Wildlife Protection Act, 1972

This article has been written by Adhila Muhammed Arif, a student of Government Law College, Thiruvananthapuram. This article seeks to explain what a partnership firm is, how it is different from other associations such as registered companies, and overall advantages and disadvantages of a partnership.

It has been published by Rachit Garg.

Introduction

In the words of Sir Frederick Pollock, “partnership is the relation that subsists between persons who have agreed to share the profits of a business carried on by all, or any of them, or on behalf of all of them”. A partnership firm refers to an organisation of two or more persons where they are co-owners of a business, and agree to share the profit as well as the losses derived from it. The term ‘partnership’ is used to denote the relationship between those persons. There are different forms of associations such as that can function in this manner and partnership happens to be one among them. The right to form a partnership is a part of the right to form an association, which is a constitutional right as per Article 19(1)(c) of the Indian Constitution.

Partnership: meaning and nature

What is a partnership (Section 4, Indian Partnership Act)

The law that governs partnership is the Indian Partnership Act, 1932. According to Section 4 of the Partnership Act, partnerships refers to the relationship between persons who have agreed to share the profits of a business carried on by all of them or any of them acting for all of them. A partnership firm cannot be viewed as an entity that exists on its own distinct from its members. It is only for the purpose of taxation that it is considered as a distinct personality.

Essentials of a partnership

In the case of Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. K. Kelukutty (1985), the Supreme Court laid down the definition of partnership as “the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all”. The Supreme Court elucidated Section 4 of the Act and stated that individually, the members are partners, and collectively they are a firm. According to the court, the components of a firm are

(a) persons

(b) a business carried on by all of them or any of them acting for all, and

(c) an agreement between those persons to carry on such a business and to share the profits derived from it.

To explain further, the following are the essential requisites of a partnership:

An association consisting of two or more persons

It is not possible for one person to become a partner on his own. A minimum number of two persons must be there to form a partnership. As per Section 42, in cases where the number of partners gets reduced to one due to reasons such as death and insolvency, the partnership stops existing immediately, even when the contract of the partnership states otherwise. This Act does not lay down the maximum number of persons that can be a part of a partnership firm. However, Rule 10 of the Companies (Miscellaneous) Rules, 2014 states that only a maximum of fifty people can form a partnership to carry on a business.

Origin from an agreement

The partnership must arise from a valid agreement. The agreement can be expressed or implied by the parties’ conduct. It must fulfil all the requirements of a contract. Section 11 of the Act clarifies that for entering into a partnership, the person must be of the age of majority, of sound mind, and not disqualified by any other law in force at that time. Section 5 of the Act makes it clear that a partnership does not arise from status but from a contract.

Combining of labour, skill and property

In most firms, all the partners make some kind of contribution with their skills, labour or even property. However, in many firms, some members do not contribute anything. Such members can be called partners if they undertake liability as partners.

Business or commercial activity

Section 2(b) of the Partnership Act defines business as any trade, occupation, or profession.

Carried on by all or any of them on behalf of all

In a firm, the partners are agents and principals of each other. For the actions of each partner, all the other partners are liable.

Sharing of profits

One of the essential conditions of the existence of a partnership is the object of sharing profits of the business of an association.

Difference between a partnership and a co-ownership

Co-ownership is essentially a form of association that we can find among joint-purchasers, co-heirs and even co-tenants. They are a group of people who have ownership of an asset and earn some kind of benefit or revenue in either the same or different proportions.

In the case of Rashmi Naqrath v. Sarva Priya Cooperative House (1997), it was held that co-ownership in itself is not a partnership even if they earn some profit from a common thing. It is necessary for all the parties involved to consent to trade as partners for there to be a partnership.

In the case of Central Engineering Works vs Competent Authority (1988), the following points were cited as the difference between co-ownership and partnership:

1. Co-ownership is not necessarily the result of an agreement, whereas a partnership is.

2. Co-ownership does not necessarily involve sharing of profit or loss, but a partnership does.

3. One co-owner can, without the consent of the other, transfer his interest, etc., to a stranger. A partner cannot do this.

4. In a partnership, each partner acts as an agent for the others. In a co-ownership, one co-owner is not, as such, the agent, real or implied, of the other.

To sum up, the following are the differences between a partnership and a co-ownership:

Sl.No.	Partnership	Co-ownership
	A partner is not entitled to transfer his interest to a third party as a substitute partner without the consent of the other partners.	A co-owner can transfer his interest to a third person without the consent of other co-owners
	Partners are agents for each other	There is no mutual agency in co-ownership
	A partner being an agent has the right to lien over the partnership property, as per Section 221 of the Indian Contract Act, 1872.	There is no such right in a co-ownership. A co-owner can only be entitled to partition, and for the sale of such property, he would require the consent of the other co-owners.
	When a partner causes any losses due to fraud, he is required to indemnify the firm.	Noone can be held liable for losses due to fraud in a co-owenrship

Advantages of a partnership firm

The following are the advantages of forming a partnership firm over other associations or other models of business:

Easy to form

It is easier to create a partnership firm than an association like a company. It does not require registration. It can be formed simply by an agreement between two or more parties. Even dissolving a firm can be done instantly due to any of the reasons prescribed by the Partnership Act.

Utilisation of skills

In a partnership firm, all the partners are involved in managing the firm. This utilises the variety of skills possessed by all the partners in performing the tasks related to the management of the firm.

Pooling of capital and resources

As a partnership firm has many persons involved, it also brings the firm more resources and capital to conduct business.

Sharing of risk

As there are multiple persons involved in a partnership business, it is easier to bear the risks or losses incurred from it.

No filing of annual returns

For associations like companies, it is required to submit an annual return to the Ministry of Corporate Affairs. It is essentially a document that contains details of a company’s share capital, indebtedness, directors, shareholders, changes in dictatorships, corporate governance disclosures, etc. However, a partnership firm does not require any such things.

Flexibility

The nature of a partnership firm is very flexible as there is only a few legal formalities. It is easier to make decisions in a partnership firm in comparison with other entities.

Auditing

All partnership firms do not require to get their accounts published and audited. As per the Income Tax Act, 1961, a tax audit of a partnership firm is mandatory only if the turnover of the firm exceeds one crore Rupees. However, in the case of a company, tax auditing is compulsory regardless of its turnover.

Disadvantages of a partnership firm

The following are the disadvantages of having a partnership firm over other forms of business:

Consequences of not registering a firm

Though it is not compulsory to get a firm registered, it has its consequences as laid down in Section 69 of the Partnership Act. the following are the disadvantages of not getting a partnership firm registered:

Not being able to sue a partner or the firm itself in order to enforce a contractual or statutory right;
Not being able to sue a third party for enforcing a contractual right, and
Not being able to claim set off.

Transferability of share or interest

A partner cannot transfer his interest in the firm’s business to a third party without the consent of the other partners. It makes a share or investment in a firm’s business an illiquid asset.

Uncertainty

Conducting a business through a partnership firm makes it very unstable and uncertain. This is because of the fact that a partnership gets dissolved immediately due to the death, insolvency, or retirement of any of the partners.

No public scrutiny

Since it is not compulsory for all partnership firms to be subjected to auditing, there is no public scrutiny regarding the revenue a firm generates. This leaves the public suspicious about the firm’s creditworthiness.

Lack of leadership

Since all partners in a firm are on an equal footing and have the same roles, there is a lack of leadership in managing the firm’s business.

No perpetual existence

As a partnership firm does not have a legal personality of its own, it comes to an end when one of the partners dies, resigns, or becomes insolvent, unless it is otherwise agreed by the partnership contract. The existence of the firm is solely dependent on the partners that constitute it.

Limit on the number of partners

There is a statutory limit on the number of partners that can form a firm which is fifty. However, to form a private company the maximum number of shareholders is two-hundred.

Conclusion

To conclude, forming a partnership firm to conduct business has many advantages as well as disadvantages. The regulations that govern partnership firms are lesser than the ones that govern companies. This makes creating and running a partnership firm far easier than running a company. However, due to a partnership firm not having a distinct personality, business conducted by a partnership firm is a more uncertain place in comparison with a business run by a company.

References

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All about a promissory note

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May 26, 2022

This article has been written by Oishika Banerji of Amity Law School, Kolkata. This article provides a detailed analysis of the concept of a promissory note which is a financial instrument that contains a written promise by one party to pay another party a definite sum of money.

This article has been published by Sneha Mahawar.

Table of Contents

Introduction

A promissory note is a debt instrument that contains a written commitment by one party (the note’s issuer or maker) to pay another party (the note’s payee) a specific amount of money, either immediately or at a later date. A promissory note usually includes all the details of the debt, including the principal amount, interest rate, maturity date, date and location of issuance, and the signature of the issuer. Although they may be issued by financial institutions, for example, you may be asked to sign a promissory note in order to obtain a small personal loan. Promissory notes typically allow businesses and people to obtain funding from sources other than banks. This source could be an individual or a business prepared to carry the note (and supply the funding) on the agreed-upon terms. Promissory notes, in effect, allow anyone to be a lender.

What is a promissory note

A promissory note is a legal document that outlines the terms of a loan and binds a borrower to repay a quantity of money to a lender within a certain time frame. Promissory notes are one of the most straightforward ways to secure funding for your business. Frequently, they are simple documents with a few procedures. If the required provisions are provided, even a promissory note scribbled on a napkin could also be considered legitimate. IOU, personal notes, loan agreements, notes payable, promissory note forms, promise to pay, secured or unsecured notes, demand notes, or commercial papers are some of the other names by means of which promissory notes can be recognised. As a result, a promissory note must meet all the regular contract conditions, such as consideration, agreement, and capacity. If the note’s authenticity is challenged, the same defences, such as fraud or misrepresentation, may apply.

History behind promissory notes

The history of promissory notes is fascinating. They have circulated as a sort of alternative currency that is not controlled by the government at times. In some countries, like the United States, the official currency is a demand note, which is a type of promissory note (one with no stated maturity date or fixed-term, allowing the lender to decide when to demand payment). Promissory notes are normally exclusively given to corporate clients and sophisticated investors in the United States. Promissory notes, have recently become more popular as a means of selling property and securing mortgages.

Legal historians have debated the origins of the negotiable promissory note extensively. The concepts underpinning the negotiable promissory note, according to Brunner, may be traced back to Germanic law, and the essential features of the negotiability clause can be found in the Lombard documents from the eighth, ninth, and tenth centuries. ‘ According to Brunner, the emphasis in Germanic procedural law was on the legality or invalidity of the defendant’s defence rather than the plaintiff’s claim.

In the thirteenth century, evidence of Jews using the promissory note with the alternate bearer clause is still more plentiful in Spain than in England. This evidence is all the more significant because it includes a full examination of the grounds behind the legitimacy of the promissory note with the alternate bearer clause by some of Spain’s top Jewish jurists. Grace is another criterion that applies to negotiable instruments and has a similar analogue in Jewish sources. The debtor on a negotiable instrument is entitled to several days of grace after the due date of the note under the law merchant.

In Jewish law, a comparable norm is known as seman beth-din, which can be loosely translated as a judicial extension of time. A debtor in default may request an extension of time from the court to allow him to raise the funds necessary to settle the debt.

How promissory notes work

The Geneva Convention of Uniform Law on Bills of Exchange and Promissory Notes of 1930 governs both promissory notes and bills of exchange. Its guidelines further provide that the term “promissory note” must be written in the instrument’s body and that it must include an unequivocal promise to pay. Promissory notes fall midway between the informality of an IOU and the rigidity of a loan contract in terms of legal enforceability. An IOU simply admits that a debt exists and the amount one party owes another, whereas a promissory note includes a specific promise to pay and the steps required to do so (such as the repayment schedule).

A loan contract, on the other hand, normally specifies the lender’s right to recourse—such as foreclosure, in the case of a borrower’s default; such clauses are typically lacking in a promissory note. While the paper may include the penalties of non-payment or late payments (such as late fees), it rarely goes into detail about how to get your money back if the issuer doesn’t pay on time. Unconditional and saleable promissory notes become negotiable documents that are widely employed in international commercial transactions.

Necessities of a promissory note

The document must contain an unconditional undertaking to pay.
The undertaking must be to pay money only.
The money to be paid must be certain.
It must be payable to or to the order of someone in particular or to the bearer.
The record must be signed by the creator.

Parties in a promissory note

Drawer or Maker: The promisor, also known as the maker or issuer of the promissory note, is the person who creates or issues the promissory note that specifies the sum to be paid.
Drawee or Payee: It is the individual on whose behalf the promissory note is made or issued, also known as the promisee. Unless the note specifies a different person as the payee, the said individual is also the payee.

Methods of repayment of a promissory note

A promissory note is repaid in full at the end of the term listed on the note. There are three methods of repayment that have been provided hereunder:

Lump-sum payment: This means that at the end of the period, the full note is paid in one payment. Only if you are interested.
Interest-only: This means that the regular payments are applied only to the interest that has accrued, not to the principal.
Interest and principal repayment: The funds are being applied to both the accrued interest and the note’s principal amount.

If the lender approves, the borrower may be able to repay the remaining amount without penalty. If the note is viewed as an investment, the lender may not authorise this choice. They can impose a penalty in this situation to avoid losing income when they reinvest the funds. If the borrower defaults on the note, the lender may additionally request a type of collateral as an insurance policy. This will necessitate legal action, but it will assist the lender in recouping any funds that have been lost. The collateral does not have to be equal to the note’s value, it can be any quantity. If the collateral is less than the loan amount and the borrower defaults, the lender may seize the collateral and sue for the balance. If the collateral is worth more than the note, the extra money from the sale of the collateral must be refunded to the borrower.

Promissory notes, such as corporate bonds and retail investment loans, can be resold at a discount in specific instances. On the date of maturity, the new owner of the note can get the full face value or a reduced amount if it is before the due date. The new owner of the note will get interested as well as the appreciated difference in price on a regular basis. Additional clauses, such as late penalty charges, attorney fee provisions, and other note-specific restrictions, may be included in a promissory note.

Advantages of a promissory note

Flexibility: Flexibility is a crucial benefit of a promissory note, whether you are the borrower or the one supplying the funds. You can select how payments will be made in instalments, at a later date, or on-demand using a promissory note. You could, for example, make interest-only instalments with a balloon, a one-time payment, at the end. You can either fully amortise the loan and make monthly payments, or you can make equal quarterly or semi-annual instalments. This flexibility allows you to choose loan terms that best suit your or your company’s needs.
Convertible: A convertible promissory note can be used to entice potential investors if your company operates as a corporation, LLC, or other separate legal entity. Investors may be interested in your firm if they believe you have sufficient cash flow to repay the principal plus interest. They may not believe in your firm enough to invest in its stock outright, or they may not know how to value it. An investor can convert a convertible promissory note into preferred stock or a preferred interest in your firm at a later date or when a specific event occurs.
Brief and often unsecured: Unlike traditional loans, which can be hundreds of pages long, promissory notes are usually only a few pages long. As a result, the legal fees associated with preparing a promissory note are typically substantially lower than those associated with preparing a regular loan agreement. It is not necessary to have a promissory note notarized or recorded in order for it to be valid. As a result, you can use a promissory note as an unsecured loan while securing bank or other loans with your assets.

Disadvantages of a promissory note

Short-term service: It is only suitable for short-term services. It cannot be used as a source of capital for large projects.
Detriment to new borrowers: For new borrowers, it is a dangerous credit instrument because the note’s seemingly short and straightforward language may conceal certain unfavourable provisions. As a result, the borrower may be forced to pay a large sum to cover the responsibilities incurred.

Difference between a mortgage and a promissory note

A ‘promissory note’ is like an IOU which includes the borrower’s agreement to pay off the debt as well as meet all the repayment terms. Only those who sign the promissory note are legally responsible for repaying the lender. The note is inclusive of borrowers’ names, property’s address, interest rate (fixed or adjustable), the late charge amount, amount of the loan, and term (number of years). The promissory note, unlike a mortgage, is not recorded in the county land records. While the loan is in progress, the promissory note is held by the lender. The note is marked ‘paid in full’ and returned to the borrower when the loan is paid fully.
The borrowers’ names, the property address, and the legal description of the property are all listed on the mortgage. It also includes all of the deal’s major terms and conditions. The mortgage has an ‘acceleration clause’ in addition to conventional lender-borrower conditions. If the borrower defaults, such as by not making payments, the lender might demand that the whole loan sum be repaid. Before accelerating a loan, the lender must usually give the borrower notice. If the borrower fails to correct the default, the lender may pursue foreclosure. Foreclosure refers to the legal process of selling real estate that is secured by a mortgage in order to pay off the debt.
The promissory note is endorsed (signed over) to the new owner of the loan when it changes hands. The note may be endorsed in blank, making it a bearer instrument in some instances. As a result, anyone who has possession of the note has the legal ability to enforce it. The legal record of a mortgage transfer from one holder (loan owner) to another is called a ‘mortgage assignment.’ In most cases, each assignment is required to be recorded in the country land records.

Types of promissory notes

The different types of promissory notes that the readers must be acknowledged are listed hereunder.

