequate time for an earnout to play out as generally it takes at least some a couple of years to do justice to the earnout construct.

Structuring of earnouts

So how do earnouts need to be structured in such a case?

  1. Defer the purchase price along with the acquisition of shares so one acquires the shares in tranches. For instance, 75% in one and balance 25% when the earnout is payable although this has some issues since one does not get a clean break as a seller and as a buyer, they also don’t get full control and a shareholders’ agreement needs to be drafted which has its own challenges. Given these tax issues and concerns, it makes sense to look at structures which could help mitigate these issues to some extent, which could essentially help to deal with earnouts based payments from the upfront share sale and some of the examples of such structures could be challenging.
  2. Employment model, where part of the earnout is paid through the employment or consultancy fee model and odds for transitional services agreement model that has some taxation ramifications which it was alluding to which needs to be born into mind.
  3. Issue of non-voting security to the promoter who is sought to be paid the earnout amount. promoter subscribes to redeemable preference shares at a nominal amount.If the earnout thresholds are milestones are met the promoter will then be paid against the redemption of those renewable preference shares at a premium. There will be taxation consequences, which have to be taken into account. 

However, the larger picture is that the regulatory hurdle of foreign exchange law is not insurmountable and like any other structure it has to be often a blended amalgamation of 3-to 4 models and not one size fits all approach which never works in life. For instance, when one goes to buy a car not all cars will have every feature oftentimes a mix of 2-3 options we have to go for same is restructuring where we have to be mindful of options that may be part of the money can be done to share within the foreign exchange law limited part of it through employment model, part of it through escrows.                                                                                                         

Factors to be considered

Key factors that ought to be considered in organising an earnout in an M&A exchange

Organising an earnout is vital, as it includes how the business will run, who will have what sort of command over the business, and other key components. A blend of every one of these concludes what the organisation accomplishes concerning income, EBITDA, commitment from top clients, and so on, which thus chooses the pay-out for the dealer. The following are a couple of contemplations for organising earnouts:

Key executives 

An organisation doesn’t develop in light of only one individual; it requires the work of a total group. Consequently, it turns out to be vital for the merchant to remember key chiefs for his/her arrangement, as they can be a distinct advantage to drive income and accomplish projected EBITDA edges.

Length of the Contract

The dealer dislikes to work for extremely lengthy as per the standards set somewhere around the new purchaser and might need to stay away from future contrasts. Remembering that, it definitely should keep the agreement time frame short and plan out the earnouts in that period as it were. In the case everything goes fine, then, at that point, the merchant and the purchaser can continuously restore the agreements and reconsider the terms of work.

Control 

It’s out of line to cut the earnings of the vendor if an objective isn’t met while he doesn’t control the business. To keep away from such a circumstance, the purchaser and the merchant should settle on the strategy and the sort of control the vendor will practice post-securing. The vendor might wish to supervise the tasks, advertising, and different regions that can drive income and margins. If the acquirer maintains an aware separation and is by all accounts giving the control, it ought to be viewed as a decent sign.

Monetary Metrics

Common monetary measurements incorporate income, EBITDA, net income, and profit per share (EPS). Dealers like to put together the earnouts concerning income, which is hard for the purchaser to control yet simple to accomplish. There may likewise be a circumstance where the vendors of the business take up projects with low edges only for income. Remembering this, purchasers generally really like to accomplish a mix of income and edges for earnouts.

Innovation and administration organisations with high development potential are a portion of the organisations that are generally attached to earnouts in an M&A bargain.

One brilliant rule applies to earn-outs, and that is to keep it simple. The objective of any earn-out is to give motivation to the vendor to augment the deal cost by keeping up the company’s performance. The more intricate the earn-out formulae are, the more potential there is for disputes.

Benchmark

Benchmark to be considered while calculating earnouts 

Earnouts typically emanate from uncertainty in target valuation, so to that extent what benchmarks are added depends and flows from what the target’s business is and the nature of the business that one is looking to acquire as a buyer. 

In the case of private companies, it is a lot more difficult at times to structure and although less prevalent in listed companies where there is a significant amount of comprehensive financial disclosure in the public eye where there is market prevalent pricing etc. Therefore, earnouts are less prevalent and easier to structure to that extent regulatory aspects aside. Therefore, in the context of private companies ultimately one would have to focus on outcomes rather than milestones and it depends on the nature of business one is buying if it’s structured to multiple group companies versus a single.

Covid and earnouts

How has Covid impacted earnout clauses in M&A transactions?