Corporate credit promissory notes

Promissory notes are a type of short-term borrowing often employed in the business. For example, if a company sells a lot of things but doesn’t get paid for them, it may run out of funds and be unable to pay its creditors. In this scenario, it may request that they accept a promissory note that may be swapped for cash after it collects its receivables. It might also ask the bank for the money in exchange for a promissory note that will be paid back later.
Companies who have exhausted all other options, such as corporate loans or bond issuance, can use promissory notes as a source of credit. In this case, a note issued by a firm has a higher chance of default than, say, a corporate bond. This also indicates that a corporate promissory note’s interest rate is more likely to generate a larger return than a bond issued by the same company as high-risk means higher potential rewards.
Typically, these notes must be registered with the government of the state in which they are sold, as well as the Securities and Exchange Commission (SEC). Regulators will go to the memo to see if the company can deliver on its commitments. If the note isn’t registered, the investor must conduct their own due diligence to determine whether the company is capable of repaying the debt. In this instance, the investor’s legal options in the event of default may be limited. Insolvent businesses may hire high-commission brokers to sell unregistered notes to the general public.

Student loan promissory notes

Deciding on the college or university of your choice and enrolling in that institution can be an exciting time, but it can also feel overwhelming with so much to plan and do before your first semester. If you are like the majority of students who will need to borrow student loans to cover some or all of the cost of higher education, it may also lead to your first encounter with any type of loan or credit product. When you sign a student loan contract, known as a promissory note, you agree to all of the terms and conditions laid out by the lender. As with any legally binding document, it’s important to read a student loan promissory note carefully and be aware of and understand your rights, responsibilities and obligations before moving forward.
When a student takes out a loan for student financial aid, they usually sign a promissory note to formalise the debt. Interest does not usually begin to accrue until after the student graduates, according to the promissory note agreement. Students can typically sign a master promissory note that covers the duration of their education and eliminates the need to re-sign each year they take out a school loan.
You can sign a contract called a Master Promissory Note, or MPN, for federal student loans that permit you to borrow multiple loans over a 10-year period. Depending on whether you wish to borrow federal direct loans for undergraduate or graduate students, PLUS loans for graduate students, Parent PLUS loans, or a combination of loan types, you will need to sign a new Master Promissory Note for each form of a loan. Your terms and conditions will not change if you enter into this form of agreement. You won’t have to sign a new agreement every year as long as you keep taking out federal student loans.
A variable interest rate or a fixed interest rate can be applied to student loans. Your interest rate on a fixed-rate loan will remain the same for the duration of the loan. A variable interest rate loan has an interest rate that fluctuates based on a market benchmark or index that changes on a regular basis.

Informal promissory notes

An informal promissory note, also known as a personal promissory note, is used when two people, such as friends or family members, need to borrow money. It is a written agreement between the payor and the payee that a quantity of money will be reimbursed within a specified time period, and it may not contain as many repayment stipulations as other more formal promissory notes.

Real estate promissory notes

People who might have qualified for a mortgage previous to the recession are having a hard time finding lenders prepared to lend to anyone other than highly qualified buyers. This condition not only prohibits good potential buyers from acquiring a home, but it also disadvantages sellers because it is considerably more difficult to find purchasers who qualify for traditional financing. This has led to an increase in the number of sellers marketing their own homes and using legal promissory notes to sell their properties to potential buyers.
At the beginning of a mortgage for a real estate home loan, a bank may issue a real estate promissory note. This is especially important if the lending partner is not a bank but a private individual. These promissory notes state that the borrower’s home as collateral for the loan and that the creditor or issuer can place a lien on the property if the borrower fails to pay by a certain date or defaults on the loan.
Promissory notes are perfect for people who don’t qualify for typical mortgages since they allow them to buy a home with a loan from the seller and collateral from the purchased home. The buyer makes a down payment to the seller as a sign of good faith and as a guarantee that the debt will be paid back. The deed to the house serves as collateral on the loan, and if the buyer defaults, the seller keeps the deed and the down payment. The promissory note stipulates all of the loan’s repayment terms, as well as the repercussions of defaulting on the loan.

Commercial promissory notes

Commercial paper, often known as CP, is a short-term financial instrument used by businesses to raise capital over a one-year period. It is an unsecured money market instrument in the form of a promissory note that was first established in India in 1990.
A commercial promissory note is a formal type of promissory note that is often issued to borrowers by institutions such as credit unions or banks. These could be used by commercial lenders to make auto loans, personal loans, or business loans to private individuals.

Investment promissory notes

Even in the case of a take-back mortgage, investing in promissory notes entails risk. To assist mitigate these risks, an investor should register or notarize the note so that the obligation is both publicly recorded and lawful. In the case of a take-back mortgage, the note purchaser may even go so far as to purchase a life insurance policy on the issuer. This is fine because if the issuer dies, the note holder will inherit the house and all associated expenses, which they may not be prepared to handle.
These notes are only available to corporate or sophisticated investors who are ready to take on the risks and have the funds to purchase the note (notes can be issued for as large a sum as the buyer is willing to carry). After agreeing to the terms of a promissory note, an investor might sell it (or individual payments from it) to another investor, similar to a security.
Because the value of future payments is eroded by inflation, notes are sold at a discount to their face value. Other investors can buy a portion of the note by purchasing the rights to a specific number of instalments at a discount to the true value of each payment. This allows the note holder to raise a lump sum of money quickly, rather than waiting for payments to accumulate.

Promissory notes in India

In India, a promissory note, also known as a note payable, is a legal instrument in which one party (the issuer) guarantees or promises in writing to pay a specific sum of money to the other (the payee) at a specific time or on the payee’s demand, under specific circumstances. The amount of money promised to be paid must be exact and precise. The commonwealth has codified the legislation relating to ‘Negotiable Instruments’ in the Bills of Exchange Act, 1882. Almost every country, including New Zealand, the United Kingdom, and Mauritius, has codified the law governing negotiable instruments. The Negotiable Instrument Act of 1881 went into effect in India. To comprehend what a negotiable instrument is, all you need to know is that it’s a promissory note, bill of exchange, or check payable to order or to bearer. Promissory notes were widely used in Europe throughout the Renaissance. Later in the twentieth century, the instrument underwent significant changes in both use and form, as well as the addition of some clauses.

The governing laws

Under Section 4 of the Negotiable Instruments Act, 1881, a “promissory note” is a written instrument (not a banknote or currency note) that contains an unconditional undertaking signed by the maker to pay a specified quantity of money solely to, or on the order of, a specific person, or to the bearer of the instrument.
The meaning of “promissory note” in Section 2(22) of The Indian Stamp Act, 1899 states that “Promissory note” means a promissory note as defined by the Negotiable Instruments Act, 1881; it also includes a note promising the payment of any sum of money out of any particular fund that may or may not be available, or subject to any condition or contingency that may or may not be performed or occur.
This definition of a promissory note suggests that there are various different kinds of promissory notes. Some promissory notes may be classified as ‘negotiable instruments’ under Section 13 of the Negotiable Instruments Act, 1881, while others may not, although the character of the document will not change if it is otherwise a promissory note. To put it another way, if a document is a ‘promissory note’ under Section 4 of the Act, it will remain a ‘promissory note’ whether or not it falls under the definition of the term ‘negotiable instrument’ under Section 13 of the Act.
As a result, we believe that Section 13 of the Negotiable Instruments Act, 1881 or the definition of the phrase “negotiable instrument,” is completely immaterial for determining whether a particular document is a promissory note or not. Similarly, and for similar reasons, referring to the terms of Section 13 of the Act for determining whether a document is a “bond” or not is completely meaningless. As a result, anything to the contrary maintained by any of the authorities cited in the orders of reference is invalid.

Is promissory note a compulsorily attestable document

It is necessary to note that a promissory note is not a compulsorily attestable document. To execute a promissory note, no attestors are usually required. The Hon’ble High Court of Andhra Pradesh. concluded in Chandabolu Bhaskara Rao’s case (2006) that “because the promissory note is not a compulsorily attestable instrument, even if the attestors’ signatures are taken, after its execution it does not amount to the material alteration, and therefore it does not become vitiated.” As a result, whether or not there were attestators present at the time of the execution is irrelevant, especially if the execution is admitted.

The Hon’ble Full Bench judgement of Madras High Court reported in Hariram v. I.T. Commissioner, (F.B.) (1952) stated that the document in question was not a promissory note since there was no unqualified pledge to pay a specified sum of money. His Lordship Justice Vradachariar explained the difference between a promissory note and a hundi or bill of exchange as follows by stating that “where the borrower signs his own promissory note as part of the loan transaction, it seems artificial to me to interpret every promise to pay obtained in that note as a payment, and then to try to apply the principle of conditional payment.”

It is essential to know that the promissory note is not a mandatory attestable document. Even if the attesters’ signatures are taken, it does not amount to a material amendment after execution, and so it is not vitiated. As a result, whether or not there were attesters present at the time of execution is irrelevant, especially when the execution is admitted.

Need for proper stamp duty in cases of a promissory note

The Hon’ble High Court of Andhra Pradesh considered the fact of Section 35 of the Indian Stamp Act, 1899 in the case of Venkatasubbaiah v. Bhushayya (1963). It was decided that a promissory executed in another state was subject to stamp duty in the state where it was produced and that if the stamp duty was not paid, the document would be declared inadmissible. Section 19 of the Indian Stamp Act, 1899 was applied in this case. According to this provision, before it is offered for acceptance or payment, or before it is endorsed, transferred, or otherwise negotiated in India, a promissory note drawn or created outside of India must affix the correct stamp and cancel it.

The abovementioned section does not appear to apply to promissory notes executed in India, and any promissory note executed in one state can be submitted in any other state in India with the stamp bearing on the promissory note, with no additional stamp duty payable. Section 19 specifies that a promissory note drawn outside of India and utilised in India or any other state is subject to stamp duty in accordance with Indian law.

Does Section 35 of the Indian Stamp Act, 1899 require an amendment

Section 35 of the Indian Stamp Act of 1899 states that “no instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authorised to receive evidence, or shall be acted on, registered, or authenticated by any such person or by any public officer, unless the instrument is duly stamped”. Clauses (a) to (e) of the Proviso to the preceding Section 35 contain provisions that allow the instrument to be used as evidence upon payment of the full stamp duty (where it is unstamped) or the deficient stamp duty (where there is a deficiency in the stamp duty), and the proviso also allows for the collection of penalties up to ten times the stamp duty or deficiency, as the case may be. Penalties are, of course, imposed at the discretion of the court.

However, in the case of a ‘bill of exchange or promissory note,’ Clause (a) of Section 35 prohibits the validation of the instrument as described above. As a result, while there is a method for further validation of the instrument by a collection of the stamp duty or penalty in the case of all other instruments, such a procedure is not accessible in the case of ‘bills of exchange and promissory notes.’ Even if the party who wishes to use it as evidence is willing to pay the stamp tax and penalty, he is not permitted to do so in the case of certain documents. The document is now considered ‘trash paper’. Several debtors have been allowed to escape liability unjustly because this strict approach applied only to ‘bills of exchange and promissory notes.’

In circumstances when one party relies on a “bill of exchange or promissory note” that is not stamped or is deficiently stamped, Indian courts have been unable to provide justice. Furthermore, the provisions of Section 91 of the Indian Evidence Act, 1872 get in the way and make it impossible to provide oral evidence in such circumstances. As a result of these disabilities, there has been a significant amount of litigation in the courts. The Privy Council, the Supreme Court, and the High Court have all stated that they are powerless to intervene.

To ensure that persons who have parted with money under a bill of exchange or a promissory note are treated fairly, this clause in Section 35 should be removed, and the method for paying the stamp duty or penalty should be extended to these instruments as well. This will boost the state’s earnings even more. This method will also prevent superfluous disagreements over whether the plaint can be altered to allow the plaintiff to suit on the debt, as well as disagreements over whether oral evidence is admissible.

After careful consideration of various factors, including the benefit to the State from stamp duty or penalty collection, and the elimination of unnecessary disputes, the Law Commission was of the considered opinion that the words “any such instrument not being an instrument chargeable with a duty not exceeding ten naya paise only, or a bill of exchange or promissory note, shall subject to all just exceptions be admitted in evidence”, the words “any such instrument shall be admitted in evidence”, shall be substituted.

Promissory note format in India

A promissory note is a document that contains all of the information about a future transaction or credit. A standard promissory note includes the following:

The principal amount,
Interest rate (if any),
Issuing location and date,
Maturity date, and
Drawer’s signature.

Given below is a general format, in a real promissory note the details may vary with facts and circumstances. You can also refer here for a detailed one.

PROMISSORY NOTE PROVIDING FOR INTEREST

I, Sri. ___________________________ S/o. _____________________ promise to pay Sri. _______________________ S/o. _____________________ or order, on demand, the sum of Rs. _____________ (Rupees ______________ only) with interest at the rate of _________ percent per annum from the date of these presents, for value received.

Place:

Date: Signature

Demand promissory notes

Demand promissory notes are those which do not have a set maturity date and are payable when the lender demands them. The borrower is usually only given a few days’ notice before the payment is due. Promissory notes and security agreements can be used together. To put this in a simpler way, a demand note is a loan with no set duration or timetable for repayment. It can be recalled at the lender’s request, provided that the loan’s notification requirements are met. A demand loan (or note) is most popular among family, friends, and close business acquaintances due to its relative informality.

Both the borrower and the lender are in danger with these types of promissory notes. This type of note makes loan payback planning more difficult and is not a replacement for a formal loan contract. When a lender calls in a demand promissory note, the borrower is responsible for repaying the loan in full or in part, as specified in the note. The borrower usually has only a few days to find the funds he requires and the borrower must be willing to pay back the loan at any moment.

Purpose of demand notes

A demand loan might be given as a favour to a family member, friend, or business acquaintance who needs money but doesn’t want to deal with the formalities and legal ramifications. The loan is unsecured, usually small in size, has no specified maturity date, and there is no principal and interest repayment schedule. These advantages are available to the borrower, but they must be willing to repay the loan ‘on-demand’ by the lender. In other words, the lender retains the ability to call in the loan at any moment under these flexible terms as long as the advance notice is reasonable.

Is a demand note legally binding

The broad parameters of a demand note are spelt out in a written demand loan agreement, which isn’t necessarily legally binding but functions as a kind of moral contract between the parties. The principal amount to be returned, the interest rate, and the time of notice that a lender must give a borrower before the note is due are all important factors.

Bank-issued demand notes : an insight

Demand loans are almost always given to clients who have had an excellent connection with the bank, despite the fact that this is not extremely common. The bank is comfortable lending on advantageous conditions to the borrower because the customer’s repayment history demonstrates that he or she is creditworthy. Flexible terms help the borrower, while the bank benefits from a strengthened banking relationship. Unlike a friend-to-friend loan, the official written loan arrangement in this situation is subject to legal enforcement of its provisions and will require the borrower’s signature.

Advantages of demand notes

The lack of a payment date on a demand promissory note is one of its most distinguishing features. This can sometimes work in the borrower’s favour. If the lender decides that payback is not required right away, the borrower will have additional time to collect repayment funds. However, if the lender calls in the note right away, the borrower may not be able to pay.

Disadvantages of demand notes

As a sound repayment plan requires the borrower to know when the lender will want his money back, not simply the amount that will be due, these types of notes make it exceedingly difficult to construct any form of real payback plan.
As there is no defined payment date, lenders are taking a chance by accepting these promissory notes. To mitigate this risk, a lender may charge a high-interest rate on the borrowed funds or make other arrangements, such as refusing to accept partial payments. This is at the lender’s discretion. Before signing the note, borrowers must decide if they can reasonably meet the additional note terms.

Essentials of a demand loan agreement

The contents of a demand promissory note can vary based on the lending agreement, but a very basic note always includes the following:

Lender’s and borrower’s names and addresses,
The amount borrowed,
Payback conditions,
If applicable, the interest rate,
The date on which the note is drawn,
The terms of default, and any laws to which the note adheres

This sort of promissory note often includes areas for the lender, borrower, co-signers, and witnesses to sign and date the document. A promissory note, particularly a demand promissory note, is not always the same as an IOU or contract, despite the fact that the phrases are commonly used interchangeably. IOUs only admit that the borrower owes money, whereas a promissory note indicates that the borrower is required to pay. Loan contracts often go into far more detail than a promissory note, thus a promissory note isn’t always enough to protect a lender. For this reason, loan contracts and promissory notes are legally distinct in several jurisdictions.

Demand loan agreement template

Hereunder you will find a general format of drafting a demand promissory note. The format is not an exhaustive one, therefore one can also refer to this.

DEMAND PROMISSORY NOTE

THIS AGREEMENT, made this ________ day of _______, 2022, by and between _________(“Borrower”) having his principal place of business at ____________(Address); and _______________(“Bank”), a Company with its principal office located at _______________ (Address).

INTENDING TO BE LEGALLY BOUND, and for value received, Borrower agrees as follows:

OBLIGATION.
PAYMENT SCHEDULE.
SECURITY.
DEFAULT.
REMEDIES OF BANK
MISCELLANEOUS
VENUE, AND EXCLUSIVE JURISDICTION
WAIVER OF JURY TRIAL AND OTHER DAMAGES
CONFESSION OF JUDGEMENT

BORROWER: ___________(Name)

Signature

NOTARY SEAL

Signature of Notary Public

Difference between a demand promissory note and a promissory note

Both a demand note and a promissory note are written agreements between a lender and a borrower. A demand note is one in which the balance owing does not have to be repaid until the lender has ‘demanded’ it, and the note does not have a set end date. When payment is asked, a repayment period will be specified. A promissory note, on the other hand, can be paid ‘on demand’ or at a predetermined date. Unlike a mortgage loan, a demand note does not require a show-cause notice to be delivered to a delinquent borrower.

Who is primarily liable on a promissory note

It is the maker who is primarily liable on a promissory note. The issuer of a note or the maker is one of the parties who, by means of a written promise, pay another party (the note’s payee) a definite sum of money, either on-demand or at a specified future date. Failure to abide by the promise made makes the maker primarily liable on a promissory note. The provisions relating to the liability of parties to negotiable instruments are under Sections 30 to 32 and 35 to 42 of the Negotiable Instrument Act, 1881. The same has been discussed hereunder.

Liability of Drawer (Section 30)

A drawer is someone who signs a cheque or a bill of exchange instructing his or her bank to pay the payee the specified amount. The drawer of a cheque or bill of exchange must reimburse the holder in the event of the drawee or acceptor dishonouring the cheque or bill of exchange. However, the drawer must be informed of the dishonour. So, the nature of the drawer’s liability on drawing a bill is:

On due presentation:- It should be accepted and paid accordingly.
In the case of dishonour:- Drawer needs to compensate the holder for such an amount, only when he receives a notice of dishonour by the drawee.

Liability of the Drawee of the cheque (Section 31)

The person who draws a cheque, i.e. the drawer who has sufficient monies in his hands that are lawfully applied to the payment of such cheque, must pay the cheque when duly required to do so, or reimburse the drawer for any loss or harm caused by such default. The following conditions are needed to be satisfied:

A sufficient amount of funds should be available with the banker to credit the customer’s account.
Such funds must be correctly applied against the payment of such a check, e.g., the money must be free of any liens, and so on.
The check must be paid within banking hours, on or after the day on which it is made payable.

If a banker refuses to honour a customer’s check for whatever reason, it will be held accountable for damages.

Liability of acceptor of bill and maker of note (Section 32)

In the absence of a contract to the contrary, the maker of a promissory note and the acceptor before the maturity of a bill of exchange are liable to pay the amount due at maturity, according to Section 32 of the Negotiable Instrument Act. They must pay the sum based on the apparent tenor of the note or acceptance, as appropriate. At or after maturity, the acceptor of a bill of exchange is obligated to pay the amount due to the holder on demand. The acceptor of a bill or the creator of a note’s liability is absolute and unconditional, but it is susceptible to a contract to the contrary, and it can be eliminated or changed by a collateral agreement.

Liability of endorser (Section 35)

A person who endorses and delivers a negotiable instrument before it matures is known as an endorser. Every endorser bears the responsibility to the parties who come after him. In addition, if the instrument is dishonoured by the drawee, acceptor, or maker, he is obligated to compensate any succeeding holder for any loss or harm caused by the dishonour. He must, however, compensate only once the following requirements are met:

There is no contract stating otherwise.
The endorser’s own obligation has not been expressly excluded, limited, or made conditional.
In addition, such endorsers shall be informed of the dishonour in a timely manner.

Liability of prior parties (Section 36)

Every prior party to a negotiable instrument has a duty to the holder in due course until the instrument is duly satisfied. The maker or drawer, the acceptor, and all intervening endorsers are all considered previous parties. In addition, they are jointly and severally liable to a holder in the event of a default. In the event of dishonour, the holder may hold any or all prior parties accountable for the sum in question.

Liability inter-se

With respect to the nature of their liability, each liable party has a different footing or position.

Liability of acceptor when the endorsement is forged (Section 41)

Even if the bill’s endorsement is faked, an acceptor of a bill of the exchange who has previously endorsed the bill is still liable. Even if he knew or had reason to suspect the endorsement was forged at the time he accepted the bill, this is true.

Acceptor’s liability when a bill is drawn in a fictitious name

Any holder will be paid in due course if a bill of exchange acceptor draws a bill in a fake name payable to the drawer’s order. He or she will not be exempt from obligation due to the use of a false name.

Scope of presumptions in a promissory note

Landmark case laws

In Kundan Lal Rallaram v. Custodian, Evacuee Property, Bombay (1961), the Hon’ble Supreme Court analysed the breadth of the presumption and had put down the law as follows:

“Section 118 establishes a unique rule of proof for negotiable instruments. The presumption is legal, and a court must presume, among other things, that the negotiable or endorsed for consideration is valid. In effect, it places the burden of proof of lack of concern on the note’s maker or endorser, depending on the situation. The phrase ‘burden of proof’ has two meanings; one is the burden of proof as a matter of law and pleading, and the other is the burden of establishing a case. The former is fixed as a matter of law on the basis of the pleading and thus remains constant throughout the trial, whereas the latter is not constant and shifts as soon as a party adduces sufficient evidence to raise a presumption in his favour. The evidence needed to transfer the burden of proof does not have to be direct evidence or admissions from the other party; it could be circumstantial evidence or legal or factual presumptions.

A plaintiff who claims that he sold certain goods to the defendant in exchange for a promissory note and that he is in possession of the relevant account books to show that he was in possession of the goods sold and that the sale was reflected for a specific consideration should produce the account books. If the plaintiff refuses to submit such pertinent evidence, Section 114 of the Indian Evidence Act allows the Court to draw a presumption that, if produced, the stated accounts would be unfavourable to the plaintiff. This presumption, if raised by a court, can rebut the presumption of law created under Section 118 of the Negotiable Instrument Act in certain circumstances.”

It was held in Haribhavandas Parasaran and Co. v. A.D. Thakur (1963) that “the assumption under Section 118(a) must be made unless the contrary is proven. The fact that the nature of the consideration recited in the negotiable instrument differs from that alleged in the plaint may be taken into account by the Court at a later stage, along with all of the evidence in this case, in determining whether the contrary to the statutory presumption has been proven. However, the mere existence of such a fact would not be sufficient for the Court to ignore Section 118 and pose an issue requiring the plaintiff to prove consideration for a negotiable document whose execution has been admitted. The defendant should continue to bear the burden of proving a lack of regard.”

When different cases have been pleaded and evidence has been admitted in support of both of these sets of cases, the true principle is that the entire evidence in the case adduced by the plaintiff and the defendant, as well as the findings entered by the Court or which are to be altered by the Court, as well as the presumptions of law and fact that must be drawn from all of the facts established and attendant circumstances, must be examined as a whole to determine whether the presumptions of law and fact must be examined. It would not be correct to hold that the presumption under Section 118(a) has been rebutted only on the basis of the finding dismissing the plaintiff’s case on consideration.

FAQs related to a promissory note

Some of the common or frequent questions associated with the concept of promissory notes have been discussed hereunder.

What are the synonymous terms for promissory notes

A promissory note is also known as a/an:

Commercial paper.
IOU.
Note payable.

When should I use a promissory note

Promissory notes are commonly used for loans from non-traditional money lenders such as people or businesses rather than banks or credit unions. These short and long-term loans are frequently used to assist people to attain a variety of personal and corporate objectives. For instance, you can use this document when borrowing or lending a moderate sum of money to:

Purchase real estate.
Start a business.
Buy a vehicle.
Consolidate debt.
Renovate or construct a home.

How do I make a debt repayment plan

Lenders, for example, can be compensated for lending money by charging interest. Lenders frequently demand an interest rate equivalent to the rate of inflation to compensate for the depreciation of money caused by inflation over time. However, lenders who are concerned about a borrower’s payment failing may demand a higher interest rate.
Another option is to require the borrower to repay the loan all at once (on a certain date or upon demand) or in instalments over time. The borrower’s financial status has a big role in defining this phrase in a promissory note. However, if the borrower has poor credit or an uncertain income, the lender may request some sort of security in the form of collateral.
In some cases, the lender must additionally submit an amortisation schedule to the borrower. This payment plan determines how much of each payment goes toward the principal and interest to determine how long it will take to pay off a debt.

How do I amend a promissory note

If a borrower falls behind on payments, a lender can use an Amending Agreement to change the conditions of their promissory note. It’s vital to note, however, that before any contract amendments can take effect, both parties must give informed approval. Parties usually indicate their agreement by signing the modification form.
Amendments are useful because they can fix concerns that may not be apparent until after a lender has issued a promissory note. Furthermore, if the parties can agree on contract revisions, they can avoid a conflict and the associated costs of litigation by revising their agreement themselves.
Any contract changes should be attached to the original promissory note. This will bolster the validity of the newly agreed-upon agreements and ensure that all parties are on the same page.

How do I enforce a promissory note

A borrower may fall behind on payments or decide to cease repaying a debt entirely. Lenders may need to take legal action to enforce the arrangement. In most cases, the first step in enforcing a promissory note is to send the borrower a Demand Letter that reaffirms the payment terms and threatens legal action if they are not satisfied by a specific deadline.
If the borrower fails to comply with the demand, the lender will likely confiscate any collateral used to finance the loan and pursue debt collection through the courts. To cut their losses and reclaim some money, some lenders may sell the loan to a collection agency. In either instance, it’s critical to familiarise yourself with the laws that govern debt collection in your country to ensure that you follow them correctly.
The judicial process for debt recovery, for example, differs depending on state or territory regulations. Furthermore, any debt collection outside of the courtroom must be fair, flexible, and reasonable. In some situations, a lender may be held accountable for a collection agency’s unethical behaviour (e.g., putting an unfair amount of pressure on a borrower to pay). Lenders can get lawful debt collection instructions from India’s Department of Financial Services. If you’re unsure how to handle an outstanding obligation, see an attorney.

Does a promissory note need to be notarised

Promissory notes do not need to be notarized in most cases. Individuals must typically sign legally enforceable promissory notes that contain unconditional pledges to pay certain amounts of money. In most cases, they also include payment deadlines and an agreed-upon interest rate.

Is the cheque a promissory note

A promissory note is a type of financial promise given by one person to another for a specific sum of money. A cheque, on the other hand, is a customer’s unconditional order for a certain person or bearer.

Do banks accept promissory notes

Individual promissory notes are frequently accepted by banks. One of the most apparent instances is the promissory note that a new homeowner signs when applying for a mortgage.

Can a promissory note be legally accepted in India

As a promissory note, only legal tender money is accepted. Rare coins or currencies would not be accepted as acceptable promissory notes. It’s also important to know how much you’ll have to pay. Under the RBI Act, 1934, it is prohibited to make a promissory note payable to bearer.

How can I recover my money from my promissory note

A civil suit might be filed by the lender to reclaim the money owed to him under a promissory note or loan arrangement. He has the authority to do so under Order 37 of the Code of Civil Procedure, 1908 which authorises the lender to initiate a summary suit. This complaint can be filed in any high court, city civil court, magistrate court, or small claims court.

How do I delete a promissory note

Write or have an attorney write a ‘Cancellation of Promissory Note’ letter for you. The note should include the original promissory note’s details as well as a statement that the original promissory note has been cancelled at the desire of both parties. In the presence of a notary, have the promisee sign the document.

What happens to a promissory note when someone dies

A promissory note is a written commitment or contract to repay a loan. It’s commonly used for family loans. Unless the deceased person makes arrangements for the debt to be forgiven upon death, the estate must repay these loans.

What happens if I don’t pay my promissory note

Promissory notes are documents that are legally binding. Failure to repay a debt described in a promissory note can result in the loss of a secured asset, such as a home, as well as other consequences.

Can a promissory note be forgiven

The obligation owed on a promissory note can be paid off or forgiven by the noteholder, even though the debt has not been entirely paid. In either situation, the noteholder must sign a release of a promissory note.

What happens when a borrower pays off a promissory note

There is no need to do anything extra once a borrower has paid off their obligation. However, if the borrower can only pay back a portion of the loan, the lender can use Release of Liability to free them from their promissory note obligations. The lender indicates in this document that they are happy with a certain amount of compensation and agree not to pursue any legal action against the borrower in connection with the debt.

Conclusion

The present article has aimed to help the readers understand every minute detail of the concept of a promissory note. Starting from the meaning to that of the application of the concept in India, governing statutes, precedent judgments by the Indian courts and the possible queries related to the concept, have been dealt with by the author in this article.

References

https://www.investopedia.com/terms/p/promissorynote.asp.
https://www.legalnature.com/guides/using-a-promissory-note-to-purchase-a-home
Venkatasubbaiah v. Bhushayya, 1963 (1) An.WR (NRC) 31

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Special Protection Group(SPG)

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May 26, 2022

This article is written by Mukti Gupta. This article has been edited by Ojuswi (Associate Lawsikho).

This article has been published by Sneha Mahawar.

Table of Contents

Introduction

The Special Protection Group (SPG) is constituted under section 4 of the SPG Act. This is an Indian Government organization whose duty is to protect the Prime Minister of India. This group came into force in 1988 by a statute of the Parliament of India. The SPG is liable to protect the Prime Minister in both India as well as abroad, this group is also liable to safeguard the Prime Minister’s close family members who are residing with them, but the family members have the right to deny that security.

Earlier, the SPG’s authorization contained protection of the Prime Minister’s “parents, wife, and children” residing anywhere in the whole country during the term of service and for an extra five years after the service. But now after the Special Protection Group’s 2019 amendment, SPG protection can only be provided to the current Prime Minister of the country.

History

Till 1980, the protection of the Prime Minister residing at their official residence was in the hands of the Special Security District of the Delhi Police, administered by an officer of the rank of Deputy Commissioner of Police (DSP). This style was adapted from the United Kingdom, where the Prime Minister of the United Kingdom is safeguarded by London’s Metropolitan Police Service. After 1980, the Intelligence Bureau formed a Special Task Force for conveyance security and road bodyguards for the Prime Minister during travels in and out of New Delhi.

The assassination of Prime Minister Indra Gandhi by two of her Delhi Police security personnel in October 1984, made the committee of secretaries of the Ministry of Home Affairs think about the Prime Minister’s security more seriously, because of this it was decided that the security of the Prime Minister will be handed over to the exclusive unit called STF. These decisions were primarily taken as temporary measures.

The Birbal Nath Committee was set up by the Ministry of Home Affairs on 18 February 1985, to observe the issue and submit a suggestion to the government for the prime minister’s protection. In March 1985, the Agency submitted its reference for building an independent agency for the prime minister’s safeguard, named the Special Protection Unit (SPU). On 30 March 1985, the Indian President, by executive order, built 819 jobs for the unit within the Cabinet Secretariat. Later on, this unit is known as the Special Protection Group, led by a leader who would be an Indian Police Service officer with the rank of Inspector General of Police.

S. Subramaniam, joint Director in the Intelligence Bureau, first Director of SPG. Primarily, the formation of SPG required a new allotment of duties to different agencies worried about the Prime Minister’s security. While the posts allotted were only 819 the new agency was facing a lack of manpower to provide extensive safeguard to the Prime Minister’s family, workplace, residential area, and dependents Following that they were dependent on the Delhi Police and state police units for logistics and conveyance. At this point, the Blue Book, an existing manual for the protection of the Prime minister, was amended to incorporate new proximate security protocols.

In the new schedules, on domestic visits, the Intelligence Bureau and involved State Police were liable for synchronization, gathering, and propagation of intelligence affecting the Prime minister’s security. Physical Security arrangements for the Prime Minister were divided into two layers named State Police and the SPG. From April 1985 to June 1988, The SPG managed the authority of its constituting executive order for three years without legislation. That year, Rajiv Gandhi’s Government passed the Special protection Group Act to classify the order’s specifications.

In the beginning, the SPG Act was only granted to the Prime Minister and his close relatives. In 1989 when Rajiv Gandhi left office, he was stopped receiving SPG security. This caused various threats to his life following his government’s military intervention in the Sri Lankan Civil War. In May 1991, Rajiv Gandhi was assassinated at a political rally in Tamil Nadu by a little girl suicide bomber of the Liberation Tigers of Tamil Eelam, a Sri Lankan terrorist organization. After this painful assassination, the SPG Act was amended to grant SPG protection to former Prime Ministers including their family members for a term of ten years after the term of their term of service. During this period, the Intelligence Bureau conducted a security review to identify a protectee’s current threat and the need for extensions that would last for 5 years. Because of this reason, Gandhi’s widow, Sonia Gandhi, and her children named Priyanka Gandhi and Rahul Gandhi got SPG protection for 28 years (till 2019) owing to their political activity in the Indian National Congress.

On 27 November 2019, the Indian Parliament amended the SPG Act, which granted protection only to the Prime Minister and his close family members residing with him at his official residence. Under this amendment, the former Prime Minister is also eligible for the SPG protection for an extension of their protection up to 5 years after leaving the office, having the reason for threat assessment by the IB. Indian National Congress opposed the Bill showing the fear of having risk to the Gandhi Family without having the SPG protection.

Organization

The Director of SPG securities is appointed under sub-section (1) of section 5, the group is assisted by many Deputy administrators, Assistant administrators, and Joint Assistant administrators. The SPG is split into the subsequent categories:

Operations

Executes factual safety duties. Within the Operations Branch, there are sub-components like the Communications Wing, Technical Wing, and Transport Wing.

Training

Trains new and existing staff unendingly. The SPG trains officers in physical potency, skill, anti-sabotage checks, communication, and different operative options coupled with close protection drills and poignant security. The educational program is unendingly reviewed and updated to effectively address fears from newer areas and keep up with existing threat observation.

Intelligence and tours

Threat Assessment, interior intelligence regarding individuals’ verification of character and antecedents, and different allied jobs.

Administration

Deals with human resources, economics, obtaining, and different coupled matters.

Command and control

The Indian Government exercises the “general superintendence, direction and control” of the SPG. The leader of the force, the Director, officially serves as the Joint Secretary in the Cabinet Secretariat and is responsible for the force’s “the command and supervision”. The director of the SPG since its beginning has been an officer of the Indian Police Service and today holds the rank of Director General of Police.