During Covid, there arose a necessity of a risk mitigant tool, value mitigant tool like earnout has come to the forefront increasingly more deals are witnessing this during Covid times. Parties are not able to absolutely ascertain if the forecast which is laid out by the seller will be met or not because of Covid. Nobody could have anticipated such a devastating phase two which surpassed phase one and severely crippled many businesses not only their performance but how the market sentiments will go. For instance, will consumer goods have demands or will the demands plummet, and will the customers pay on time all of this needs to be tested because of that uncertainty so if the target’s fundamentals are good both parties are mature enough and being advised by sophisticated advisories instead of tanking their deal they can do an earnout model also earnout periods have become more protracted it’s not a one year quick 18 months window because that may not be good enough for riding over the tide of Covid 19 so people are going for slightly longer period 24 months or 36 months waiting for much of course what they are doing in the process is making staggered payments so it’s not all or nothing or everything to be paid at the back end they are releasing payments as certain milestones are hit let’s say after 12 months so that the seller is enthused and the earnout period doesn’t seem like an eternity for the seller.

Conclusion

Risk allotment

It designates the gamble impartially between the parties and in my view no negotiation is unbalanced, any exchange where one party leaves feeling excessively certain is truly not a fair exchange.Therefore, for a fair negotiation parties really must apportion the gamble similarly and earnouts make an astounding showing, particularly in the present day and age.

Watertight contractual provisions

Ironclad agreements are the key to carrying out the idea into a written codified document if the understanding is loosely worded, a generally excellent idea can go for a toss and parties could be entangled over the long-haul disputes and further decaying their relationships for eternity.

Expert legal, tax and accounting guidance ought to be taken to guarantee that the arrangements meet the regulatory necessities as well as are painstakingly thoroughly examined to safeguard the interest of executing parties. Each of the three stakeholders ought to work indispensably in a closely aligned manner to deliver an item that truly gets the parties over the line with a mutually beneficial arrangement to stay away from any equivocalness and limit any possible disputes. 

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Is polygamy legal in India

By
Rachit Garg
-
0

This article is written by Shraileen Kaur, a student of ICFAI University, Dehradun, pursuing a Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho. In this article, the author discusses in detail the legality of polygamy, its history, and its types.

It has been published by Rachit Garg.

Introduction

The practice of polygamy, unlike monogamy, is not at all a prevalent occurrence nowadays, although it is still a topic of standoff. We haven’t been able to fully abandon this activity, although we wish to abandon it. Polygamy, as per contemporary views, is associated with primitivism, whereas monogamous relationships are associated with civilisation. Polygamy is widely practised in the United States, China, the African continent, and India, among many other nations, despite this notion. In many nations, it is still a widespread practice. 

Polygamy relationships were pervasive in ancient India, especially among the wealthy aristocracy and rulers, although it was not a mandatory traditional concept. As an example, there were three spouses of Raja Dashratha, the ruler of Ayodhya, according to the ancient sanskrit epic, Ramayana. A Hindu marriage is irreversible throughout life, as per the Vedas and other religious texts. Despite this, polygamy was practiced freely in ancient Hindu civilisation. 

In the Mahabharata, another major sanskrit epic, Bhishma gives King Yudhishthira the following directive: “A Brahmana can have three wives.” A Kshatriya is allowed to have two wives. In the case of a Vaishya, he can only marry someone of his kind. “All of these spouses’ offspring should be treated equally.” As of now, polygamy is illegal, leaving Hindus with just monogamy as a choice, as a bigamous relationship is also prohibited.

Polygamy is illegal in India for Hindus and other religions except for a Muslim male who is permitted to have multiple wives, maximum four in number, as per the law. So, this article focuses on polygamy, its origins in India, and the present incarnation of the practice in Indian society.

What is polygamy

Polygamy has long been associated with mankind. Monogamy got the initiative over polygamy only around ten thousand years ago. Many communities have tolerated it and continue to do so. As of now, some nations, primarily Islamic, recognise polygamous relations while others have declared it null and void, and some jurisdictions, such as India, exclusively permit Muslims to practice polygamy. Polygamy was a feature of our civilisation regardless of geography or religious doctrine, and this cannot be disputed. Polygamy has been discovered to be universal, cross-cultural in applicability, and prevalent in all geographies as well as among believers of all religions of the world, according to various data and investigations.