The SPG does not directly recruit people. Recruits are drawn from the enlisted ranks of the Central Armed Police Forces and Railway Protection Force. People from these services may apply for deputation to the SPG and undergo rigorous physical and psychological assessments as well as enhanced security screening. Deputation to the SPG usually lasts for five years but may be extended at the Director’s discretion. Officers of the SPG, liable for headship and synchronization, are drawn from the IPS.

Power to make laws and regulations

The Central Government can make rules for carrying out the rules for this Act, by notification in the Official Gazette.
In particular and without injustice to the generality of the preceding power, such rules may grant for all or any of the following matters, namely: —

The means of the establishment of the Group and the terms and conditions of service of its members under sub-section (2) of section 4;
Authorities are mentioned under section 8, sub-section (1) of section 10, and section 11;
Kind of the communication or publication under clause (c) of sub-section (1) of section 10;
Objectives other than political objectives, for which a person subject to this Act shall not participate in, or address, any meeting or take part in any demonstration under sub-section (2) of section 10;
Persons who shall be participants of the Board under sub-section (2) of section 12;
Any other matter which has to be mentioned.

Current responsibilities

SPG protectees are excluded from personal security at all airports in India and may access VIP lounges at airports managed by the Airports Authority of India. Furthermore, they are excluded from security screening when entering certain official buildings, including the Prime Minister’s Office and Residence.

Weapons

Vehicles

These are the vehicles used by SPG force: –

Conclusion

Therefore, only the Current Prime Minister is entitled to the SPG protection. They are counted as one of the strongest forces in India because their motto is “Bravery, Dedication, Security”. This was established to protect the Prime Minister of India in 1985. The main motive of the amendment that was held in 2019 was to cut down the budget of the SPG and also to ensure that the SPG group will provide security to the Prime Minister effectively and efficiently.

Currently, Our Prime Minister of India Narendra Modi is the only SPG protectee. The SPG amendment bill, 2019 confines SPG cover only to the PM and his immediate family, and ex-PM and his family for 5 years, and the benefits accruable to the Gandhi family have been revoked.

References

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All about Section 363 IPC

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May 25, 2022

This article is written by Monesh Mehndiratta, a student of BA LLB, Graphic Era Hill University, Dehradun. This article explains the two major types of kidnapping as mentioned in the Indian Penal Code, 1860 along with the punishment given under Section 363 IPC. Further, it differentiates the offence of kidnapping from abduction and explains in detail the major judgments.

This article has been published by Sneha Mahawar.

Table of Contents

Introduction

Section 359 to Section 369 of the Indian Penal Code, 1860 deal with the offence of kidnapping and abduction. The main objective of enacting these provisions is to maintain the personal liberty of citizens, protect children from being abducted for illegal and immoral purposes and preserve the rights of guardians and parents of custody of their children. The offence of kidnapping is punished under Section 363 of IPC. The word kidnapping consists of two words: ‘kid’ means child and ‘napping’ means taking away or stealing. Thus, it means stealing a child from the parents or taking away the child forcefully or by inducement from the possession of the parents. To understand Section 363 it is necessary to understand the concept of kidnapping and its types under the Indian Penal Code, 1860. The article explains the provisions of kidnapping along with its punishment and the differences between abduction and kidnapping.

Types of kidnapping

The two types of kidnapping as classified under Section 359 in the Indian Penal Code, 1860 are:

Kidnapping from India (Section 360)
Kidnapping from lawful guardian (Section 361)

Kidnapping from India

Section 360, IPC deals with the offence of kidnapping from India which means taking a person beyond the boundaries of the country. To establish this offence, the following ingredients must be fulfilled:

Convey any person outside the limits or territories of India.
It must be without the consent of the person or the person legally permitted to give consent on his behalf.

Illustration: ‘X’ is a person living in Mumbai. ‘Y’ takes him forcefully without his consent to Canada. Y committed the offence of kidnapping from India.

Kidnapping from lawful guardian

Section 361 deals with the kidnapping of a male under the age of 16 years and a female under the age of 18 years from their lawful guardians. Another purpose of this Section is to protect the person with an unsound mind. This provision is somewhat similar to Section 55 of the Offences Against the Person Act, 1861.

The ingredients for this offence according to this Section are:

Taking or enticing of minor or person with unsound mind
The person must be under the age of 16 years.
It must be done out of the keeping of lawful guardians.
Without the consent of the guardian.

Illustration: ‘A’ is a girl of 11 years of age and lives with her father who is her lawful guardian. One day ‘B’ induces her to come with him without the consent of her father. Here, ‘B’ has committed the offence of kidnapping from a lawful guardian.

The State of Haryana v. Raja Ram (1972)

Facts of the case

In this case, A person ‘J’ tried to seduce a girl with an unsound mind to leave the house of her father and come to his house. When the father got to know he denied the person from entering his house as a result of which he started texting the girl. Respondent helped him by asking the girl to come to his house and he will take her to ‘J’. One night, the girl went to the respondent’s house and he took her to ‘J’.

Issue involved in the case

Whether the respondent is guilty of committing the offence of kidnapping under Section 361 of IPC?

Judgement of the Court

The respondent was held guilty by the trial court but was acquitted when he appealed to the High Court. In the same case, the Supreme Court of India held that the Section protects the minor and person with an unsound mind from being induced or seduced by anyone. It also protects the right of custody of their guardians. It further said that the fact of whether the girl gave the consent or not is immaterial and irrelevant while deciding whether the offence of kidnapping has been committed under Section 361 of the Code. With this, the respondent was held liable for the offence.

Taking away or enticing away

The concept and difference between ‘taking away’ and ‘enticing’ was made clear in the case of Biswanath Mallick v. State of Orissa (1995) whereby a girl was kidnapped by the accused and taken to different places. The girl was finally found in the relative’s house of the accused. The Court while deciding the matter held that ‘taking away’ means taking out of possession of the guardian where the consent of the person kidnapped is not necessary. On the other hand, ‘enticing’ means the person kidnapped is induced by the accused so that he/she goes with the will. The mental element or mens rea is missing in ‘taking away’ and is not important while it has much significance in ‘enticing’.

When the offence of kidnapping is said to be complete

The offence is said to be completed when the person with an unsound mind or minor is taken away from the lawful guardian without consent and is not a continuing offence.

Illustration: A minor girl was enticed by ‘X’ to leave her house and promised to take her off in a car, it was held that the offence was completed when the person drove the car. (Sayyed Abdul Satar v. Emperor, 1928)

Lawful guardian

The Section talks about lawful guardians and not legal guardians. A lawful guardian and a legal guardian don’t need to be the same. For example, a schoolmaster is a lawful guardian but parents are the legal guardians. A lawful guardian includes a natural guardian, testamentary guardian (appointed by the court) or a person to whom the minor or person of unsound mind is entrusted to take care. The minor must be in the custody of a lawful guardian or else the section will not be applied.

Section 363 IPC : punishment for the offence of kidnapping

The punishment for the offence of kidnapping mentioned under Sections 360 and 361 is given under Section 363 of the Code. The punishment includes imprisonment which is up to seven years and can be either simple or rigorous depending upon the gravity of the crime along with fine. The offence is cognizable, bailable and triable by the Magistrate of First Class.

Basis	Bailable offence	Non-bailable offence
Provision	Defined in Section 2(a) CrPC, offences are categorised in the first schedule.	Defined in Section 2(a) CrPC, offences are categorised in the first schedule.
Nature of crime	Less grave.	Serious and grave.
Punishment	Usually 3 years or less than 3 years.	More than 3 years and may extend to imprisonment for life.
Bail	It is a matter of right.	Left at the discretion of the court.
Examples	Cheating, bribery, unlawful assembly, etc.	Dowry death, murder, rape, etc.

Difference between compoundable and non-compoundable offence

Basis	Compoundable offence	Non-compoundable offence
Nature	Less serious.	Grave and serious.
Withdrawal	Charges can be withdrawn.	Charges cannot be withdrawn.
Impact on parties	Affects private persons.	Affects both private persons and society.
Compoundability	Settlement can be easily done with or without the permission of the court.	These offences cannot be compounded but are quashed.
Filing of case	Filed by a private person.	Filed by the state.

Rasiklal v. Kishori (2009)

In this case, it was held by the Hon’ble Supreme Court of India that the right to bail of an accused is an absolute and indefeasible in a bailable offence and the court or police are under an obligation to grant him bail.

Remedies available in case of kidnapping

As per the subject list given in the Constitution, ‘police’ is a matter of state list. Thus, every state will have its procedure to deal with the police and investigatory matters. In case a person is missing or is kidnapped, usually, an FIR is lodged in the police station followed by an investigation under Section 156 of the Criminal Procedure Code, 1973. After this, the whole process of the trial will begin according to the Code. However, in Delhi, the SHO personally attends such cases. It is mandatory to file the missing complaint of a child under the age of 16 years immediately but in the case of an adult, the FIR is lodged after 24 hrs from the time the person goes missing. A copy of the FIR is sent to Delhi State Legal Services Authority so that they could contribute to searching for the missing person. The Zonal Integrated Police Network also comes into the picture and if the person is found he is questioned as to whether he was kidnapped or not and then the authorities proceed with the investigation further. This is the general remedy available in this case. The other remedies are as follows:

In case a child is missing, there is another remedy in the form of the website ‘Track Missing Child’ created by the Ministry of Women and Child Development where the complaint can be filed and also if a child is found his information is made available on the website so that the family could match and revert.
Another remedy is to reach out to the child welfare committees in a state.

Bachpan Bachao Andolan v. Union of India (2012)

The Supreme Court, in this case, gave certain guidelines concerning kidnapping and missing complaints:

The FIR in such cases should be taken seriously and the officers must act quickly as soon as they receive any such information.
The police officers will initially presume that it is a case of trafficking and will act accordingly.
The investigation will be done followed by recording the information receipt under Section 155 CrPC.
The officers will opt for standard operating procedures in case of human trafficking.
Every police station will have one trained Juvenile Welfare Officer mandatorily as per Section 63 of the Juvenile Justice Act, 2000 along with one paralegal volunteer.
If the missing person is found, his information must be recorded in the police station and such information will be put up on the official website as well so that the parents can keep a check.
The court ordered the anti-human trafficking unit to submit a report on missing persons quarterly.
All the states must arrange shelters for the missing persons who have been found but not recognised by anyone.

Landmark judgements on kidnapping

Other forms of kidnapping

S.no.	Offence	Section
	Kidnapping for the purpose of begging	Section 363A
	Kidnapping to murder	Section 364
	Kidnapping for ransom	Section 364A
	Kidnapping or abducting with intent to secretly or wrongfully confine a person	Section 365
	Kidnapping a woman to force/compel her to marriage	Section 366
	Procuration of a minor girl	Section 366A
	Kidnapping to subject a person to grievous hurt	Section 367
	Wrongfully keeping a kidnapped person in confinement	Section 368
	Kidnapping a child under ten years of age to steal from its person	Section 369
	Importation of girls from foreign countries.	Section 366B

Abduction (Section 362 IPC)

It means taking away a person using fraud or force. Section 362 in The Indian Penal Code deals with abduction.
It is an auxiliary act and is not punishable unless accompanied by any other act or offence.
A person abducted may be murdered and then the Section is applied.
No force or deceit on the person abducted means no abduction.

Difference between kidnapping and abduction

Differentiating point	Kidnapping	Abduction
Provision	Section 361 IPC	Section 362 IPC
Meaning	Taking a person (minor or person with an unsound mind) out of reach or keeping a lawful guardian.	Taking away a person using force.
Means	The means used are irrelevant.	Force, fraud, deceit, misrepresentation, etc.
Consent	Immaterial	The free and voluntary consent of the person abducted is accepted.
Intention of accused	Immaterial	Important and determines guilt.
Type of offence	Substantive offence and punished under Section 363 IPC.	Auxiliary offence and is not punished until and unless there is an intention to commit any other offence as well.
Continuation	It is not a continuing offence.	Continues until the person abducted is taken to another place.
Taking or enticing away	Necessary	The question of taking or enticing does not arise.

Conclusion

The offence of kidnapping and its aggravated forms have been clearly defined in the Indian Penal Code, 1860 along with its punishment. Section 363 of the Code deals with the punishment of kidnapping defined under Section 360 and 361 of the Code, i.e., kidnapping from India and kidnapping from a lawful guardian. It is a bailable, cognizable and non-compoundable offence, triable by a Magistrate of First Class. The punishment includes imprisonment upto 7 years which can either be simple or rigorous along with a fine. In simple imprisonment, the person is not subjected to hard work, unlike rigorous imprisonment where a person is subjected and expected to do a lot of rigorous and hard work. However, the offence of kidnapping differs from that of abduction based only on the means used to commit the crime. In abduction force or deceit is used to take away a person whereas means are irrelevant in a kidnapping. Abduction is an auxiliary offence which means that it is not punished unless another crime is committed in furtherance. For example, a person is abducted to commit the crime of rape.

Frequently Asked Questions (FAQs)

What are the two types of kidnapping?

The 2 types of kidnapping are kidnapping from India and kidnapping from lawful guardians as given under Section 360 and 361 respectively of IPC.

What are the ingredients of Section 360 IPC?

The ingredients are as follows:

Convey any person outside the limits or territories of India
It must be without the consent of the person or the person legally permitted to give consent on his behalf.

What are the ingredients of Section 361 IPC?

The ingredients are:

Taking or enticing a minor or person with an unsound mind.
The person must be under the age of 16 years.
It must be done out of the keeping of lawful guardians.
Without the consent of the guardian.

What is the punishment of kidnapping?

The punishment for the offence of kidnapping is given under Section 363 IPC. It includes imprisonment upto 7 years which can be either simple or rigorous along with fine.

Is the offence of kidnapping bailable or non-bailable?

The offence of kidnapping is cognizable, bailable and triable by a Magistrate of First Class.

References

K,D. Gaur, Textbook on Indian Penal Code (5th ed.), Universal Law Publication.
https://blog.ipleaders.in/kidnapping-and-abduction-sections-359-to-374-under-ipc-1860/
https://www.legalpedia.co.in/legalnotes/kidnapping-abduction.html
https://old.amu.ac.in/emp/studym/100000881.pdf

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Right to seek redressal

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May 25, 2022

This article has been written by Mudit Gupta, currently pursuing BBA.LL.B (hons.) from the University of Mumbai Law Academy. This article discusses all the necessary details of the right to seek redressal and other relevant concepts.

This article has been published by Sneha Mahawar.

Introduction

From the beginning of the evolution of human beings, we have all been dependent on each other for our survival. A single person is unable to do all the tasks, and because of this very reason, the barter system came into existence. In this system, people used to share items for items according to the needs of both parties. But over time, this system lacked efficiency because, in many cases, one of the parties refused to share their item with the other person because of the lack of utility. This problem was sorted out by the use of currency. But after some time, some new disputes started to arise. One of these disputes is on the matter of rights of a consumer to seek redressal against unfair trade practices by a seller.

Earlier the concept of caveat emptor was prevalent, which basically means “let the buyer be aware” this led to the sellers being a powerful party in a transaction, and their terms and policies used to hold the utmost value, and the buyers were forced to either agree with those terms or try their luck with some other seller.

With the evolution in time and the awareness levels of the matter of handling consumers and their behaviour as well, the concept of caveat venditor has become prevalent over the earlier concept, which basically means, “let the seller beware” and provides the consumer with the right to seek redressal and further damages for the infringement of their consumer rights.

All the provisions regarding the disputes, rights, duties, authority, redressal mechanism, etc. are provided in the Consumer Protection Act, 2019 which came into existence after repealing the Consumer Protection Act, 1986. In this article, all the details regarding the consumer’s right to seek redressal have been discussed in detail.

What are unfair trade practices

Unfair trade practices basically mean any type of activity or business practice that is deceptive in nature and causes harm to consumers. False and misleading advertisements, black marketing, hoarding, fraudulent use of trademarks or any other type of intellectual property, publishing of misleading or false advertisements, etc are some of the few acts that come under its ambit.

What is a redressal

As per the root word, it basically holds the meaning to correct something which has gone wrong in the past, and the surviving party has to be provided with some compensation in some form which nullifies the effect of that wrong up to a certain extent.

As per the Consumer Protection Act, the consumers in the country have been provided with some rights and duties. If a consumer fulfils all his duties and any type of damage has been borne by him due to any sort of unfair trade practices, then in that case he holds a right to seek damages for the damage that happened and can ask for other types of remedy also.

For example, in the famous case of Donoghue v. Stevenson, also known as the ginger beer case, the Court gave the order in favour of the plaintiff as his right as a consumer who bought a ginger beer was violated by the manufacturer as a beer with a snail was sold to the customer, creating a liability on the part of the manufacturer, and hence damages were provided to the consumer as redressal for the damage so caused.

Who can file a complaint

As per the Consumer Protection Act, 1986 only a consumer could file a complaint for any case of infringement of rights but with the commencement of the new Act of 2019, a consumer himself or a group of consumers or any recognised Consumer Association or the Central Government, the Central Consumer Protection Authority or the State Government by taking a suo-moto cognizance, can file a complaint in a consumer court.

The limitation period for filing a complaint

As per Section 69 of the Consumer Protection Act, 2019, a complaint can be filed at the District Commission, the State Commission, or the National Commission, within 2 years from the date on which the cause of action has arisen. In exceptional cases, the decisions regarding this provision can also be taken by the commission if it is convinced by the reasons for delay in the filing.