Polygamy is derived from two words: “polys,” which means “many,” and “gamos,” which means “marriage.” As a result, polygamy refers to several marriages. It comes from the Greek word “polgamos,” which means “often marrying.”

Polygamy is defined as “the act or custom of maintaining more than one spouse at the same time” by the Oxford Dictionary.

The Merriam-Webster Dictionary defines

“Polygamy is a marriage in which one or both spouses have multiple partners at the same time.“

Hence, polygamy can be described as a concept of marriage in which an individual is wedded to multiple spouses during the very same period.

The Bible, Quran, and Torah all include references to polygamy. This practice is mentioned in the Ramayana as well as the Mahabharata epics, as well as other Hindu writings. Polygamy has appeared in publications, diaries, TV series, and documentaries, in addition to political debates and conversations.

Different types of Polygamy

Polygamy is divided into three types, notably polygyny, polyandry, and group marriage.

Polygyny

It is the matrimonial structure in which a male individual has numerous wives. Polygamy in this aspect is the most widespread. Monarchs and emperors in the Indus Valley Civilisation were believed to have several wives. This approach was also imitated by others with significant levels of power and influence. Marriage typically came with additional riches, territory, and titles, so it was a way for them to consolidate and enforce their influence. It was also regarded as a prestige symbol, as only a wealthy man could manage to have multiple wives.

Polyandry

It is a type of marriage in which a woman has several husbands. Nevertheless, this is an extremely uncommon occurrence. Polyandry is not at all like polygyny in terms of legal standing. A man’s marriage to numerous women is extremely common, but a female’s marriage to multiple men is frowned upon. As a result, the sexes are asymmetrical.

Group marriage

Group marriage is a system in which the male and female of a community regard themselves as wedded to one another. Polygyny and polyandry are both terms that can be used to describe it. A group marriage must include all 10 essential kinship links, as per Lewis Henry Morgan: spouse, co-wife, husband, co-husband, parents, daughter, sons, brother, and sister.

Historical aspect of the concept of polygamy

Perhaps in Indian history, there are countless cases of rulers and monarchs who practised polygamy and also had multiple wives. Such polygamy examples can also be found in religious writings and traditions.

India is a diverse country. As a result, matrimony rules have never been simplified. Each denomination seems to have its system of regulations, rituals, and practices. However, when it came to polygamy, they unanimously agreed that monogamy was the ideal system of marriages, but that polygamy may be used in certain instances.

There was a moment in the Indus Valley Civilisation when polygamy was not prohibited. Aristocrats including monarchs were known to engage in this activity. Vedas, scriptural texts, and manusmriti ruled Hindu marriage regulations during the Vedic era. 

Historical aspect of polygamy under Manusmriti

new legal draft

A Hindu man was thought to be allowed to remarry during his wife’s lifespan, albeit such marriages, whenever performed without reasonable grounds, are greatly discouraged. Manu has rationalised his wife’s supersession and multiple marriages during her lifespan by citing barrenness, ill health, violent attitude, and misbehaviour on her part. Mitakshara as well as Subodhini both justify and defend the supersession of the very first wife.

“A lady who consumes any bogus beverages, acts unethically, shows animosity toward her divine, is susceptible of ailment, is destructive, and spends his possessions may at any moment be succeeded by some other wife,” he continues. A childless wife may be supplanted in the eighth year, a woman who bears stillbirths children or whose offspring all die as newborns in the tenth, a woman who bears exclusively girls in the eleventh, and a woman who behaves insensitively in the twelfth.”

Manu has also remarked that the very first spouse is married out of a spirit of commitment, whereas the others are wedded for sexual reasons.

Historical aspect of polygamy under Muslims

As monarchs came and went, so did the sanctity of marriage. With the arrival of the Muslims, new rules concerning Muslim weddings were enacted. Marriage was seen as the foundation of civilisation, and the Marriage ceremony was a contract. The prestige of a married woman was higher. In the Holy Quran, Chapter 1V, Verse 3 says about polygamy:

“And if you are afraid you would not be fair while interacting with orphans, marry as many women as you like, two, three, or even four; and if you are afraid you would not be just, marry just one or whatever your dominant arm has.” That is the most direct path to avoiding wrongdoing for you.”

These statements demonstrate that in Islam, the notion of polygamy has its foundation in empathy and generosity.