Who is a consumer

As per the provisions given under Section 2(7) of the Consumer Protection Act, 2019, a consumer is defined as a person who-

“Buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration, when such use is made with the approval of such person, but does not include a person who obtains such goods for resale or for any commercial purpose.”
“Hires or avails of any service for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any beneficiary of such service other than the person who hires or avails of the services for consideration, when such services are availed of with the approval of the first-mentioned person, but does not include a person who avails of such service for any commercial purpose.”

All those people who fall under the ambit of this definition, as provided in the statute, are considered consumers.

What are the rights given to a consumer

As per the provisions of the Consumer Protection Act, 2019, a consumer has been provided with the following six rights–

The right to be protected against the marketing of goods, services that are hazardous to life and property

This right means that a consumer has the right to not be marketed for a hazardous product with no useful utility.

The right to be informed about the specifications of goods, products or services, as the case may be

This right provides protection to the consumer against unfair trade practices such as use of false weights etc.

The right to be assured

This right provides the consumer the power to choose wisely and, wherever possible, be provided with access to a variety of goods, products, or services at competitive prices so as to ensure consumer welfare.

The right to be heard

This right provides the consumers an assurity to be heard in case of any infringement of their rights and to that consumer’s interests will receive due consideration at appropriate fora.

The right to consumer education

This right basically provides consumers the liberty to gain knowledge and skills about their rights and duties as given under the statute, to be an informed consumer.

The right to seek redress

This right provides consumers with the power to move to the commissions against unfair trade practices, restrictive trade practices, or unscrupulous exploitation used against them.

In the Consumer Protection Act, 2019, the Central Protection Councils are recognised as advisory bodies to protect and promote consumer rights, which are established at district, state and central levels in the country.

Central Consumer Protection Authority (CCPA)

The Consumer Protection Act, 2019 provides the power to the central government to set up a Central Consumer Protection Authority (CCPA) to promote, protect, and enforce the rights of consumers. It regulates matters related to violations of consumer rights, unfair trade practices, and misleading advertisements.

The Central Consumer Protection Authority also has an investigation wing, headed by a Director-General, which may conduct inquiry or investigation into such violations.

Functions of Central Consumer Protection Authority

Inquiring into violations of consumer rights.
Launching prosecution at the required forum.
Recalling the goods or withdrawing the services that are hazardous in nature.
Issuing directions to the concerned person in cases of misleading or false advertisements.
Issuing safety notices to consumers against unsafe goods and services.

What is a product

As per the Consumer Protection Act, 2019, goods as well as services provided in relation to the goods supplied, unless specifically excluded by the Central Government by way of a notification are included under the ambit of word ‘product’. Also, human tissues, blood, blood products, organs and services rendered free of charge or under a contract of personal service are excluded from the ambit of the word ‘product’.

Who will be liable for the damages

Now, when it is clear that the consumer has suffered some damage and is seeking redressal for the same, the second question that arises is who will be liable for the damages so demanded by the consumer in the case of a defective product. The answer to this question is answered in detail in Chapter-VI of the Consumer Protection Act, 2019. This chapter was not specifically mentioned in the Consumer Protection Act, 1986, but after understanding the necessity of the time, it was included in the newly drafted Act. In this chapter, all the provisions regarding the concept of product liability are discussed.

As per the provisions given under this chapter, a complainant may bring an action against the product manufacturer, product service provider, or product seller as per the circumstances and facts of the case filed. Furthermore, the distinction between the specific situations in which either the product manufacturer, product service provider, or the seller are held liable and are asked to provide damages to the consumer remains. Let’s discuss these situations-

Product Manufacturer

A product manufacturer is liable in either of the following cases-

where the product contains a manufacturing defect
where the product is defective in design
where there is a deviation from manufacturing specifications
where the product does not conform to the express warranty
where the product fails to contain adequate instructions of correct usage to prevent any harm or any warning regarding improper or incorrect usage

The definition of product manufacturer under the Consumer Protection Act, 2019 does not distinguish between domestic and foreign manufacturers. A product manufacturer can also be held liable even if he proves that he was not negligent in making the express warranty of a product because he is the only person responsible for the manufacturing and any necessary action can only be taken care of by him. If there are many parties involved in the manufacturing of the product having their inputs at different stages of building it then the commission first tries to identify the party responsible and if a single party is not found in the investigation, then all the parties involved in manufacturing the product are jointly or severally held liable for the liability so occurred.

Product Service Provider

A product service provider is liable in either of the following cases-

when the service provided by the service provider renders to be faulty or imperfect or deficient or inadequate in quality, nature or manner of performance which is required to be provided by or under any law for the time being in force, or under any contract or otherwise.
where there was an act of omission or commission or negligence or conscious withholding of any information which caused harm
where the service provider did not issue adequate instructions or warnings to prevent any harm
where the service did not conform to the express warranty or the terms and conditions of the contract.

In cases where the service is faulty, deficient, imperfect, inadequate in quality, nature or manner of performance which is required to be done or if there was an act of omission or commission or negligence or conscious withholding of any information which caused harm or want of adequate instructions or warnings to prevent harm or when service is not provided as per express warranty or terms and conditions, then a complaint can be filed against the service provider because all these acts are necessary duties of the service provider and no one except him can be held liable for these cases.

Product Seller

A seller is liable in either of the following cases of product liability-

where he has exercised substantial control over the designing, testing, manufacturing, packaging, or labelling of a product that caused harm
In case where he has altered or modified the product and such alteration or modification was the substantial factor in causing the harm
when he has made an express warranty of a product independent of any express warranty made by a manufacturer and such product failed to conform to the express warranty made by the product seller which caused the harm
where the product has been sold by him and the identity of product manufacturer of such product is not known, or if known, the service of notice or process or warrant cannot be effected on him or he is not subject to the law which is in force in India or the order, if any, passed or to be passed cannot be enforced against him.

He is to be liable in each of the above-mentioned cases because he is the last person to have control over these acts and also holds a duty to take necessary actions to prevent any sort of mishap occurring due to the act or omission on the part of the seller.

Exceptions provided against product liability

Now, as there are two parties involved in any dispute and at the start of the hearing, both of the parties have their own facts and opinions to say. So if there arises a liability on the part of the manufacturer, service provider or seller then the above discussed provisions are used to provide damages to the consumer, but what if the case is vice-versa?

If a consumer is misusing his rights then the justice delivery system is hindered. To counter this, certain exceptions are also provided in the statute so that no party uses their rights fraudulently against the others. These exceptions are discussed in Section 87 of the Consumer Protection Act, 2019 and the exceptions are as given under-

A product liability action cannot be brought in cases where the product or service delivered is misused, altered or modified by the consumer and no liability occurs on the part of the manufacturer, service provider or seller.
It can also not be brought in cases where the information or guidelines were given to the purchaser and he further did not fulfil his duty to inform the user about the said guidelines.
If the product was to be used under the guidance of an expert and the consumer didn’t do so and used it without taking such precautions.
If the complainant, while using such a product, was under the influence of alcohol or any prescription drug which had not been prescribed by a medical practitioner.
If the complainant has asked for damages after two or more years as per the time limit provided in the Act. Although, the court might consider the complaint in some extraordinary circumstances if it is proved that the complainant could not do it because of some unavoidable reasons.

In all these circumstances, the liability will not occur on the part of either manufacturer, service provider, or seller because any damage caused under these circumstances would have taken place only because of the negligence or omission of the consumer and not because of any act or omission of the opposite parties in the dispute.

Liability in patent infringement matters

Talking about patent infringement matters, the only practical relief available to a Standard-Essential Patent holder is by way of anti-infringement action. The right to seek legal redressal, against infringement, is a fundamental right. An order which results in depriving the patent holder of this fundamental right is ex-facie oppressive in nature. Protection of the jurisdiction of the Court is also a guiding factor in these matters.

In the cases of Modi Entertainment Network v. W.S.G. Cricket Pte Ltd, Dinesh Singh Thakur v. Sonal Thakur and O.N.G.C. v. Western Co. of North America, it was pronounced that anti-suit injunctions are ordinarily to be granted in cases where the foreign proceedings are ‘oppressive or vexatious’, or where a declining injunction would result in defeating justice and perpetuating injustice.

Delhi High Court, in one of its judgments, said that anti-suit injunctions are to be provided in rare cases only and should not be used as a common practice.

Procedure to file a complaint

Now that we have discussed mostly all the other provisions, let’s talk about the procedure provided to file a complaint.

Consumer Protection Act, 1986 only provided for a dispute settlement through an offline filing and trial at the consumer court having jurisdiction, but the new Act provides for online application as well as an alternate way for the purpose of dispute resolution. As per the provisions of the Consumer Protection Act, 2019 the procedure to file a complaint is explained in the following steps-

Issuance of notice

Before the filing of the complaint, a notice has to be sent to the opposite party talking about the defects and deficiencies. If parties don’t agree to come to a common ground, then the complainant can file a complaint.

Determination of jurisdiction

Now, if the parties have not agreed then the complaint has to be filed in the commission as per the pecuniary and territorial jurisdiction provided as per the statutes in the country.

Filing

In this step, a complaint regarding the dispute is filed by the complainant through an online mode, established for this purpose, by filling in essential details like name, email, contact number, etc. and by paying the fees for the same. The court fees have to be paid in the form of a Demand Draft, in respect of the Registrar of respective Commissions. In respect of the National Commission, the appellant has to make a demand draft of Rs. 7,500.
After the registration, the complainant is provided with a unique identification number through which he can determine the status of the complaint. Although, as per the latest Consumer Dispute Redressal Commission Rules, it has been very clearly notified that there shall be no fee for the filing of cases under the Consumer Protection Act, 2019 up to Rs. 5 Lakhs.
As per the provisions of the Consumer Protection Act, 2019, a dispute can be handled in two ways. Either by normal court proceedings or by an Alternative Dispute Redressal Mechanism, according to which ‘Mediation Cells’ are attached to every District, State, and Nation Commission. If the parties decide to go for mediation and submit a written application for the same to the court, and after seeing the matter, if the court believes that it can be resolved by mediation, the case is transferred to a Mediation Cell. Although it can be taken back by the commission itself, if the matter is not solved by way of mediation.
All expenses related to the process of mediation including the fee of the mediator, costs of administrative assistance, and other such expenses, shall be taken care of by the respective States or Union territories. The fee of the mediator shall not exceed Rs. 2000/- per case under any circumstances. But any expense incurred in relation to the production of witnesses will have to be borne by the parties themselves. Also, all expenses regarding the production of documents and experts will have to be borne by the parties themselves.

FAQ’s

What is pecuniary jurisdiction?

As per the provisions of the Consumer Protection Act, 2019, there are three classifications provided for pecuniary jurisdiction-

District Commission: Amount not exceeding 1 crore Rupees
State Commission: Amount between 1 Crore to 10 Crore Rupees
National Commission: Amount exceeding Rupees 10 Crore.

What are the other types of relief provided?

There are some other types of relief that can be provided as per the provisions of the Act-

Removal of defects from the goods
Replacement of defective goods
Refund of the price of goods
Injunction
Withdrawal of the goods from the market

Can the marketplace be held liable for product liability claims?

There is no liability provided under the capacity of the marketplace, but can be held liable if some other form of involvement such as that of the manufacturer is found.

Can a product retailer or a delivery service be held liable for product liability?

Yes, they can be held liable.

Is there any provision of insurance to cover any liability on account of product liability?

In today’s insurance market, product liability insurance is also available in India and can be used as an option to cover product liability claims as per the provisions under Consumer Protection Act, 2019. Many insurance providers such as The New India Assurance Co. Ltd, HDFC ERGO, Bharti AXA General Insurance, Bajaj Alliance etc provide insurance schemes to cover the product liability claims.

What if a consumer is not satisfied by the order of the consumer commission?

If the consumer is not satisfied with the order of the consumer commission then he can further appeal to the higher commission within 30 days from the date of order and further in the Supreme Court of India within 45 days.

Does the consumer need an advocate to represent his case in the Commission?

No. A consumer can himself or through his representative file and represent his complaint before the commission.

Is there any change in the amount to be deposited for filing an appeal?

In the case of appeals, 50% of the total award amount passed by the lower court has to be deposited.

Can an appeal be filed after settlement through mediation?

No, an appeal cannot be filed before any commission after the settlement of the dispute through mediation.

Can settlement through mediation be opted at any stage of the dispute settlement?

Yes, the parties can opt for mediation at any stage of the dispute settlement by submitting an application before the commission.

Conclusion

The consumer’s behaviour, as well as the market, has changed over the years. With the increased awareness about our rights and duties as a consumer, the market has changed its behaviour too. Now, to ensure effective utilisation of rights given to us by the statutes of the country, it is our right as well as duty to take a stand against the evil practices prevalent in the market by seeking justice for any sort of infringement of our rights as a consumer and support other consumers with the same. Help some consumers in need by imparting to them the information regarding the same and by asking others to do so as well. I am doing my part, hoping that you will do yours too.

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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Digital Single Market Strategy

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May 25, 2022

This article is written by Mona Tomar pursuing a Diploma in US Tech Law (Bootcamp). This article has been edited by Ojuswi (Associate Lawsikho).

This article has been published by Sneha Mahawar.

Table of Contents

Introduction

The market is the place where the exchange of goods and services takes place for definite monetary consideration. It can be a retail market or virtual/digital market. But every market has some geographical limitations and transit goods, services, capital and people across the border add various costs and taxes to the price of the goods and services, etc. Thus, the extra cost is to be borne by businesses and ultimately consumers.

Ancient market trends where the goods and services were made available at defined physical locations in every city are changed with the advent of digital markets like Amazon, eBay, etc. The method of trading changed significantly from just physical availability to digital availability of products and services, also bringing in more services and jobs. Now a person, sitting in the comfort of his home or workplace, can search and buy products online. The digital market has broken the walls between one’s home, local and inter-city markets but not between trans-nation markets.

The European Commission, realizing the benefits of digitisation and the contribution it can make to its economy, introduced the idea of creating one digital market for all European nations. If one umbrella market is created, breaking all geographical boundaries, what benefits can it bring to consumers and businesses? When businesses can expand multi-fold in areas beyond their local reach, will their IPR rights be protected? What measures can be taken to ensure cybersecurity and consumer data protection? What will be the strategy to implement the idea of a digital single market? What impact can it have on the economic growth of European nations?

Historical background

In 1957, the Treaty of Rome established the European Economic Committee and laid the foundation of the Common Market (or European Single Market). It aimed to bring together countries – Belgium, Germany, France, Italy, Luxembourg, and the Netherlands – to work towards economic growth through the free movement of goods, services, people, and capital. The idea behind was to serve two purposes –

i. transformation of trade and production; and,

ii. the political unification of Europe.

In 1992, the European Union was formed. The idea of the Single Market remained intact, with the objective of improving the quality and availability of goods and services across the expanded European regions at reduced prices, thereby paving the way to encourage collective economic growth of all member states of the European Union. It was believed that the expansion of the market beyond borders with countless resources, would mark a prominent presence of Europe in worldwide trade and would make businesses more responsible to ensure a better quality of their products and services, involving specialized skills. The whole idea was to bring the trade and commerce industry of member states in close relation to amalgamate and grow together as one unit and thus stimulating economic growth across the EU.

On May 6-2015, the European Commission, re-establishing the concept of a Common Market in the digital era, by adopting the strategy of a Digital Single Market. It came as one of 10 political priorities and aimed to reduce the barriers faced by the consumers and businesses when using online tools and services. The governments, businesses, and citizens cannot fully reap the benefits of digitisation because of the cross-border restrictions to access some goods and services. The Digital Single Market was based on the idea to open new opportunities and remove key differences between online and offline markets. The European Union (EU), which now, after the exit of the United Kingdom, consists of 27 member States, acknowledged the benefits of 27 national digital markets and adopted the strategy of converting them into a single digital market. This will result in strengthening business competitiveness in the digital economy that could bring a remarkable contribution per year to the economy and would also create new jobs and boost digital connectivity.

Digital Single Market Strategy

The Digital Single Market Strategy contains a coherent vision with the aim and ambition to propel Europe to the forefront of the world’s digital economy. It is made of three policy pillars:

Pillar 1 – EU identified that providing better access to online goods and services for consumers and businesses across Europe will require either revision of existing legislation or making new legislation or following a competition authority’s inquiry into the e-commerce area relating to the online trade of goods and provision of services. The proposed legislative measures will introduce cross-border rules to make consumer and business services simple and effective and bring some uniformity in tax regimes to avoid administrative burdens. It will also require addressing copyright issues and bringing reforms to them.

Pillar 2 – It will also necessitate restructuring and transformation of existing telecom rules, the Audio-visual Media Services Directive and the e-Privacy Directive to help in creating and achieving the right conditions for digital networks and services to flourish. This will require a broad analysis of digital platforms, structuring of private-public partnerships, and an increase in cybersecurity rules and laws.

Pillar 3 – Extension of interoperability framework and inter-connection of businesses register will maximize the growth potential of the European digital economy by a free flow of data and European cloud services. The digitalization underway affects five business areas i.e. payments and account management, savings, insurance, SME services, and lending.

Legislative Framework

The European Commission, thus, proposed a digital services package on 15 December 2020 that comprises two legislative proposals i.e. the Digital Services Act (DSA) and the Digital Markets Act (DMA) to revise and upgrade rules governing digital services in the EU. They form a single set of new rules applicable across the whole EU to create a safer and more open digital space.

The two main goals of the Digital Services Act and Digital Markets Act are –

to create a space that is safer for digital services and wherein the fundamental rights of users are safeguarded; and,
to create a digital market space where everyone gets a fair and equal chance across the globe and in the European Single Market to give a stage to new ideas, technology, innovation, growth and competitiveness to serve quality goods and services to the consumers.

The Digital Services Act will harmonize digital services across European nations by introducing transparency measures on online advertising, scrutinising the working of platforms, safeguarding user data, obligations to prevent abuse of digital systems, and rules to trace and remove sellers of illegal goods, services or online content from the online market and bring innovative processes to ensure effective enforcement.

The Digital Markets Act will aim to prohibit malicious practices through the designation of “gatekeepers” to conduct market investigations and proactively take measures to ensure the proper functioning of third-party services providers, search engines etc. It will also ensure compliance with new rules and impose fines that could go up to 10% of the gatekeeper’s worldwide turnover, for non-compliance. The Commission will be appointed to ensure compliance and conduct targeted market investigations to assess if any new practices and services need to be added to these rules, in order to ensure that the new gatekeeper rules keep up with the fast pace of digital markets.

Journey So Far

On April 23, 2022, the European Parliament and Council reached a temporary political agreement on the Digital Services Act. European Commission President Ursula von der Leyen expressed her opinion on DSA by saying: “Today’s agreement on the Digital Services Act is historic, both in terms of speed and of substance. The DSA will upgrade the ground rules for all online services in the EU. It will ensure that the online environment remains a safe space, safeguarding freedom of expression and opportunities for digital businesses. It gives practical effect to the principle that what is illegal offline, should be illegal online. The greater the size, the greater the responsibilities of online platforms. Today’s agreement – complementing the political agreement on the Digital Markets Act last month – sends a strong signal: to all Europeans, to all EU businesses, and to our international counterparts.”

About a month ago, on March 22, 2022, the member States and European Parliament reached a provisional agreement on Digital Markets Act. Executive Vice-President for a Europe Fit for the Digital Age, Margrethe Vestager, said: “What we want is simple: Fair markets also in digital. We are now taking a huge step forward to get there – that markets are fair, open and contestable. Large gatekeeper platforms have prevented businesses and consumers from the benefits of competitive digital markets. The gatekeepers will now have to comply with a well-defined set of obligations and prohibitions. This regulation, together with strong competition law enforcement, will bring fairer conditions to consumers and businesses for many digital services across the EU.”

The views expressed by the President of the European Commission and other dignitary members mark a strong “go ahead” signal in the journey of a very important legislative piece of work collectively “Digital Services Package”. It is expected that the legislation will be soon approved and adopted and will directly apply across the European Union creating a safe framework of the digital online market.

Conclusion

With the Digital Single Market, the consumers and businesses will be in a win-win situation as it will strengthen the business competitiveness by providing better access to goods and services to the consumers. As the businesses grow with the expansion of the market through digital connectivity, more jobs will be generated and governments will also get to scale up their revenue, consequently bringing the European economy to the forefront worldwide. Though the businesses will be getting the opportunity to flourish, they can also witness copyright and trademark infringements. With the online availability of huge personal data of consumers, cybersecurity, cloud protection and consumer data protection are required to be relooked and revised to make it more stringent to ensure great protection and provide a huge penalty in case of a breach.

The three pillars specifically identify each of the challenges and lay down the foundation of a digital single market strategy. It led to the design of the framework of legislations like the Digital Services Act and Digital Markets Act, taking in the views of different stakeholders involved. Though the legislations are still pending approval, the proposals look very promising to protect the IPR and e-data by enacting provisions for creating a safe online space and also to take measures to provide opportunities to the small and medium enterprises of Europe to grow outwardly and mark their existence by competing with bigger brands. Once these legislations are finally approved and adopted, these will apply across the EU directly and will be the first set of regulations in the digital field to regulate and supervise online markets.

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:

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All about the Harshad Mehta Scam

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May 25, 2022

4 Scams That Rocked Indian Politics This Year

This article is written by Michael Shriney from the Sathyabama Institute of Science and Technology. This article describes the history and background of Harshad Mehta, India’s greatest share market and money market scammer, the person who gave an overview of the share market and how brokers trade.

This article has been published by Sneha Mahawar.

Introduction

Harshad Mehta is India’s biggest financial and share market scammer. Many wealthy individuals have been harmed by this man’s fraud, and some have committed suicide as a result of his manipulation. Many banks suffered losses and bankruptcy as a result of his actions. He was a smart and knowledgeable man when it came to tricking people about the share and financial markets. In early 1991-1992, he became well-known in India for his expertise in share and financial markets. Nowadays, it is simple, and individuals are more diligent about checking their share markets and learning about them via the internet. That was not the case in 1991-1992 because the internet was not popular at the time.

During the 1991-1992 period, Harshad was the wealthiest man, competing with actors and other wealthy professionals. This person is well-known for his numerous scams. He has fooled many wealthy individuals and even had political support with him. He was arrested twice. He led a luxurious lifestyle in India by scamming banks and stealing money, as well as scamming share traders. He was well-versed in all aspects of share marketing and financial marketing. He was a financial broker who connected banks with other banks.

The article goes into detail on what Harshad did from the time he was born till the time he died. The fraudulent actions he has engaged in, what motivated him to begin this type of conduct, his sanctions, and so on are discussed in this article.

The story of Harshad Mehta

About Harshad Mehta

Harshad Shantilal Mehta was born into a middle-class Gujarati Jain family. His father ran a small textile company. He was born on July 29, 1954.
His parents moved to Bombay in order to ensure his future well-being. He completed his B.Com degree from Lala Lajpatrai College in Bombay in 1976 and worked in a variety of odd jobs for nearly 8 years. He didn’t have any money during 1982.
He once had an opportunity to work at an insurance company. He had an ambition of getting involved in the share market. He quit all of his jobs and got a job under a broker to study the share market.
Harshad Mehta died while on trial at Thane jail on December 31, 2002, of a heart attack.
He was recognised to be a risk-taker who never allowed any danger to stand in his way of becoming wealthy and building his business.
He had between 15 to 20 cars, some of which were imported from other countries, such as the Lexus LS 400. He was also the only man who had that style of the car back then. He had a net worth of almost ₹ 3542 crores and a luxurious house.

Why is Harshad Mehta famous

1st scam by Harshad Mehta

Harshad Mehta learned about the share market and techniques through his employment. He learned them through his own experience, not from books or the internet. He was a brilliant man who learned about the stock market in a short time. He was well-versed in how the stock market rises and falls.
In 1986, he established his own brokerage firm, ‘Grow More Research and Asset Management,’ to sell and buy shares from the public in a certain company’s market in order to broaden his company. His customers began to approach him for advice on where to invest in or purchase shares in the stock market. He selected some filthy firm that is of no use, where those companies do not even have an address or a company that does not exist.
He was nicknamed the “Red Bull of Dalal street”, as well as the “Amitabh Bachchan of the Indian stock market”. The shareholders made a mistake by refusing to double-check the information given by him. They acquired those shares because they fully trusted him.
The strategy employed to enhance these share market values was to portray such companies as profitable companies that generate benefits for those shareholders.
There was no internet in the 1990s to check, thus this was his first scam. He made a lot of money from the stock market.
Later, he needed more money to invest in the stock market, but he hadn’t earned enough money from the stock market to do so. Because investing in the stock market required so much money, it was usually done by wealthy people.

2nd scam by Harshad Mehta

Then, taking the next step, Harshad Mehta opted to work as a broker for banks in the financial market. He tricked the banks by presenting as a broker to some of them.
Bank brokers connect two banks for the purpose of lending money and receiving money when the bank requires it using the bank’s securities.
Harshad Mehta directed the lending bank to deposit the funds into his personal account, from which he transferred money to the receiving bank.
Similarly, he triggered and received unlawful funds from various well-known banks, including National Housing Bank, State Bank of India, and UCO Bank, by utilising forged bank receipts.
He began by crediting such funds to the banks appropriately, and then he gradually began to scam those banks by crediting funds to his accounts without any bank security. He got additional money in crores as a result of this fraudulent plan and invested it in his small business.
The bank’s money is the people’s money that was handed to the bank for safety or security. Those funds were not managed effectively and were delivered to him, where he spent it. He offered money and forced all wealthy people not to open his scams, but when he began to expand in wealth.
Everyone began to take note of his behaviour, especially Sucheta Dalal, a Times of India journalist. When she learned about all of Harshad’s frauds, she began to take note of his activities.
Then she posted the news in an article about the Harshad scam, and all shareholders became aware of the fraud, and each shareholder began selling all their shares at a low price.
The shareholders’ firm began to lose money, and the RBI began to investigate and found Harshad’s fraudulent scam.
He had committed a $1 billion scam to purchase stocks from the Bombay Stock Exchange, resulting in a significant loss of Rs.3500-4000 crores to the financial system and a severe collapse of the Indian stock market which is known as the scam 1992.
He was arrested and then later released on bail. Harshad Mehta was accused of 74 criminal cases. He was later charged with another financial crime and imprisoned.

Facts abouts the infamous Harshad Mehta Scam of 1992

Banks were eligible to trade in the share market until the early 1990s. Harshad, who had links with bank executives, offered the banks a greater rate of interest in exchange for transferring the funds straight into his personal bank account. Fake financial receipts were also produced in his name by the banks. After fraudulently obtaining cash from banks, he utilised the vast sum of money to purchase a few selected shares, causing the price of those shares to rise. This would encourage other investors to buy those specific shares, causing the price of those shares to rise rapidly. He would then sell his shares secretly to pocket the big profit.

For example, in 1991, Harshad started investing in the shares in Associated Cement Company and increased their value from Rs. 200 to Rs. 9,000 in less than three months. Many people were suspicious of Harshad’s luxurious lifestyle, but it was journalist Sucheta Dalal who decided to take a step further and looked into the ways through which Harshad acquired such wealth in such a short period of time. The Harshad Mehta scam finally came to an end on April 23, 1992, when Sucheta published an article in the Times of India detailing Mehta’s fraudulent strategies for controlling stock prices. Harshad Mehta scammed the State Bank of India for Rs. 5 billion by creating an SGL receipt that disappeared, according to her.

People had started to look for Harshad after that. On February 28, 1992, the tax institution conducted searches. The RBI set up the Janakiraman Committee, and he was found guilty and charged with 74 criminal offences. In November 1992, he and his brothers, who planned and executed the operation together, were imprisoned by the Central Bureau of Investigation. The financial regulatory system in India has undergone several adjustments as a result of the scam. The Securities Laws Amendments Act of 1995 was enacted. After three months in prison, Harshad and his brothers were released on bail, and weeks later, he and his lawyer, Ram Jethmalani, openly announced that he had given Rs 1 crore to Prime Minister PV Narasimha Rao as involvement to the Congress to just get him ‘off the hook.’

After Mehta’s release, some stock market investors welcomed him with enthusiasm. He came back as a ‘new age’ stock market expert numerous times after that, and by 1997, even had his own site and newspaper column where he advised readers on which stocks to purchase and sell. Another bit of criminal evidence was presented against Mehta. The Special Court established to examine matters linked to the securities fraud only approved 34 of the 72 charges brought forth by the CBI against Mehta in October 1997. In September 1999, the Bombay High Court sentenced him and three others to five years in prison for their scam in the Rs. 380.97 million Maruti Udyog Ltd fraud cases, which were part of a bigger securities fraud.

He was granted bail in all cases again, but in 2001 he was found guilty of misusing Rs. 2.5 billion from 2.7 million ‘missing shares’ of 90 blue-chip companies. He was not granted bail this time, and he died of a heart attack at Tihar prison on December 31, 2001, at the age of 47. After his death in 2003, his appeal was denied. Due to his death, the rest of his criminal prosecutions were terminated, but his civil lawsuits for money recovery continued.

The crimes that Harshad Mehta committed

Fraud is a capital market scam in which the facts are tricked in order to increase profits. This scam has four major features.

Diversion of funds

Funds are misdirected from the banking system to brokers in order to support their stock market operations.

Intra-day trading

The basic strategy involved significantly investing in select stocks at the start of the day, which resulted in a sudden increase in the stock price, and then selling out at the end of the day to earn big profits.

Use of Ready Forward (RF) to maintain Statutory Liquidity Ratio (SLR)

A ready forward loan is a short-term loan from one bank to another, usually for 15 days or shorter. It’s the same as one bank selling its securities to another with the guarantee of repurchasing them at a certain price. In the early 1990s, banks in India were required to keep a certain percentage of their deposits in the form of government securities, as prescribed by the Statutory Liquidity Ratio (SLR). The brokers handled the entire process of purchasing and selling bonds, and the brokers were aware of the two parties involved. Throughout the transaction, individual banks had no idea who the other party was. There are three stages to this process:

Settlement process

In the usual settlement process for government securities, the transacting banks make payments and transfer the securities to each other directly. Securities are delivered and payments are made through the broker in this settlement process. The seller then sends over the securities to the broker, who then sends them on to the buyer, and when it comes to payment, the broker, as the intermediary, pays the money to the seller. Both the buyer and the seller may have no idea who they’ve dealt with, only with the broker being the only one who knows.

Payment cheques

Brokered settlement permitted the broker to maintain the cheque while it passed from one bank to the next through him. The issue now was crediting the cheque to the broker’s account, despite the fact that it was written in favour of the bank and had a crossed account payee. Brokers requested that banks issue cheques in their own names, stating that they would pay the other party directly. As a result, the broker must get a cheque drawn from the RBI in favour of his bank, which will receive the funds and send them to the broker’s account the same day. This allowed the brokers to get money as soon as the deal was completed, which they could then invest in the stock market.

Dispensing of securities

The brokers utilised their reputation to convince banks to write cheques without obtaining the securities in exchange for the promise of receiving the securities the next day with a 15% interest rate for one day. Bank staff was bribed to do this work because it was prohibited for banks to release their funds without a guarantee.

Fake bank receipts (BR)

Another device utilised in this fraud was Bank Receipts (BR). Instead of sending the real securities to the lender, the borrowing bank typically issues a bank receipt. Bank receipts serve three purposes:

It is a confirmation of a security sale.
Guarantees that the securities will be delivered to the customer. It specifies that the seller holds the securities in trust for the buyer.
Functions as a receipt for the selling bank’s money

During the forgery, brokers were so skilled at forging BRs that they were able to get unsecured loans from several banks in order to issue BRs, which were then used to conduct RF trades with other banks. As a result, numerous banks extended large unsecured loans to these banks and granted credit to brokers.

These above-mentioned financial crimes are punished under forgery, Sections 465 and 467 of the Indian Penal Code, 1860.

How did Harshad Mehta commit these crimes

The following are the crimes committed by Mehta that is mentioned below:

Diversion of funds

Harshad Mehta took large amounts of cash from government securities over a short period of time and put it in his stock market. He then put the money into a few carefully chosen assets, increasing their values to insanely high rates. This is how he defrauded banks by instructing them to pay straight to his personal account while appearing as a broker.

Intra-day trading

Harshad and his investors used banking system weaknesses to launch a securities scheme that diverted Rs. 4000 crores from banks to stock traders between April 1991 and May 1992. He was responsible for the high increase in the stock market price in 1992 by investing at a premium for a large number of shares. ACC, Apollo Tyres, Reliance, Tata Iron & Steel Co, BPL, Sterlite, and Videocon were among the stocks heavily invested in by Mehta.

Use of Ready Forward (RF) to maintain SLR

Harshad Mehta used to handle the RF transactions. He was able to convince the banks to write cheques in his name. He’d then be able to invest the money that had been deposited in his account in the stock markets. He immediately took advantage of the hole in the system and rapidly expanded the swindle. Only two banks can be involved in a normal RF transaction. Securities would be taken from a bank in exchange for cash. However, when a bank requested security or payback, Harshad Mehta would take the assistance of a third bank. Eventually, there will be the fourth bank, and so on. Instead of just two banks, there were suddenly plenty of them, all linked by a network of RF transactions.

Settlement process

Before in hand, Harshad Mehta had a good understanding of these processes: the transactional banks make payments and transfer securities directly to each other. Following that, he works as a bank broker, delivering securities and making payments to the relevant banks. The seller (bank) sends their securities to Harshad, a broker, who then transfers them to the buyer (bank). When the buyer pays the bank, Harshad returns the money to the seller. This is the settlement procedure. However, after building his trust with both banks, he began to trick them by depositing funds into his account without securities, which he slowly used to invest in the stock market. The involved banks were not aware of this trick. These were funds from the middle class. He took advantage of it for his personal gain.

Payment cheques

Harshad Mehta, who was the broker for several banks, slowly requested that cheques be issued in his name. He also stated that he would directly pay the other party (bank). Then he withdrew a cheque from the RBI in his bank’s favour, receives funds, and deposited them into his account the same day. This permitted him to get money as soon as the transaction is finished and deposit it in his stock market.

Dispensing of securities

Harshad Mehta utilised his reputation to convince banks to issue cheques without collecting the securities in exchange for the promise of receiving them the next day. This was a bribe to banks that would release cash without collateral. Harshad Mehta and his companions were able to utilise the money of the banks to invest in the stock market as a result of this.

Fake bank receipts (BR)

Harshad Mehta was offered fake bank receipts by two well-known banks, the Bank of Karad and the Metropolitan Co-operative Bank Limited. They were handed to banks, who in turn provided him money. He faked bank receipts by asking for the help of bank staff involved in the scam. He utilised them to withdraw funds from banks in order to invest in the stock market.

Legal statutes related to Harshad Mehta’s crimes

The criminal punishment was given to Harshad Mehta based on the provisions of the Indian Penal Code of 1860 legislation, which stated specific crimes and their accompanying punishments.