Historical aspect of Polygamy under Indian rulers

The Rajputs were known for their unconstrained polygamy, which allowed them to have several spouses. Polygamy was seen as a way for them to produce male offspring and consolidate control. Rao Maldeo is claimed to have had 16 brides, whereas Marwar’s King Udai Singh had 27 spouses. Raval Bapa is claimed to have married 140 women. This may be an overestimate, but it demonstrates how upper echelon Rajputs may have a limitless number of women. Polygamy was practised freely by Kulins, Brahmins, monarchs, wealthy landowners, and other rich and privileged people. The poorer classes, on the other hand, practised monogamy. Polygamy was an extravagance beyond the reach of the poor, as Altekar, a renowned historian and archeaologist, reminds out.

The colonial rule of Britishers in India brought about a shift in Indian culture and matrimonial practices. Polygamy was outlawed under Section 494 of the Indian Penal Code of 1860, among several other progressive changes. Post freedom, the Hindu Marriage Act of 1955 outlawed the practice of polygamy among Hindus. Muslims, on the other hand, may have up to four wives.

Polygamy and Hinduism

All these Indian legislation and an individual’s laws, i.e., religious ideology, govern an individual in India. As a result, a Hindu or someone who professes Hindu religion follows the processes that the religion suggests.

There had been a phase in the Vedic Period when Indian laws were not as ubiquitous or as strict as it is today. So, according to Hindu tradition, a person could practice polygamy at the time. Back then, a husband might marry more than one person and also have two, or even three wives.

Polygamy, however, has been outlawed with the passage of time and the implementation of the Hindu Marriage Act. It is now forbidden among Hindus in India. Polygamy has been both forbidden and unlawful for a Hindu or someone who embraces Hinduism. Both follow Indian law and also the Hindu Marriage Act. It is now forbidden for a person professing Hinduism to marry several people or have two marriages at about the same time.

Legitimately, a Hindu cannot marry a single individual. He or she is unable to have two spouses at the same time. A person cannot marry some other person whilst still committed to some other person. The second husband or wife will be regarded as illegitimate if he/she does so. Under the Hindu Marriage Act, the first spouse can initiate a case against the polygamous spouse. The Hindu Marriage Act is enshrined in the Indian legal system and makes polygamy illegal for Hindus. 

Polygamy under Hindu Law

The Hindu Marriage Act, which came into effect on May 18, 1955, made it clear that Hindu polygamy would be abolished and criminalised. Monogamy was the sole option available to Hindus. This appears to be a typical example of straightforward legislative action. It was made explicit that a Hindu spouse may not marry again until the first one is terminated, either through a divorce or the death of one of the spouses.

Under Section 11 of the Hindu Marriage Act, 1955, which states that polygamous marriages are void, the Act cautiously mandates monogamous relationships. When someone performs it, they are punished under Section 17 of the very same Act, as well as Sections 494 and 495 of the Indian Penal Code, 1860, which define such conduct as an offence. Because Buddhists, Jains, and Sikhs are all considered Hindus and do not have their own laws, the provisions in the Hindu Marriage Act apply to these three religious denominations as well. As a result, bigamous weddings are void and punishable under Sections 5, 11, and 17 of the Act. 

Polygamy and Islam 

Polygamy is forbidden and unlawful in Hinduism, according to the established statutory provisions. In Muslim law, however, the situation is very distinct.

A Muslim man can marry and maintain four women or spouses at the same time, according to Muslim personal law. Under Muslim personal law, such a relationship is recognised and legal. While a Muslim man can have four wives at the same time, however, the same is not applicable to a Muslim woman.

A Muslim woman is not allowed to marry more than one individual. She is not permitted to have more than one partner. This depicts the legal status of polygamy in a Muslim marriage. Polygamy is a practice that many Muslim women have spoken out against.

They have argued that polygamy is illegal in Islam. Today, some textbooks detail and depict the tragedy of Muslim women who have already fallen victim to polygamy. Polygamy is a common practice in Muslim personal law. A Muslim man can marry over than one woman, but only if his laws allow it.

The Special Marriage Act, 1954 has been used by many Muslim women to help them stop practicing polygamy. Hence, a Muslim can only marry one individual under this Act. He is not permitted to have more than a partner.

Polygamy is not considered a sin in Muslim personal law. It is a component of a long-standing societal ritual that people have followed for generations.

Polygamy under Muslim Law

The clauses under the ‘Muslim Personal Law Application Act (Shariat) of 1937, as construed by the All India Muslim Personal Law Board, apply to Muslims in India. Polygamy is not prohibited in Muslim legislation because it is recognised as a religious practice, hence they tend to preserve and practice it. It is, nevertheless, clear that if this method is determined to violate the constitution’s basic rights, it can be overturned.

When there is a disagreement between the Indian Penal Code and personal laws, the personal laws are implemented since it is a legal principle that a specific law supersedes the general law.

Impact of polygamy on Indian society and the constitutional standpoint 

India comprises a secular state where no religious denomination is considered better or subordinate to another, and each religion is treated equally, with all religious scriptures respected and rules enacted under them. However, several regulations are being debated for their validity by other religions, namely, Islam and Hinduism, and in particular, the legislation dealing with ‘polygamy.’ They debate the Constitution’s vital rights, which are enumerated in Articles 13, 14, and 15.

Article 13 of the Indian Constitution expressly specifies that legislation that conflicts with Part III of the Constitution is unconstitutional. In R.C. Cooper v. Union of India (1970), the Supreme Court observed that the theoretical approach that the component and construct of state intervention ascertain the severity of the safeguard that an underprivileged group may purport is incompatible with the constitutional provision, which aims to provide the ordinary citizen with the broadest possible safeguards of his fundamental rights.

Article 14 states that the state shall not refuse any individual under India’s territory equal treatment under the law and equal protection under the law. The state is prohibited from discriminating against any person solely based on faith, ethnicity, gender, religion, or birthplace, according to Article 15(1) of the Indian Constitution. 

The Indian Constitution and Polygamy

In India, religion is given considerable attention, and the Indian Constitution guarantees it wherever necessary. In contrast, the judicial system plays a critical role in modifying the Constitution by emphasising procedural fairness, as seen by certain recent landmark judgements, in which the Constitution has been amended to reflect the sophisticated culture and latest developments. Polygamy is permissible in Islamic law, although it is forbidden in other denominations. 

The constitutionality of polygamy has also been established, although laws have always been susceptible to reform for the sake of society, and so this system may change or be abolished for a variety of reasons.

Therefore, only because polygamy has already been embraced among the Islamic culture since the ancient period and has been adjusted as a topic of personal laws, Hindu religion followers will not be able to contest the laws that criminalise monogamous relationships among Hindus. As Martin Luther King put it, “Laws can never change people’s hearts, but they can restrict the callous.” As a result, laws requiring monogamy are enacted to strengthen society rather than to curtail people’s basic rights.

Social impact of polygamy on Indian Society

According to academicians and some other knowledgeable people, permitting polygamy in one faith while condemning others is discriminatory, and this prejudice must be addressed by the law. The appellation of the policy trends and religious convictions of the specific religious group cut off this phase.

Polygamy appears to be innocuous to the community, yet from the standpoint of a rational pure living being, most societal issues today are the outcome of this type of relationship. It has an impact on society since there are constantly linguistic arguments among the spouses, resulting in extreme environmental conditions for the youngsters and an ethical standard of practice that is inappropriate for raising a family.

Marital aggression is one of the most closely associated with polygamous families owing to the vocal conflicts that arise as a result of their unethical arrangement. As a man cannot please all of his women emotionally or economically, it creates a purely barbarous consequence in a poygamous relationship. When the male partner dies, polygamy causes property disputes. The ladies may utilise immoral tactics to obtain as much from the wealth as possible to gain a head start in life. There are few means of polygamy, yet many people are participating in a vital social structure, the family.

Unity is usually a gripping component in any family, however, there is no cohesion in a polygamous household due to antagonism among the wives fighting for love and validation from their husbands. Polygamy is linked to criminal behaviours such as sexual assault, hence it has a negative impact on the population. 

As a final note, polygamy has an impact not only on the married couple but also on the offspring who are the result of such a relationship. This troubling issue causes trauma in youngsters, which has an impact on their education and interpersonal attitudes towards life, as well as their contribution to global society.

Judicial perspective concerning polygamy

Parayankandiyal v. K. Devi & Others (1996)

After considering many resources on Hindu law, the Honourable Supreme Court concluded  in this case that monogamous relationships were the standard and ideology of Hindu society, which scorned and condemned a second marriage. Polygamy was not allowed to become a part of Hindu culture due to the influence of religion. The Court also noted that some persons take advantage of even the tiniest of legal privileges and that at this point, the government should step in to discipline such behaviour.

State of Bombay v. Narasu Appa Mali (1951)

In this case, the Bombay High Court ruled that the Bombay (Prevention of Hindu Bigamy Marriage) Act, 1946 was not discriminative. The Supreme Court ruled that a state legislature has the authority to enact measures for public welfare and reforms, even if it violates the Hindu religion or custom. The Court ruled it was up to the Legislature to decide whether or not Mohammedans should be excluded from the purview of the challenged Act. It is not necessary to implement a reform in a single stage. The State Legislature can take a few measures toward progressive change and prosperity.

Javed & Others v. State of Haryana & Others (2003)

The issue, in this case, was whether a disputed provision of the Haryana Act prohibiting anyone with more than two kids from competing or occupying a government position violated Article 25. The Honourable Supreme Court decided that under Article 25 freedom is subjected to social harmony, dignity, and wellness. Muslim law allows for the marriage of four women, but it is not compulsory. This will not be violating religious practice to not marry four women. For the sake of good order and discipline, decency, or security, such conduct of having several wives can be controlled or forbidden by laws.

Countries where polygamy is legal 

Polygamy is still practiced in several regions and jurisdictions. Having many spouses is not prohibited and does not result in any penalties or sanctions.

Because of their personal law, the majority of these rules and practices are found in Muslim countries. Polygamy is still lawful and legal according to their tradition and domestic legislation.

Polygamy is permissible and legal exclusively for Muslims in nations such as India, Singapore, as well as Malaysia.

Polygamy is still recognised and practiced in nations such as Algeria, Egypt, and Cameroon. These are the only areas in the world where polygamy is still legal.

Polygamy is considered a curse by Muslim women. Women also have no right to speak against the spouse in this situation, even if he is married for the second or third time. 

However, the same polygamy legislation does not apply to Muslim women, as they are prohibited from doing so. A Muslim woman who has had more than one partner is subject to a penalty. She will be put on trial for practicing polygamy, according to Muslim personal laws.

As a result, we can observe that polygamy regulations vary depending on a person’s gender within a single faith. Polygamy is not at all a preferred lifestyle choice. Polygamy comes with several drawbacks. The prevalence of polygamy will cause turmoil in society, if there will be no formal law to regulate it.

Polygamy is a harmful habit that will spread the disease and leave the populace uncontrollable. As a result, polygamy must never be legalised in India. All of the laws covering such practices have been consolidated into a single codified statute, which is a bold move. As a result, this will apply to all Indians.

Conclusion 

Polygamy has existed for a long time in Indian society, and even though there are laws outlawing it, it is still practiced in some areas. Polygamy was considered taboo by Hindu Law even in earlier civilisations and was only authorised in restricted conditions. Muslim law, on the other end, enables a man to have four wives, although it is not a requirement for a Muslim man to do so. Polygamy became a prestige statement and it was not prevalent among the poorer layers of society, according to investigations.

Polygamy is now illegal in India, but a Muslim man is permitted to have multiple wives, specifically four in number. This is not at all a religious duty or religious conduct, as the court system has often acknowledged. In the notion of social transformation, the legislature has the authority to outlaw it. Governments, on the other hand, have failed to consider the situation of women, particularly those who embrace Islam and have also hesitated to prohibit similar practices for Muslim men.

Traditions are created in response to the current circumstances of the period in question, and therefore should be abandoned as they become obsolete. Even though the rules relating to polygamy are constitutionally acceptable, they should be altered because the fundamental doctrinal arguments offered can no longer be justified in the context of the present world scenario.

In all religious denominations, present personal laws are mostly founded on the topmost patriarchal views of society. Therefore, a Uniform Civil Code is typically requested by disgruntled women as an alternative to established personal laws, as conservative orthodox individuals continue to believe that reforming personal laws will jeopardise their sacredness and reject them vehemently. The code will make the complicated regulations of civil marriages, inherited wealth, testamentary, and adoptions easier to understand and apply to everyone. All individuals, regardless of their religion, will be subject to the same civil law.

Instead of differentiating regulations based on religious beliefs, a secular republic requires a common law that applies to all citizens. It will address prejudice against disadvantaged individuals and unify the country’s diverse culture.

Frequently asked questions on polygamy

What do you mean by group marriage?

A combination of two different types of polygamy i.e., polygyny and polyandry is called as a group marriage. 

What was the first legislation for prohibition of polygamy in India?

The first legislation concerning prohibition of polygamy was introduced in 1860 under the  Indian Penal Code,1860 Section 494. 

What is the punishment for committing polygamy in India?

An individual who is held liable for committing the offence of polygamy shall be punished under Section 494 of Indian Penal Code, 1860. The punishment includes imprisonment for a maximum period of 7 years or fine or both.  

References 

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