Punishments under the Indian Penal Code

Harshad Mehta’s criminal offences are included in Chapter 18 of the Indian Penal Code, 1860. The offence falls under Section 463, while the penalty falls under Sections 465 and 467, which deal with forgery offences and forgeries of important securities, wills, and other documents. This includes bribery, cheating, criminal conspiracy, and falsification of accounts, all of which are punishable under this statute for Harshad Mehta offences.

Forgery

Section 465 deals with forgery. Anyone who creates a fake document or false electronic record with the intent to harm the public or any person, or to support any claim or title, or to enter into any express or implied contract, or with the intent to commit fraud or the potential to commit fraud, is considered a forgery.
Forgery is punishable by Section 465, which states that anybody who commits forgery will be imprisoned for a term of up to six months to four years and imposed fines of Rs.11.95 lakh on the accused.
Forgery of important security, wills, and other documents is dealt with under Section 467. Anyone who forges a document that claims to be valuable security, will, or authority to adopt a son, or who claims to give authority to any person to make or transfer any valuable security, receive the principal, interest, or dividends, or to receive or deliver any money, movable property, will be sentenced to one year in prison, with a maximum sentence of ten years, as well as a fine.

Bribery

Section 171E deals with bribery punishment. Bribery is a criminal offence that is punished by imprisonment for a term that may extend to one year or with a fine, or both.

Cheating

Cheating and dishonestly inducing the transfer of property covered under Section 420. Whoever cheats and dishonestly provokes the person tricked to transfer any property to any person or to make, alter, or destroy the whole or part of a valuable security or anything signed or sealed and capable of being transformed into valuable security is punishable by imprisonment for a term that may extend to seven years and a fine.

Criminal conspiracy

Section 120B deals with the criminal conspiracy penalty, which states that anybody who is a party to a criminal conspiracy to commit an offence is punished by death, life imprisonment, or severe imprisonment for a duration of two years.

Falsification of accounts

Falsification of accounts is dealt with under Section 477A. Whoever, while employed or acting in the capacity of a clerk, officer, or servant, wilfully and with intent to defraud, destroys, alters, mutilates, or falsifies any valuable security or account in his employer’s possession or received by him or on behalf of his employer, or willfully and with intent to defraud, aids or abets the making of any false entry or omits or alters in accounts book or electronic record shall be punished with imprisonment for a term which may extend to seven years or fine or both.

Conclusion

Harshad Mehta was a clever man with big ambitions, but the path he took to get there was the wrong one. This path led to his downfall and, finally, his death. One of the loopholes that the scam brought into light was that there was a complete absence of clarity in the financial markets. Irregularities of all kinds were so widespread that even highly irregular transactions raised very little inquiry. This is the ideal setting for a scam to take form and develop to dangerous dimensions. The Harshad Mehta scam was the most public and terrible financial scandal to ever occur in India. Many individuals had died and some even committed suicide. All of the wealthy individuals were suffering from mental and physical exhaustion as a result of the scam. He was a brave stock broker as a natural outcome and was well-versed in both the banking system’s weaknesses and techniques of how to enjoy those benefits from them.

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:

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

Regional Comprehensive Economic Partnership (RCEP)

By

Rachit Garg

-

May 24, 2022

This article has been authored by Anindita Deb, a student pursuing BBA.LLB. from Symbiosis Law School, NOIDA. The objective of this article is to exhaustively discuss the Regional Comprehensive Economic Partnership, its related provisions, and how the countries that are party to this agreement benefit from it.

It has been published by Rachit Garg.

Table of Contents

Introduction

In the ever-growing world of increased globalisation and comprehensive trade deals between nations across the globe, the need for an integrated agreement with provisions aimed at reducing tariffs on trade becomes a boon. The Regional Comprehensive Economic Partnership (RCEP) is one such agreement.

The Regional Comprehensive Economic Partnership was established by the leaders of 16 participating countries to widen and intensify engagement among parties and to increase parties’ participation in regional economic development. The RCEP was built on top of the existing ASEAN+1FTAs (countries with which members have Free Trade Agreements) in order to bolster economic ties, expand trade and investment opportunities, and contribute to narrowing the development gap between the parties. The goal of starting RCEP talks is to reach a contemporary, comprehensive, elevated, and mutually advantageous economic partnership agreement between the ASEAN Member States and ASEAN’s FTA partners.

This article seeks to provide an in-depth description and analysis of the RCEP, its history, its provisions, its benefits, and its implications. After reading this article, the reader will have an exhaustive understanding of what RCEP is and what are the objectives it has set out to achieve.

What is the Regional Comprehensive Economic Partnership (RCEP)

The Regional Comprehensive Economic Partnership (RCEP) Agreement was signed on November 15, 2020, after several rounds of negotiations that began in 2012. It is an overarching agreement between ASEAN and existing partners, the so-called ASEAN Plus Three (APT) countries—the People’s Republic of China (PRC), Japan, and the Republic of Korea, as well as Australia and New Zealand. The Regional Comprehensive Economic Partnership (RCEP) is a regional free trade agreement that will enhance and expand a member nation’s existing free trade agreements with 14 other Indo-Pacific nations.

The Regional Comprehensive Economic Partnership (RCEP) came into force on January 1, 2022, for ten countries: Australia, New Zealand, Brunei Darussalam, Cambodia, China, Japan, Laos, Singapore, Thailand, and Vietnam, with Australia as the founding party. The Republic of Korea signed the RCEP on February 1, 2022, and Malaysia signed it on March 18, 2022. It is a comprehensive and advanced free trade agreement that covers goods, services, investment, economic and technical cooperation, as well as electronic commerce, intellectual property, government procurement, competition, and small and medium-sized businesses.

RCEP negotiations began in November 2012 between the Association of Southeast Asian Nations (ASEAN) and ASEAN’s Free Trade Agreement (FTA) partners. Ministers of 15 countries signed the agreement on November 15, 2020. India declared in November 2019 that it was unable to join the RCEP due to a number of issues, and has since confirmed that it is unable to sign the agreement.

RCEP countries

The RCEP was signed by fifteen countries in 2020 that are all part of the Regional Comprehensive Economic Partnership. These 15 countries included 10 ASEAN members which are as follows:

Brunei-Darussalam
Cambodia
Indonesia
Laos
Malaysia
Myanmar
Philippines
Singapore
Thailand
Vietnam

In addition to the ASEAN countries, five regional countries mentioned hereinunder with which ASEAN members have Free Trade Agreements (FTAs) are also party to this agreement:

Australia
China
Japan
South Korea
New Zealand

Features of the RCEP Agreement

The RCEP has a fairly broad scope of coverage. It has 20 chapters and covers many topics that the ASEAN Plus One FTAs did not. The agreement includes clauses for goods trade, such as origin rules, customs duties, trade facilitation, sanitation facilities and phytosanitary measures, guidelines, regulatory frameworks, and conformity assessment procedures, as well as trade remedies. It also covers trade in services, including financial, telecommunications, and professional services, as well as the temporary movement of natural persons. Other chapters cover topics such as investment, intellectual property, e-commerce, competition, small and medium-sized businesses, technical and economic cooperation, government procurement, and legal and institutional issues such as dispute resolution.

RCEP adds value by providing a single set of rules that allows members to develop and expand supply chains. Technical cooperation and capacity building are included in the agreement to support their actions under it. The RCEP also gives Cambodia, the Lao People’s Democratic Republic (Lao PDR), Myanmar, and Vietnam a lot of flexibility (for example, in terms of enforcement timelines) and includes special provisions for differential treatment, especially for Cambodia, the Lao People’s Democratic Republic (Lao PDR), Myanmar, and Vietnam. This ensures that economies at different phases of development, businesses of various sizes, and a wider range of stakeholders are able to maximise the benefits of their commitments.

Trade in goods

The main contribution of the RCEP to goods trade is that it consolidates existing agreements, bringing Asia one step closer to forming a regional trading bloc. Some tariffs have been eliminated immediately, while others will be phased out over time. On imports from all RCEP partners, some members (Australia, Brunei Darussalam, Cambodia, Malaysia, Myanmar, New Zealand, Singapore, and Thailand) have the same tariff. Other members’ tariff schedules vary, and tariff reduction or elimination phase-out schedules can last up to 20 years. Many of the tariff lines, however, are subject to early rate cuts or elimination well before the scheduled period ends. Furthermore, the fact that many concessions take effect on the date of their enactment is encouraging.

Trade facilitation

The agreement also includes provisions on time frames for the release of goods, perishable goods, and advance rulings, which go beyond the commitments made in the World Trade Organization (WTO) Trade Facilitation Agreement. By promoting compliance with WTO rules and improving cooperation and transparency, the RCEP will open up new avenues for addressing non-tariff barriers. Some countries have made commitments with extended timelines for specific provisions because their trade facilitation systems and regulations require significant changes to comply with RCEP rules.

Rules of origin

Committing to pervasive rules of origin for all commodities is one of the key features of the RCEP. This means that a product that meets the RCEP’s origin criteria is subject to the same regulations in all 15 economies. The RCEP’s common rules of origin could help modern manufacturing processes and trade logistics. The use of regional distribution hubs and the ease of moving goods across the region will be improved, thanks to RCEP members.

The RCEP rules of origin chapter, as is customary, lists the minimum operations and processes that are considered insufficient to confer originating status on goods made with non-originating materials. If a good does not meet a change in the tariff classification rule in the annexe on product-specific rules, the chapter lays out some de minimis rules by which it can still be designated as originating.

Trade in services

By removing the most restrictive and discriminatory barriers to activity, the agreement promotes greater services trade. It includes rules on market access, national treatment, most-favoured-nation treatment, and local presence that are modern and comprehensive. The RCEP adopts a ‘negative’ list approach, in which member economies are open to foreign service providers unless they appear on the list. Eight members (Cambodia, the PRC, the Lao PDR, Myanmar, New Zealand, the Philippines, Thailand, and Vietnam) have chosen to use a ‘positive’ list at first but must switch to a ‘negative’ list within six years of the RCEP Agreement’s implementation.

Investment

The agreement constitutes provisions on protection to create an enabling investment environment in the region. It contains a most-favoured-nation clause as well as commitments to prohibit performance requirements that go beyond the WTO Trade-Related Investment Measures Agreement’s multilateral obligations. With standstill and ratchet mechanisms, investment obligations using the ‘negative’ list method are included. Dealing with investor aftercare issues, such as guidance in attempting to resolve complaints and grievances related to the investments made, strengthens investment facilitation. Although the RCEP does not include an Investor-State Dispute Settlement (ISDS) mechanism, it does include an agenda that allows members to propose one if they all agree. The agreement does, however, include a long and detailed section and a separate annexe that outline the expropriation rules.

E-commerce

The agreement encourages member economies to use electronic means to improve trade administration and procedures. It requires them to establish or uphold a legal framework that promotes the development of e-commerce, which includes data privacy and consumer protection. Members of the RCEP have agreed to keep the practice of not levying customs duties on electronic transmissions. The RCEP includes cross-border data flow obligations, which are the first of their kind for several large and evolving members. These obligations will not pertain to financial services, and exceptions will be made for national defence or other public policy reasons.

Sanitary and phytosanitary measures

The WTO Agreement on the Application of Sanitary and Phytosanitary Measures is upheld and improved by this agreement. It accomplishes this by incorporating relevant global standards, guidelines, and suggestions on equivocation, adaptation to regional conditions (including pest-free or disease-free areas and low pest or disease prevalence areas), risk analysis, audit, certification, and import checks, and emergency measures. In practice, RCEP improves the outcomes of existing ASEAN FTAs in a variety of trade-facilitating ways, including equivalence recognition, emergency measures, and transparency.

Standards, technical regulations, and conformity assessment procedures

The RCEP focuses on improving not only the execution of the WTO Agreement on Technical Barriers to Trade, but also mutual understanding of standards, regulatory frameworks, and guidelines and procedures between members, as well as the exchange of information and cooperation in this area. The agreement includes provisions that promote greater combination elements and good regulatory practice by increasing transparency in the development of technical barriers to trade measures. These provisions are expected to reduce the negative effects of regulations on trade by making information on exporting requirements more accessible, lowering transaction costs for businesses, and institutionalising the process.

Competition

In addition, the RCEP aims to create international competitive markets that boost business efficiency and consumer welfare. The agreement contains provisions for the adoption or maintenance of competition laws, as well as independent competition authorities to impose antitrust laws. It also protects consumer welfare by requiring that RCEP members’ domestic laws and regulations prohibit misleading practices, such as false or misleading trade descriptions, and increase consumer awareness of, and access to, consumer redress mechanisms. The agreement also ensures that competition laws are transparent and that they are implemented in accordance with the law. It also creates a framework to encourage cooperation among the competition authorities of its members.

Government procurement

There are no provisions on government procurement in the existing ASEAN Plus One FTAs. This makes the Regional Comprehensive Economic Partnership (RCEP) a giant step forward for the region, as it is the first time that major ASEAN economies like Indonesia, the Philippines, and Thailand have made meaningful government procurement commitments. The agreement emphasises the critical role of government procurement in regional economic integration, job creation, and growth. The Government Procurement chapter encourages transparency in procurement processes by requiring members to publish government procurement laws and regulations. It also includes provisions for cooperation aimed at improving mutual understanding of RCEP members’ respective government procurement laws, regulations, and procedures, as well as a mechanism to facilitate consultation and information exchange on these topics.

Intellectual Property

Members of the RCEP come from a wide range of developed, developing, and least-developed economies, with a wider range of intellectual property resources. The agreement’s equitable and inclusive approach to intellectual property rights coverage, protection, and enforcement is a key feature. The importance of the RCEP is highlighted by the emphasis it places on fair use, transfer of technology, and socioeconomic welfare in the international community, as well as safeguards to protect rights holders’ interests.

There are also specific provisions in the agreement for establishing an international framework for the protection of biological resources, traditional knowledge, and folklore. This significant step demonstrates the region’s contribution to indigenous peoples’ rights and interests in genetic resources and traditional knowledge. It’s also a significant step forward in international intellectual property protection for addressing the key concerns of developing and least-developed economies, which have plenty of genetic resources and traditional knowledge but lack commercial and industrial resources like patent rights on pharmaceutical drugs and industrial designs, trademarks on renowned brand logos, and copyrights on software.

Small and medium-sized enterprises

Small and medium-sized businesses, including micro-businesses, play an important role in promoting economic growth, employment, and innovation, according to the RCEP. Its goal is to ensure that they benefit from and take advantage of the opportunities presented by the agreement. To that end, the chapter on small and medium-sized enterprises requires RCEP members to share comprehensive information about RCEP online, including the full text of the RCEP Agreement as well as other RCEP-related information pertaining to small and medium-sized enterprises in the region. It also aims to improve cooperation in areas such as e-commerce, intellectual property rights, market access, and innovation.

Implications of the RCEP Agreement on businesses

Given that the 16 RCEP participating countries account for nearly half of the world’s population, 30% of global GDP, and over a quarter of global exports, RCEP has the potential to deliver new opportunities for businesses in the East Asia region. The RCEP will provide a framework aimed at lowering trade barriers and ensuring enhanced market access for products and services for businesses in the region, through:

Recognition of ASEAN’s centrality in the emerging regional economic architecture, as well as ASEAN’s FTA partners’ aspirations in improving market integration and bolstering economic cooperation among participating nations;
Facilitation of trade and investment, as well as increased transparency in trade and investment relations among participating countries, and facilitation of SMEs’ participation in global and regional supply chains; and
Expand and strengthen ASEAN’s economic ties with its FTA partners.

The RCEP recognises the importance of inclusivity, particularly for SMEs to benefit from the agreement and deal with the challenges that come with globalisation and trade liberalisation. SMEs (including micro-enterprises) account for more than 90% of all business establishments in all RCEP participating countries and are critical to each country’s endogenous economic development. RCEP is also committed to implementing fair regional economic policies that benefit both ASEAN and its FTA partners.

Importance and advantages of the Regional Comprehensive Economic Partnership (RCEP)

The agreement strengthens the framework for the Global Value Chain (GVC). GVCs are reliant on a number of factors, including tariffs, investment, services, and intellectual property. RCEP covers everything. GVC performance will be a point of reference in the evolution of the agreement if members have a strong understanding of the GVC world. The investment provisions of the agreement are all based on a negative list approach and go beyond existing ASEAN commitments, such as removing all requirements for using local content. The agreement also creates a common set of rules of origin, including the accumulation of value throughout stages of production in different nations and a geographical value of content of 40%, which is not overly high, especially with regard to the agreement.

The domestic policy change, including regulatory reform, will be aided by the RCEP’s economic cooperation provisions. Reform necessitates effort and the establishment of institutions, and the RCEP includes a chapter on economic cooperation to encourage both. For example, transitioning to negative list commitments, which list those that really matter while leaving out those that don’t, will be difficult for members, but there is room in the agreement’s economic cooperation provisions to encourage that effort. Economic cooperation must include dialogue that supports work on domestic regulation in order to be effective.

From the perspective of the globalisation debate, the agreement is substantially significant. This group of countries shows their commitment to economic integration. More specifically, the agreement fills a gap in the regional trade system by establishing a previously unattainable agreement between Japan, South Korea, and China. These three largest economies are expected to see the most tariff cutbacks. As a result, the RCEP is expected to boost trade between these three country pairs the most. Although China and South Korea have a trade agreement, it has yet to result in significant tariff reductions. Instead, tariffs are still between 8% and 9%, and non-tariff barriers still exist. Furthermore, no trade agreement between Japan and China or Japan and South Korea has been reached. Because these three economies are the most important in Asia, significant trade-creating effects are likely.

Most other modern agreements are more ambitious than the RCEP. While the EU-Canada Comprehensive Economic and Trade Agreement (CETA), which is widely regarded as one of the most holistic approaches in the world, eliminated 99% of all tariffs, the RCEP is only expected to reduce tariffs by up to 90%. Exceptions are expected, particularly in the agricultural sector, which is barely mentioned in the agreement. Full tariff elimination in other areas, such as vehicles, could take up to 20 years.

RCEP, like most modern trade agreements, goes beyond tariff elimination to regulate a variety of other issues. Professional qualifications could be mutually recognised by the negotiating parties. However, no agreement on environmental standards or uniform labour standards could be reached. Members of the RCEP also missed out on the chance to regulate future issues such as e-commerce. Regular meetings to discuss the extension of the negotiated agreement are planned, so it is anticipated that RCEP will bring these subject matters back on the agenda.

Limitations of the RCEP Agreement

The RCEP has limitations. It lacks environmental and worker protections and the tariff cuts it seeks aren’t as significant as those demanded by the other major Asia-Pacific trade agreement, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which includes seven RCEP members. As a result, even for participating countries, it will not bring significant economic benefits.
The real significance of the RCEP is China’s participation. It is the country’s first participation in a regional multilateral trade agreement. Furthermore, as a major consumer, China is critical to the strengthening of regional value chains, allowing RCEP members to reap the benefits of integration.
However, India, a major regional economy, refused to join, citing concerns about increased trade deficits with China and the inability to protect vulnerable industries. Because of the size of its market and its position in supply networks, India’s inclusion would substantially increase the deal’s economic benefits.
The RCEP, with or without India, will not revive multilateralism. On the contrary, despite reflecting a desire for trade liberalisation, the proliferation of regional trade blocs may weaken the multilateral trading system because non-signatories are inevitably excluded. This should be a serious concern for Asian economies, which have built their prosperity by participating in global markets governed by common trade rules. Nonetheless, they are unlikely to be able to revive the multilateral trading system on their own. The rest of the world must pitch in, with the United States of America (US) leading the charge.

RCEP and India : why did India decide against signing the agreement

India withdrew from the China-backed trade agreement after talks failed to address its main concerns. These included threats of circumvention of origin rules due to tariff differentials, as well as the inclusion of a fair agreement to address trade deficits and service opening. The agreement would have reduced import duties on 80 percent to 90 percent of goods and made service and investment rules easier. Some in Indian industry feared that lower customs duties would result in a flood of imports, particularly from China, with which the country has a huge trade deficit. The trade deficit between India and other RCEP countries was also increasing.

India was unable to implement countermeasures such as an automatic tariff hike when product imports exceeded a certain threshold. It also wanted MFN obligations removed from the investment chapter of the RCEP because it didn’t want to hand out the benefits it was giving to strategic allies or for geopolitical reasons to countries with which it had border disputes. India believed the agreement would compel it to extend to all RCEP members benefits granted to other countries in sensitive sectors such as defence.

The RCEP also lacked clarity on market access issues in China and non-tariff barriers faced by Indian businesses.

How does China benefit from the Regional Comprehensive Economic Partnership (RCEP)

Concerned that China would write Asia’s trading rules in the twenty-first century, US President Barack Obama initiated the formation of the rival Trans-Pacific Partnership (TPP), which is even larger and more comprehensive than the RCEP. TPP originally included 12 Asian and Latin American countries, but not China. However, shortly after taking office in early 2017, US President Donald Trump withdrew from the TPP.

The agreement was renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership by the remaining TPP members. All 11 remaining nations’ trade ministers have signed it, and seven have ratified it. However, Trump’s withdrawal significantly reduced its impact and US influence, and the completion of RCEP negotiations gives China an advantage in determining Asia-Pacific trade terms.

Conclusion

The RCEP is a comprehensive agreement to ease trade tariffs charged on the movement of goods across member states. But like every international agreement, it also has its pros and cons. India’s decision to not join the RCEP will affect its future trade relations with Japan and Australia which is why Japan is trying to get India back into the deal. It is open to India to become a signatory to the RCEP whenever it wishes to do so.

The 16 countries negotiating the RCEP together account for a third of global GDP and nearly half of the world’s population, with China and India’s combined GDPs accounting for more than half of that. By 2050, the RCEP could account for half of the estimated $0.5 quadrillion global economy. The RCEP recognises the importance of inclusivity, particularly for SMEs to benefit from the agreement and deal with the challenges that come with globalisation and trade liberalisation.

Some FAQs related to the Regional Comprehensive Economic Partnership

What is the purpose of RCEP?

The RCEP Agreement’s purpose and objectives are to create a modern, comprehensive, high-quality, and mutually beneficial economic partnership that will facilitate regional trade and investment growth while also contributing to global economic growth and development.

What are the key elements of the RCEP?

The RCEP contains provisions related to the following key aspects:

Trade in goods
Trade facilitation
Rules of Origin trade in services
Investment
E-commerce
Sanitary and phytosanitary measures
Standards, technical regulations and conformity assessment procedures
Competition
Government procurement
Intellectual Property
Small and medium-sized enterprises

What is the benefit of the RCEP?

The biggest benefit that will be reaped out of the Regional Comprehensive Economic Partnership is that it eliminates tariffs on nearly 90% of traded goods and harmonises many customs, investment, intellectual property, and e-commerce rules. The RCEP will unfetter the development of regional value chains by establishing a single set of trade rules and simplifying complex issues like rules of origin.

References

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Section 80D of Income Tax Act, 1961

By

Rachit Garg

-

May 24, 2022

This article has been written by Gauri Saxena, an LLM student from Dr. DY Patil College of Law. This article provides a detailed analysis of Section 80D of the Income Tax Act, 1961.

It has been published by Rachit Garg.

Table of Contents

Introduction

Taxpayers are constantly searching for credible measures to lower their tax liability. Section 80D of the Income Tax Act of 1961 (ITA, hereinafter) is one of the sections that can come to one’s aid and greatly reduce the tax burden. The government provides benefits to those who file taxes because every tax paid allows them to work better and provide resources to citizens. As a result, to take advantage of the benefits offered by the Indian government for making the right investment choice and thus saving significantly on taxable income, this section discusses tax breaks for medical insurance policies.

Section 80D of the ITA allows you to deduct medical insurance premiums paid for you and your family members. You can claim a deduction for health insurance premiums for yourself, your parents, your children, and your spouse. Besides, the said Section enables members of Hindu Undivided Families (HUFs) to claim deductions. It offers waivers in addition to the exemptions provided in the form of Section 80C of the ITA.

Before moving further, one must understand the basic difference between Sections 80C and 80D. The former section is more widely used because it covers a broader range of products and allows for a maximum tax deduction of ₹1.5 lakhs per fiscal year. Section 80C also covers a wide range of payments, including investments in various tax-saving schemes; tax-saving FDs; ULIPs; ELSS; Sukanya Samriddhi Yojana; life insurance premiums, and mutual funds. On the other hand, Section 80D primarily addresses health insurance payments.

Deductions under Section 80D of Income Tax Act, 1961

Here you will know how much money you can save under this particular section, but it does depend on various situations. Only medical insurance policies qualify for 80D deductions.

There are some exemptions:

You, your spouse, and dependant children

You can claim a maximum tax deduction of ₹25,000 per year if you pay health care premiums for yourself, your spouse, and your kids.

Your parents

You can claim a maximum deduction of ₹25,000 per year if you pay health insurance premiums for your parents. This amount increases to ₹50,000 per year if your parents are senior citizens.

Also note that one can claim a supplemental 80D income tax deduction of $5,000 for health-related expenses. This includes all costs for a family check-up.

There is no particular payment method that has to be followed for the payment of an insurance policy; all modes are accepted except for cash payment. Perks are available for the payment of senior citizens (age: 60 and above) treatment, and also for their preventive health checkups.

Given below are the deductions available under Section 80D in a more comprehensive way,

CATEGORY	PREMIUM PAID	DEDUCTION
	Self, spouse, and children	Parents
Individual and parents under 60 years old	₹25,000	₹25,000	₹50,000
Individual and family under 60 years old, but parents over 60 years old	₹25,000	₹50,000	₹75,000
Individual, family, and parents over 60 years old	₹50,000	₹50,000	₹1 lakh
Non-Resident Indian (NRI)	₹25,000	₹25,000	₹25,000
Hindu Undivided Family (HUF)	₹25,000	₹25,000	₹50,000

For example, you, at the age of 61, buy a health insurance premium for yourself, your spouse, and dependent children worth ₹40,000. You also buy a health insurance premium worth ₹45,000 for your parents.

According to Section 80D, you are qualified for the following tax breaks:

Tax break of ₹40,000 out of the total 40,000 that you paid for yourself, your spouse, and dependent children.
Tax break of ₹45,000 out of the total 45,000 that you paid for your parents.
Therefore, the total tax break claimed can be ₹85,000 (40,000+45,000) on the overall premium payment of ₹85,000.

NOTE: Before applying for an exemption, one should keep in mind that the exemption under Section 80D is an excellent way to decrease your tax liability. If you have a spouse who works, he or she can also claim the deduction. Your spouse can also purchase health insurance for his or her parents and claim a tax deduction for it. Both of you should purchase distinctive health insurance policies for family members and yourself.

Who can claim tax benefits under Section 80D of Income Tax Act, 1961

A taxpayer may deduct expenses under Section 80D. Deductions are allowed for health insurance premiums paid for the respective family members:

Self,
Spouse,
Dependent parents, or
Dependent children.

This section also allows members of Hindu Undivided Families (HUF) to claim deductions. Premium payments made by any member of a HUF can be used for tax purposes, pertaining to the Act’s maximum limit.

You or anyone you know who is an NRI (Non-Resident Indian) is subject to a tax break on taxable income earned in India, in addition to providing essential medical care for the family.

Why do we need a tax deduction and is it legitimate?

Before we can understand why there is a need for a tax deduction, we must understand what is really meant by a tax deduction. A tax deduction is nothing but an expense that has been subtracted or deducted from your total income to decrease the amount of tax you pay. In short, there is a deduction in your income that has to be taxed. Sadly, not many people know about it, but you are not one of them.

To encourage taxpayers to save and invest, the income tax department has provided numerous deductions from taxable income under Chapter VI A of the ITA, making it legitimate for taxpayers to save some money.

Ideally, the government should not be interfering in the “health department” as it is a state subject, but given the fact that states are not actively doing anything to cover or provide medical insurance to their people, the Union government has to come up with policies now and then to encourage its taxpayers to get themselves and their families covered under Health Insurance Schemes.

Section 80D was put into effect to encourage individuals and Hindu Undivided Family (HUF) health planning.

Payments under Section 80D of Income Tax Act, 1961

Payments eligible as per the Section

Cost of the health insurance premium paid for self, dependent spouse, dependent children, and parents.
Contribution to the CGHS (Central Government Health Scheme)/ notified scheme,
Expenditure on preventive healthcare, and
Medical costs in the case of a senior citizen who is not covered under any health insurance policy.

The amount deducted is determined by the nature of the expenditure, payment method, age, and relationship of the individual for whom the expenditure is made.

Payments that are not eligible for deductions:

You cannot receive tax benefits if you make your payments on behalf of the following:

Your grandparents,
Your siblings,
Working children.

This applies to every relative who is not expressly protected by your policy.

There will be a disqualification for insurance tax benefits if you pay your premiums in cash. Although with cash payment, preventive health care can be obtained.
If the company you are working for makes a health insurance premium payment in a non-contributory group, you, as the employee, cannot claim the tax deduction.

If, however, you contribute an additional premium to improve the coverage of the group, you can claim a tax deduction on that amount.

You cannot claim a tax break on GST and cess levied on premium payments.

Limits under Section 80D of Income Tax Act, 1961

For oneself and one’s family

₹25,000 tax break + ₹5,000 health checkup exemption = ₹30,000

For oneself, one’s family, and one’s parents

₹50,000 tax break + ₹5,000 health checkup exemption = ₹55,000

For oneself, one’s family, and elderly citizen parents

₹75,000 + ₹5,000 = ₹80,000

For yourself (when you are a senior citizen too), family, and senior citizen parents

₹1 lakh tax break + ₹5,000 health checkup exemption = ₹1.05 lakh

Investments covered under Section 80D of Income Tax Act, 1961

Preventive health check-ups

Section 80D of the ITA allows you to deduct the premiums you pay for health insurance. To uplift citizens to become more health-conscious, the government instituted a preventive health checkup tax benefit in 2013-14. By visiting a doctor regularly, you can detect any illness and reduce its risk factors early on. Section 80D allows a deduction of ₹5,000 for transactions for preventive health check-ups. This tax benefit is limited to a maximum of ₹25,000/50,000, depending on the circumstances. This deduction is available to individuals for themselves, their spouses, their dependent children, or their parents. Cash could also be used to meet the cost of screenings.

Tax breaks on preventive healthcare checkups

You (or any individual) can also claim back the premium paid for your parent’s health insurance policies. The size of the deduction is calculated by the foremost policy holder’s age.

If you get annual health checks, you will be subject to the tax break. The Section 80D limit will include the expense of checkups. For each fiscal year, the cap on checkups is ₹5,000 for individuals under the age of 60 and ₹7,000 for senior citizens.

Tax breaks on health insurance premium payments for parents

Premiums paid for a health insurance policy for parents are eligible to claim a deduction of up to ₹25,000 per fiscal year. If your parent is over the age of 65, the maximum annual limit increases to ₹50,000. This limit will also include ₹7,000 for the cost of annual health check-ups.

Individuals who are 85 or older and do not have an insurance plan can take advantage of a tax deduction of up to ₹50,000 per fiscal year for yearly medical checkups and hospital treatments. However, the tax breakdown does not protect their expenditures.

Health-related riders

Health-related riders like Critical Illness Coverage available with life insurance plans are also covered by Section 80D of the ITA.

Riders are entirely voluntary terms that are added to your basic insurance policy at an extra cost. In other words, it provides great coverage and risk protection. Insurance riders are cost-effective modifications to your life insurance policy. They strengthen and advance your policies to cover something more than the expense of your fatal injury.

Types of Riders

Accelerated Death Benefit Rider: It is an additional rider that provides additional benefits to the policyholder or his nominee. It provides additional coverage in the occurrence of the policyholder’s death due to any particular and pre-defined condition and in addition to the base plan benefits.
Accidental Death Benefit: This rider includes a provision that provides a round-sum payment of the principal amount to the nominee in the event of the demise of the policyholder as a result of an accident or adversity.
Accidental Disability Rider: It offers additional security in the event of any type of disability. The unforeseen impairment rider must be elected based on the actual need, not at random.
Critical Illness Rider: It is a separate rider that provides greater protection instead of the additional premium terms and payment options. The said rider offers extensive financial protection in the event of a critical illness. This rider offers insurance for critical illnesses as outlined and identified in the respective insurer’s policy documents.
Income Rider: This rider enables the policyholder’s nominee to receive a particular sum as a regular salary in the occurrence of the policyholder’s demise during the term of the policy.
Waiver of Premium: This is perhaps the most favored rider, and it is frequently incorporated into other policies, particularly child plans. If the policyholder dies, there would be no charged premiums, and his or her nominee would be qualified for the base plan rewards.

Conclusion

Now you know that the tax incentives available to senior citizens u/s 80D are quite significant. As a result, you can avoid outstanding debts at that age. The country and we all suffered a lot after spending a fortune on treatments. At this point, Section 80D tax benefit facility is likely the most prevalent tax-saving tool. If you intend to file an Income Tax Return (ITR) under this section, remember to read the information above first to prevent ambiguity.

Frequently Asked Questions (FAQs)

Is it possible for me to claim tax benefits if my spouse and parents are not financially dependent on me?

Yes, even if your spouse and parents do not seem to be financially dependent on you, you can claim tax benefits.

Is it possible for me to claim tax benefits if I pay the premium for my independent (working) children?

No, you cannot claim tax benefits for independent children.

Can I claim tax deductions from various health insurance policies?

Yes, you may claim tax breaks for various health insurance policies. You must ensure that you fulfill all qualifying conditions and that your premium payments for all insurance policies are up-to-date. If the claim amount exceeds the insurance coverage under the first policy, you will have the choice of claiming the difference from the second policy. Keep this in mind when submitting under various policies.

Is there any specific income range for me to fall into to avail of the tax benefits?

No, there is no such income range criteria for you to claim tax breaks.

Will I be able to claim 80D deductions under the ITA if my parents and I split the cost of my medical insurance?

Yes, you can both claim tax exemptions to the extent paid by each.

Can I claim a tax exemption for a health insurance policy purchased by me for my in-laws?

No, you can claim a tax deduction for a policy purchased for your parents, not in-laws.

How do I claim these tab benefits under Section 80D?

You will have to disclose the 80D deduction under “Chapter VI-A of the ITA” at the time of filing the Income Tax Return (ITR).

Are Cess and tax the same?

A cess is a type of tax imposed on taxes for specific purposes until the government receives sufficient funds for the purpose. It is added to the basic tax obligation paid by the general public as part of the total tax paid.

Revenue from taxes (such as income tax) and cess is kept in the Consolidated Fund of India, but cess is used for a specific purpose after due appropriation from the Parliament of India.

For example, the tax charged as the Swachh Bharat Mission Cess.

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: