This article is written by Jyotika Saroha. It provides an overview of Section 60 of the Trade Marks Act, 1999. It explores the meaning of trade marks, the process of registration of trade marks and the relevant provisions dealing with it. The article further delves into an analysis of Section 60 of the Trade Marks Act, 1999, highlighting its main objectives, applications, and related provisions. It also discusses the judgements pertaining to trade mark rectification provisions.
Table of Contents
Introduction
Intellectual property rights (IPR) is a field of law that rewards the innovation and creativity of individuals by granting them exclusive rights to their work. These rights basically allow creators to acquire rights over the work they have produced using their creativity and ideas, which does not come into the tangible property or physical property. The protection under intellectual property is given to the intangible assets that cannot have a physical presence. They are brought into existence by using human thinking and intellect. The main types of intellectual property include patents, trade marks, copyrights, and designs, among others. This article will address trade marks, an important form of intellectual property, and the relevant statute, particularly Section 60 of the Trade Marks Act, 1999.
A trade mark is a mark that can be graphically represented and is used to distinguish the goods or services of one person from those of others. It may include the shape of goods, their packaging, or a combination of colours. This mark serves to indicate that the product has been made or manufactured by a particular person, helping to differentiate it from other products. Trade marks facilitate the sale of goods and services by providing products with recognition. The significance of trade marks has grown alongside the growth and development of the business sector. They help differentiate the goods of an owner who has registered his/her trade mark. Once a trade mark receives legal recognition and protection, it cannot be infringed upon by others, granting the owner exclusive rights.
The registration of a trade mark is important for the purpose of obtaining such legal recognition, as the proprietor receives a certificate of such registration. The detailed information of such registered marks is maintained in the Register of trade marks, which is an official record maintained by the Registrar. Section 60 comes into play when there is a need to rectify any of the entries in the Register.
Section 60 specifically addresses the amendment or substitution of goods and services in the Register of trade marks. It grants the Registrar the power to make necessary corrections in the Register if there is any error or defect in the entries. Additionally, it outlines the procedure for approaching the competent authorities through an application to request amendments or corrections. The correction of the Register ensures the accuracy of information and provides an updated version of newly added goods and services.
Background of trade marks
India has a rich history of trade marks, dating back to the 10th century, when merchants and traders used ‘merchant marks’ in order to assert their ownership over goods like cattle, currencies, and more. However, before 1940, there was no specific legislation governing trade marks in India. During that time, various problems arose regarding the infringement and passing off, which were resolved using Section 54 of the Specific Relief Act, 1877. The registration of trade marks and the establishment of ownership were governed by the Registration Act, 1908.
The first specific legislation that specifically dealt with the trade marks in India, the Trade Marks Act, 1940, was introduced to address these challenges. However, this Act did not fulfil the growing need for protection for trade marks and was later replaced by the Trade and Merchandise Marks Act, 1958, which, after some time of its implementation, was repealed by the Trade Marks Act, 1999, which is currently in force. The Trade Marks Act, 1999, was enacted in line with the provisions of the TRIPS Agreement (Agreement on Trade-related aspects of Intellectual Property Rights). It deals with various aspects of trade mark law, including registration, procedures, duration, effect of registration, certification, rectification and correction of the Register, etc.
Meaning of trade marks
In simple terms, a trade mark is a symbol, letter, combination of colours, or device used for the purpose of differentiating the goods and services owned by a person from those of another, as he attains ownership over those goods and services. A trade mark provides protection to the proprietor or the owner by granting him exclusive rights to use the mark in the public domain. The Trade marks Act, 1999 provides for the definition of trade marks under Section 2(1)(zb) as a mark that is capable of graphical representation and of distinguishing the goods and services of one person from another. It may also include the shape of such goods, their packaging, and the combination of colours. If we comprehend the definition of trade mark given under Section 2(1)(zb), then the term ‘mark’ has to be understood first, as a trade mark must be a ‘mark’ in order to possess the basic features of a trade mark. Section 2(1)(m) of the said Act defines the term ‘mark,’ which includes the following:
Device,
Brand,
Heading,
Label,
Ticket,
Name,
Signature,
Word,
Letter,
Numeral,
Shape of goods, and
Packaging and combination of colours or any combination thereof.
Registration of trade marks in India
Before delving into Section 60, we must be aware of the Register of trade marks and the procedure for trade mark registration. The procedure for the registration of trade marks is provided under Chapter III of the Act, from Sections 18 to 26. Section 18 deals with the application for registration, which needs to be submitted by any person who claims to be the proprietor of a trade mark and wishes to get it registered. The said person shall apply in writing to the Registrar in the prescribed manner.
As per Section 19, the acceptance of such an application can also be withdrawn by the Registrar if he believes that the said application was accepted in error or that the trade mark should not be registered. Section 23 provides for the registration of a trade mark: if the application made under Section 19 has been accepted or has not been opposed, or if the decision has been given in favour of the applicant, the Registrar shall register the trade mark. The said trade mark must be registered within 18 months of the filing of the application. Upon registration, the Registrar issues the applicant a certificate in the prescribed form, bearing the seal of the Trade Marks Registry.
Details of such a registered trade mark and the proprietor who got it registered are recorded in a Register. As per Section 6 of the Trade Marks Act, 1999, the Register is a record of trade marks kept at the head office of the Registry of Trade marks. In the said Register, the registered trade marks, along with the names, addresses, descriptions, and other relevant information with respect to the proprietors of trade marks, are recorded. The Registrar keeps the Register under his control or management.
There may be instances where the records maintained with the Register need to be amended. Section 22 of the Trade Marks Act, 1999 provides for the correction and amendment of the Register, whether before or after the acceptance of a trade mark application. Chapter VII of the Act, from Sections 57 to 60, specifically deals with the rectification and correction of the Register. Among these provisions, Section 60 offers one method for rectifying the Register by way of classification of goods and services.
Section 60 of Trade marks Act, 1999
Objective
Section 60 grants the Registrar the power to make necessary adjustments to the classification of goods and services in order to ensure that the entries in the Register are accurate and up-to-date. This section also requires that concerned parties be notified about any such changes so as to make them aware of the said changes and provide them an opportunity to raise objections if needed. Compliance with Section 60 is crucial for maintaining the integrity of the Register of trade marks and aligning with international standards and practices.
Detailed breakdown of Section 60
Sections 57 to 60 of Chapter 7 of the Trade marks Act, 1999 deal with the rectification and correction of the Register of trade marks. Section 60 specifically addresses the adaptation of entries in the Register of trade marks to accommodate amended or substituted classifications of goods.
Section 60(1)
Section 60(1) of the Trade marks Act, 1999 stipulates that the Registrar shall not make any amendments or changes to the Register that would affect the addition of goods or class of goods or services. Such amendments cannot be made in respect of trade marks that were registered immediately before the amendment or before the registration of a trade mark in regard to those goods and services.
Proviso to Section 60(1)
An exception to Section 60 (1) is outlined in the Proviso. According to this Proviso, Section 60(1) shall not be applicable in the case wherein the Registrar is satisfied that the addition of goods, despite the undue complexity it may introduce, will not affect the quantity of goods and services or be detrimental to the rights of any person.
Section 60(2)
Section 60(2) mandates that for the purpose of making amendments in the Register, a proposal shall be made and it shall be made known to the registered proprietor of the trade mark. Secondly, it provides that any aggrieved party may oppose such a proposal before the Registrar if, in case it contravenes the provisions of Section 60(1).
Application of Section 60
The application of Section 60 comes into picture when there is an error or incorrect information in the Register of trade marks, particularly concerning the classification of goods and services. This section comes into play to rectify such inaccuracies to ensure that the Register reflects the correct and current information.
In order to initiate such changes under Section 60, an application needs to be filed with the Registrar of Trade Marks or, if applicable, the Intellectual Property Appellate Board (IPAB). The application should be accompanied by supporting evidence and relevant documents to substantiate the need for amendments.
These amendments are crucial for maintaining the accuracy and integrity of the Register, ensuring that the entries for goods and services are up-to-date. By addressing errors and updating classifications, Section 60 helps prevent potential conflicts and maintains the Register’s reliability for all stakeholders.
Related provisions
Section 57 of Trade marks Act, 1999
Section 57 provides for the power to cancel or vary registrations and to rectify the Register. Section 57(1) provides that an aggrieved person may make an application to the High Court or the Registrar in the prescribed way. The High Court or the Registrar, after considering the application, may issue an order, as they deem fit, for the purpose of cancelling or varying the registration of a trade mark if it is on the ground of non-compliance or failure to fulfil the condition in the Register.
Section 57(2) permits an aggrieved person to make an application to the High Court or the Registrar if there is an omission or error in the Register. The said application may be made if an entry is missing without any sufficient cause or by any error or defect. In that situation, the High Court or the Registrar may make such an order for making, varying, eradicating or deleting such entry as deemed fit. Section 57(3) allows the High Court or Registrar to determine what actions are required or may be necessary for the rectification of the Register.
Section 57(4) provides that the High Court or the Registrar may, after giving notice or an opportunity to be heard to the parties involved, issue an order on its own motion as referred to in the previous sub-sections. Section 57(5) requires that the High Court’s order for rectification of the Register be communicated to the Registrar in the prescribed manner. Upon receiving such notice, the Registrar must update the Register accordingly.
Section 58 of Trade marks Act, 1999
Section 58 deals with the correction of the Register wherein upon an application made to him by the registered proprietor, the Registrar may:
Correct any error in respect of the name, address, etc.,
Enter any change in the name or address of the registered proprietor,
May cancel the entry of a trade mark from the Register,
May also strike out or remove goods or services in respect of which the trade mark is registered.
Section 59 of Trade marks Act, 1999
Section 59 deals with the alteration of registered trade marks and outlines the procedure. Section 59(1) permits a registered trade mark owner to apply to the Registrar for permission to add or alter the trade mark. The Registrar may refuse or grant the said leave. Section 59(2) states that the Registrar may cause an application to be advertised in a prescribed manner if he thinks fit. If any person opposes the application after the advertisement, the Registrar must provide an opportunity for the parties to be heard before deciding the matter. Section 59(3) requires that any alteration of the trade mark, once permission is granted, be advertised in the prescribed manner.
Conclusion
It can be concluded that trade marks are used to identify the owner or proprietor of goods and services and to protect their rights. Section 60 provides that the entries made in the Register of Trade Marks need to be adapted in accordance with amendments or substitutions made by the Registrar during the classification of goods and services. This provision reflects the Registrar’s power to make necessary amendments and substitutions to the classification of goods and services. This provision was added to ensure that the entries in the Register remain updated and accurate. The prime objective of this provision is to ensure that entries are current and that all the proprietors of trade marks are informed of such updates. It is also the duty of the registered proprietors to stay informed about such changes in order to adhere to the rules of trade mark protection.
Frequently Asked Questions (FAQs)
Who benefits from registering a trade mark?
A trade mark is a symbol used to differentiate one’s goods or services from those of others. The individual or entity who owns the goods and services is the owner or proprietor of the said trade mark. By registering the trade mark under the Trade Marks Act, 1999, the proprietor gains legal protection and exclusivity over the use of the trade mark, preventing others from using it without permission and benefiting from it.
Can changes or corrections be made to the Register of Trade Marks?
Yes, according to provisions under Sections 57 to 60, changes or corrections can be made to the Register.
What is Section 60 of the Trade Marks Act, 1999 about?
Section 60 of the Trade Marks Act, 1999 addresses the adaptation of entries in the trade mark Register to reflect amended or substituted classifications of goods or services; it outlines how and when the Registrar can make changes to the Register, including adding goods or classes or annotating trade mark registrations.
Can the Registrar add new goods or services to an existing trade mark registration under Section 60?
No, Section 60(1) prohibits the Registrar from making amendments that would add goods or classes of goods or services to an existing trade mark registration immediately before the amendment. However, exceptions are allowed if compliance would lead to undue complexity or if the change would substantially affect any person’s rights.
Why is it important to comply with Section 60 when making changes to the Register?
Compliance with Section 60 is crucial for ensuring that the Register is accurate and up-to-date. It helps prevent unnecessary complications and protects the rights of trade mark owners by ensuring that any changes do not adversely affect their existing rights or the rights of other parties.
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This article has been written by Soumyadutta Shyam. This article explains Section 194K of the Income Tax Act, 1961 and discusses in detail various aspects of the provision. This article explains how tax is deducted from income with respect to units of mutual funds. This article also mentions how tax is deducted from income received from units from administrators or from the specified undertaking. The article also discusses, in brief, Section 10(23D) of the Income Tax Act, 1961, the concept of a mutual fund, and the Unit Trust of India. This article also examines the stipulations mentioned in Section 194K regarding suspense accounts.
Table of Contents
Introduction
Section 194K of the Income Tax Act, 1961, lays down the process for the deduction of tax on income that an investor acquires through dividends from mutual funds. This provision also deals with tax deductions from income arising out of units from the “administrator” of the “specified undertaking” or from the “specified company.” Income from capital gains is, however, excluded from the operation of this provision. The rate of deduction of the income tax in the above mentioned situations will be 10% if the income from these sources exceeds Rs. 5000/-.
Mutual fund companies providing dividends to investors can make TDS deductions at the notified rates. Persons investing in mutual funds will receive the dividend after TDS deduction on the amount. Mutual funds are a popular source of investment as well as a source of income for some taxpayers. Therefore, the income accrued to investors from the dividends of mutual funds is liable to be taxed. The deductee can use Form 16A to claim credit for the tax deducted while filing the Income Tax Return (ITR). The deductor should file Form 26Q on the TDS Reconciliation Analysis and Correction Enabling System (TRACES) Portal.
Income in respect of units
Section 194K of the Income Tax Act, 1961 lays down that, when any income is to be paid to a resident in relation to units of a mutual fund mentioned in clause (23-D) of Section 10 of the Act or units from the “administrator” of the “specified undertaking” or units from the “specified company,” the person managing the payment shall, while crediting that income to the account of the payee or at the time of the payment in cash or through the issuance of a cheque or draft, deduct income tax from that income at the rate of ten percent.
However, the deduction shall not be applicable when the sum of that income or the total sum of that income credited or paid during the financial year is not above Rs. 5000/-. Income that is in the nature of capital gains is also exempt from the operation of this provision.
Under the scheme of this provision, a person in charge of payment to a resident in relation to the following
Units of the mutual fund under Section 10 (23D) of the Act.
Units from the administrator of the specified undertaking.
Units from the specified company.
The person responsible for the payment in respect of the above mentioned sources shall deduct TDS at the rate of ten percent while crediting that income to the payee’s account or at the time of the payment.
The words “administrator,” “specified undertaking,” and “specified company” have been assigned special meaning under this provision. These words have the same meaning as assigned to them under The Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002. (Referred below as “the Act”)
Section 2(a) of the Act states that “administrator” denotes a person or a body of persons designated as administrator as per Section 7. This section provides the procedure for the appointment of an administrator to control a specified undertaking.
Section 2(h) of the Act states that “specified company” denotes a company to be comprised and registered under The Companies Act, 2013, as well as whose complete capital is subscribed by such financial institutions or banks as may be notified by the Central Government for the transfer and conferring of the undertaking.
Section 2(i) of the Act states that “specified undertaking” comprises all business, assets, liabilities and properties of the trust relating to schemes and the Development Reserve Fund.
Before the introduction of this provision, dividends were taxed twice. First, a tax was levied when a company would pay a dividend to an Asset Management Company (AMC). Further, it was levied for the second time, when the AMC would distribute its profits to the unit holders.
In the 2020 budget, DDT (Dividend Distribution Tax) was abrogated. Now only AMC has to deduct TDS at 10% on the distribution of dividends, however, the dividend paid to a recipient must be above Rs. 5,000 in a financial year.
Initially, there was an uncertainty regarding whether the TDS as per Section 194K on “Income from Mutual Funds” would just involve dividends or comprise capital gains on the sale of mutual funds too. Therefore, to end this uncertainty, the Central Board of Direct Taxes (CBDT) declared recently in the year 2020 that TDS deductions at the rate of 10% would be made from dividends only and not on income from capital gains on the sale of mutual funds.
Investors residing in India acquiring dividend income from equity mutual funds will receive the amount after TDS is deducted as per Section 194K. NRI investors obtaining dividend income will receive the amount subsequent to the deduction of TDS as per Section 195 of the Income Tax Act, 1961. The deductor will send out Form 16A to the deductee as a Tax Credit Certificate for the sum deducted as TDS. This form can be used by the deductee to claim credit for the tax deducted while filing an income tax return.
Clause (23-D) of Section 10 of Income Tax Act, 1961
Section 10 of the Income Tax Act, 1961, deals with incomes that are not included while calculating the entire income of a person in the preceding year. This includes incomes from sources such as agricultural income and the share of a partner in a partnership firm that is separately assessed, leave travel allowance, long-term capital gains by selling equity shares of an equity-based mutual fund, amounts received from an insurance policy, etc. This provision lists the exemptions and the terms on which such exemptions may be granted. Clause 23D of this section provides for an exemption from income from mutual funds registered as per the Securities and Exchange Board of India Act, 1992, or issued by a public sector bank or public financial institution.
Section 10(23D) sets out that income from notified mutual funds is excluded from income tax. Incomes arising out of these funds, like dividends, capital gains or interest, are not subject to taxation. However, this exemption can be granted only under certain conditions, which are:
The mutual fund must be notified by the government as per the above mentioned provision.
The mutual fund must be registered with SEBI.
UTI Mutual Fund vs. Income Tax Officer and Ors. (2012)
In UTI Mutual Fund vs. Income Tax Officer and Ors. (2012), a petition was brought as per Article 226 of the Constitution of India against the notice of demand dated 29th February, 2012, issued by the Income Tax Officer, demanding the petitioner to pay a sum of Rs. 9.63 crores as per Section 177(3) of the Act. The dispute in this case is connected to the assessment year 2009-2010. The petitioner was a trust registered with SEBI as a mutual fund. The income of the petitioner was exempt from income tax as per Section 10 (23D). A trust was constituted on 20th May, 2008, by the name of “India Corporate Loan Securitisation Trust, 2008” by IL and FS Trust Company Ltd. The purpose of setting up the trust was to securitise a loan amounting to Rs. 300 crore that was granted by a bank named “Yes Bank.” The petitioner was one of the beneficiaries of the trust. The advocate arguing for the petitioner stated that the action of the tax authority was unreasonable as the income of the petitioner was excluded from the operation of the Act as a result of the provisions of Section 10 (23D).
The Court observed that the proposition of the petitioner was that an assessment could have just been made in regard to the petitioner as the transferor of a revocable trust, in which case the income would be excluded as per Section 10 (23D). Whether the statement should be accepted is an issue that would have to be resolved during the appellate proceedings ensuing from the order of assessment.
The position before the Court was that no assessment was made against the petitioner by the Assessing Officer. Although a communication was sent on 29th February 2012 and was received by the petitioner on 12th March, 2012, the petitioner was told to pay an amount of Rs 9.63 crore. This was because the petitioner was a member of the trust and was jointly and individually liable for the demand against the trust. The Assessing Officer invoked the provisions of Section 177(3) and demanded that the petitioner pay the above mentioned amount as its share of the demand for investment made by the petitioner. When legal remedies are available to an assessee to challenge a demand, there is no need to resort to coercive measures.
The assessee in this case had an issue regarding the legitimacy of the demand, which was made on 29th February, 2012. The applicability of Section 177(3) in this matter was also contended. The Court directed the Revenue Authority not to take any coercive measures against the assessee. The Court further ordered that no steps should be taken to enforce the notice issued by the Assessing Officer on 12th March, 2012, under Section 226(3).
Bharat Bhushan Sahi, New Delhi vs. Department of Income Tax (2015)
In Bharat Bhushan Sahi, New Delhi vs. Department of Income Tax (2015), an appeal was filed to set aside the order passed by the Commissioner of Income Tax (CIT), as his income from the sale and purchase of mutual funds was treated as short term capital gain instead of business income as treated by the Assessing Officer. When an assessment of the income tax return declaring total income of Rs. 89,08,663/- was filed by the assessee, the case was subjected to inquiry, and notices were served to the assessee. The assessee showed that his income was from “capital gains” and “income from other sources.” The assessee showed a short-term capital gain of Rs. 89,80,665/- and also paid tax on it at the rate of 10%.
The assessee was also asked to provide details of dubious transactions, names of brokers, copies of accounts, etc. The assessee, upon asking, provided that the income from mutual funds/shares was made through Portfolio Management Services (PMS) from ICICI Prudential and Deutsche Bank and sale/purchase of mutual funds directly. The issue to be decided was “as to whether the sale transaction of Rs. 89,08,663/- carried out by the appellant amounts to short term capital gain or is a business income as treated by the Assessing Officer (A.O.)”
The whole investment in the sale and purchase of mutual funds/shares had been made by the assessee through Portfolio Management Services. However, mutual funds are exempt from Income Tax as per Section 10 (23D) of the Act. The officer went to make the addition of Rs. 89,80,663/- as business income for three reasons: the amount of transactions, volume and frequency were too high; exemption under Section 10 (23D) is not applicable when the transactions are made through PMS. Further, the assessee was unable to provide details of capital market transactions despite being asked to do so.
The Court noted, undoubtedly, that the investment in the sale and purchase of mutual funds/share of the amount of Rs. 48,11,715/- for 2006–07 was accepted by the tax authorities as a short-term capital gain. The Court further said that it was unimaginable why similar investments through PMS in 2007–08 under consideration had turned into business income. As the assessee was an NRI, he was not allowed to do business in India other than with the authorisation of the RBI, which was not taken. The decision of the Commissioner of Income Tax (CIT) to regard the income of the assessee as short term capital gain and not as business income was correct. Therefore, the Tribunal observed that there was no reason to interfere with the impugned order and dismissed the appeal of the tax authority.
Mutual fund
Mutual funds are a popular mode of investment. The main parties involved in the functioning of a mutual fund are the fund sponsor, the trustee of the mutual fund, the Asset Management Company (AMC), the mutual fund promoter company, and the fund managers. These funds are a type of investment fund where funds are collected from several investors. It is further invested in equities, bonds, government securities, gold and other assets by the mutual fund companies.
Companies that are authorised to establish mutual funds create Asset Management Companies (AMC), which collect money from investors, market mutual funds, supervise investments and oversee investor transactions. These funds are managed by financial experts called fund managers, who have knowledge and experience in managing investments. The funds are collected from investors in mutual funds and invested in a diverse array of financial assets like stocks, bonds and other assets.
In return for managing the funds, the AMC, or mutual fund company, charges a fee from the investor known as the expense ratio. Though the fee is variable, SEBI has fixed the limit for the expense ratio based on the total assets of the fund.
Mutual funds are a portfolio of investments funded by all the investors who have bought shares in the fund. When an investor purchases shares in a mutual fund, they acquire partial ownership of all the underlying assets the fund has ownership of. A fund manager supervises the portfolio, determining how to distribute money across different sectors, industries and companies based on the scheme of the fund.
The tax rate of capital gains in the case of mutual funds is decided based on the holding period and the kind of mutual fund.
According to Section 10 (23D), income from notified mutual funds is exempt from income tax. However, Section 194K says that when income is paid to a resident arising from units of a mutual fund, the person in charge of making the payment will deduct TDS from such income at the rate of 10% if the income in a financial year is above Rs. 5000/-.
Types of Income from Mutual Funds
Dividend Income: The present income tax law taxes the dividends paid on behalf of investors by asset management companies. Under the present tax law, mutual funds must deduct TDS while issuing dividends to unit holders.
Capital Gains: Under the present laws, capital gains are taxable in the hands of the taxpayer. If long-term capital gains from equity-orientated mutual funds exceed Rs. 1 lakh in a year, the profits are taxable at a rate of 10%. Short-term capital gains on equity-orientated mutual funds that are subject to STT are taxable at a rate of 15%. Although a mutual fund is not required to pay TDS on capital gains deriving from unitholder redemption.
Unit Trust of India
The Unit Trust of India (further referred to as “UTI”) was established in February 1964 by virtue of The Unit Trust of India Act, 1963. It is a public sector investment initiative that was formed with the aim of encouraging and mobilising the savings of Indian citizens and channeling them into productive modes of investment.
The Unit Trust is an investment scheme where funds are collected and then invested. The fund that is collected is then unitised, i.e., divided into units representing the total value of the fund, and the investor who is a party to the unit trust is termed a unitholder, holding a particular number of units. The UTI gives the investor a secure return on their investment when they need funds.
The main aim of the UTI is to provide both small and large investors with a means of investment. It gives investors an opportunity for people to reap the benefits of the rapid industrialisation of India.
The Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002, was framed for facilitating the transfer and conferring the undertaking of the Unit Trust of India to a company to be established for the purpose. Section 3 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002, provides that the initial capital of the trust provided by the Development Bank, Life Insurance Corporation, the State Bank of India, and other subsidiary banks was to be transferred to the Central Government.
As per Section 10(35) of the Act, income received in relation to units from the “administrator” of the “specified undertaking” or from the “specified company” is excluded from income tax. Although, as per Section 194K of the Act, the person responsible for distributing the income in relation to units from the “administrator” of the “specified undertaking” or a “specified company” will deduct TDS at the rate of 10% at the time of payment of such income. The words “administrator,” “specified undertaking,” and “specified company” have the same meaning as assigned to them under the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002.
Provision in relation to “Suspense Account”
Suspense accounts are accounts that are temporarily holding accounts for transactions that cannot be instantly classified. They maintain the correctness of the financial records while it is decided in which account the transaction fits. They are used for maintaining records of funds for a short period until particular issues are resolved.
All the transactions maintained in this account are “suspense” for the accountant. Therefore, accountants are required to gather more information regarding the character of these transactions to move them into their right accounts. It must be kept in mind that all transactions are temporarily recorded in this account. These transactions must be entered into their proper accounts as soon as their accuracy is determined.
Suspense accounts generally help in keeping account books organised. They make sure that all transactions are accounted for accurately in the books. If uncertain or uncategorised transactions are recorded, incorrect balances might be recorded in the account.
The explanation to Section 194K states that “Where any income as aforesaid is credited to any account, whether called a suspense account or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee, and the provisions of this section shall accordingly.” This means that the stipulations of this section will also apply in the case of a suspense account. If income from any of the sources mentioned in Section 194K is credited in a suspense account or any account of such nature and it is above Rs. 5000/-, the person responsible for making the payment shall deduct 10% TDS while crediting such amount.
Conclusion
Taxes are a compulsory contribution made by residents and institutions of the country to the government. The government uses the money from this contribution for building public infrastructure and for taking welfare measures for the benefit of the citizens. In line with this, the government also levies taxes on the income of an individual, which is called “income tax.” Income tax is regulated by law and the taxation policy of the government, and in the case of India, it is governed by the Income Tax Act, 1961.
Investment funds, like mutual funds, provide investment opportunities for both small and large investors. A crucial advantage of mutual funds is their liquidity, i.e., the investor can redeem the units at any stage. Mutual funds are managed by fund managers, who are financial experts and invest wisely in different securities. With these advantages, mutual funds have risen in popularity as a mode of investment.
Section 10 (23D) of the Income Tax Act, 1961, says that income from notified mutual funds is excluded from the purview of income tax. But Section 194K lays down that when income is paid to a resident arising from units of a mutual fund, the person responsible for making the payment shall deduct TDS from such income at the rate of 10% if such income in a financial year is above Rs. 5000/-. Similarly, Section 10 (35) of the Act sets out that income received arising out of units from administrators of the specified undertaking or from a specified company is exempt from income tax. Section 194K says that, like mutual funds, income from units from administrators of the specified undertaking or a specific company will be subject to a 10% deduction of TDS at the time of payment.
Frequently Asked Questions
What is Tax Deducted at Source (TDS)?
Tax deducted at source (TDS) is tax collected by the government at the source of income. It is collected at the source where an individual’s income is generated. It is applied to salaries, commissions, interests, etc.
What is the Dividend Distribution Tax (DDT)?
Dividend Distribution Tax is a tax paid in respect of the total income of every company that pays dividends to its shareholders in a financial year. By virtue of Budget 2020, the Finance Minister abrogated the dividend distribution tax.
What is an “Asset Management Company” (AMC)?
An Asset Management Company (AMC) is a company that collects funds from investors and invests them in various investment channels such as equities, debt, gold, etc. One of the biggest advantages of AMC’s is that, since they have a larger pool of resources, they provide investors with more diversification and investing options.
What is Income Tax Return (ITR)?
Income Tax Return (ITR) is a form in which the taxpayer provides information regarding their income and tax payments to the Income Tax Department. If a person liable to pay Income Tax Returns fails to file their returns within the specified time, they shall have to pay a penalty upto Rs.10,000/- as per Section 234F of the Income Tax Act, 1961.
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This article was written by Suryanshi Bothra. This article discusses in detail the purpose, importance and benefits of Form 10F under Income Tax. The details required in filing Form 10F and the procedure for filing the form are clarified as well. The article also discusses the Tax Residency Certificate and Digital Signature Certificate required when claiming Double Tax Avoidance Agreement benefits.
Table of Contents
Introduction
Increasing globalisation and expansion of global trade has led to the creation of a complex system of international taxation. Non-resident taxpayers often have to face the challenges that come with avoiding double taxation on their incomes. Governments have entered into agreements that can help taxpayers, known as Double Tax Avoidance Agreements.
It helps the taxpayer from being taxed under the jurisdiction of both countries. To avail of the benefits of this agreement, compliance with all the specific regulations is essential. In India, one of the important requirements for availing of such benefits is filing Form 10F.
What is Form 10F of Income Tax, 1961
Form 10F is a self-declaration tax form for taxpayers who are individuals or entities whose primary source of income is not from India. It is used by them to claim benefits under the Double Taxation Avoidance Agreement (hereinafter referred to as ‘DTAA’) when their Tax Residency Certificate (hereinafter referred to as ‘TRC’) lacks some important details. According to the Central Board of Direct Taxes (hereinafter referred to as ‘CBDT’), through Form 10F, there is no need to have a Permanent Account Number to e-file on the income tax portal.
In July 2022 in a Notification by the Directorate of Income Tax, electronic submission of Form 10F was mandated for taxpayers. In the subsequent notices, the CBDT introduced partial relaxations on the submission of Form 10F. Anyone who wasn’t required to have a PAN under the Income Tax Act, 1961 and Income Tax Rules, 1962, was provided relaxations in filing Form 10F.
These relaxations were only applicable for electronic submission and manual filing of Form 10F remained mandatory. With the introduction of e-filing of Form 10F on the income tax portal, the CBDT streamlined the process for all non-residents, including those who didn’t possess a PAN. The form can now be filled out by simply creating an account.
A Tax Residency Certificate is a document issued by the non-resident taxpayer’s home country that confirms the tax status of the resident. Form 10F supplements the information in the Tax Residency Certificate. TRCs don’t usually have a standard format. However, while looking at claims against the benefits of DTAA, a few things that are looked at are:
Status of the assessee, whether they are an individual, a company or a form.
Nationality of the individual, country or territory of incorporation of companies or registration for others.
Tax Identification Number (TIN) or Unique Identification Number (UID) in the country of residence.
The period in which the residential status mentioned in TRC is applicable.
Address of the taxpayer in the country during the period of TRC.
Section 90 and Section 90A of the Income Tax Act discuss provisions allowing taxpayers to claim relief from double taxation in cases where the incomes are taxed in two countries. It is applicable for both residents and non-residents. India has a huge network of tax treaties; it prevents tax evasion and, by avoiding double taxation, facilitates business. Dividends, interests, salary income and royalty payments are a few examples of savings in taxes through DTAA.
Documents required for filing Form 10F
The documents required usually are:
The status of the non-resident taxpayer,
Nationality or country of incorporation,
Tax identification number of home country,
Period for the applicability of TRC,
Address in the home country,
PAN Card,
Digital Signature Certificate,
Proof of nationality.
Is it mandatory to file Form 10F online and is PAN card a requirement
Filling out Form 10F is only required when the below-mentioned details are missing from TRC. However, it is advisable for all taxpayers seeking relief under DTAA to seek and fill out Form 10F. The requirement for a PAN card depends on various factors. The following non-residents are required to obtain a PAN:
Non-residents whose total income exceeds the exception limit, which is not chargeable to income tax.
Non-residents carrying out business or professions that have turnovers, total sales, or gross receipts exceeding five lakh in any previous years.
There are some specific exemptions for non-residents. It provides exemptions to non-residents who have invested in specific funds. To avail of these exceptions, the following criteria need to be fulfilled:
The only source of income from India is from investments in the specified fund in the previous year.
When a non-resident makes an investment in the specified fund, the fund must deduct tax from the income before paying it. The Indian government receives this deducted tax and the rates of tax deduction are defined in Section 194LBB of the Income Tax Act.
The non-resident furnishes the following details to the fund.
Name, email and contact number.
Address in India or specified territory outside India.
Declaration of residency, which proves that he/she is a resident of a country or specifies territory outside India.
Tax Identification Number or Unique Identification Number.
Also, non-residents don’t need a PAN if they are foreign investors making capital asset transactions as described under Section 47(viiab) of the Income Tax Act listed in an International Financial Services Centre (IFSC) or Recognised Stock Exchange (RSE).
Requirement of Digital Signature Certificate
A Digital Signature Certificate (hereinafter referred to as ‘DSC’) is required to digitally sign Form 10F using a DSC. A Digital Signature Certificate is an electronic form of the physical signature. It helps the authorities to authenticate and verify the identity of the person signing the document.
These have to be issued by certifying authorities within India. It ensures the integrity and authenticity of digital documents. It normally includes the name, email address, country, public key and the validity period of the certificate. For filing Form 10F, DSC is a secure and legally binding way of submitting it online.
It is mandatory for taxpayers to sign the form with a DSC as it provides a higher level of security and reduces the risk of forgery. It becomes even more important for those without a PAN card. It eliminates the need for physical signatures and eliminates postal delays.
E-filing of Form 10F of Income Tax, 1961
1st Step: On the official e-filling portal of Income Tax, log in with your PAN and user ID. If you don’t have an account, register.
2nd Step: Select the e-file option available on the dashboard.
3rd Step: From the e-file drop-down option, select “Income Tax Forms.” Choose “File Income Tax Forms.”
4th Step: On the next page, 3 options will be displayed. First, “Persons with Business” or “Professional Income,” second, “Persons without Business/Professional Income,” and third, “Persons not dependent on any Source of Income” (Source of Income not relevant). Out of these, choose the third option.
5th Step: On the same page in the 3rd column, you will find the option to e-file Form 10F. Click on File Now.
6th Step: There will be a dropdown menu to select the assessment year for which you want to obtain tax relief.
7th Step: Have your TRC form ready, as it will be helpful in filling out Form 10F. Click on the “let’s get started tab”. Please read the instructions carefully.
8th Step: Type the details of the authorised signatory for individual entities. Select Section 90 or Section 90A from the dropdown.
9th Step: On the next page, PAN and status will be pre-filled; update the nature of the information section.
10th Step: In the third point, from the dropdown, select the country or territory of incorporation or registration.
11th Step: In the next step, enter the Tax Identification Number or a Unique Number that helps the government identify the taxpayer.
12th Step: Select the period and fill in the address of the country or territory outside India.
13th Step: Fill in the address of the government from whom the TRC is obtained.
14th Step: Lastly, provide verification and attach the TRC. Please ensure that the size of each attachment should not exceed 5 MB. All the attachments together cannot exceed 50 MB and should only be in zip and pdf.
Consequences of not filing Form 10F
Form 10F is crucial to avail the benefits under the Double Taxation Avoidance Agreement. The following could be some of the consequences of not filing a Form 10F.
The taxpayer would not be able to claim benefits under DTAA, which can help lower the rates of tax deducted at source (TDS) on certain incomes. If this form is not filled out, then the payer is obligated to deduct TDS at the standard rate and, in some cases, even higher under the Indian tax laws. This can be a steep increase from the DTAA rates.
Without filing this form, the taxpayer would be subject to full taxation, which if filed would not be the case. They would be taxed even on the incomes that are exempt from taxation or are taxed at a reduced rate as per the DTAA.
If a taxpayer claims reduced taxes without filing Form 10F, the Income Tax Department could treat that taxpayer as an ‘assessee in default’. Additional penalties and liabilities will have to be paid by the taxpayer in this case.
To facilitate remittance, it is essential for all non-resident taxpayers to comply with documentation requirements. Banks and financial institutions demand proper documentation to process remittances. Not filing essential documents such as Form 10F could make the process of transferring funds from India to the resident’s home country harder.
The income tax department has the authority to issue notices or initiate proceedings of non-compliance against taxpayers. It could affect the taxpayer’s ability to obtain a tax clearance certificate, which becomes essential in some financial and legal transactions.
The tax department can also impose interest under Section 234B and Section 234C of the Income Tax Act. Section 234B deals with the default of an advance tax instalment and comes with an interest rate of 1% monthly or part of a month on the outstanding amount of advance tax. Section 234C of the Act specifically applies in cases of failure to pay tax liabilities after being assessed by the Income Tax Department. Underpayment or delayed payment of taxes can lead to the application of the sections. Additionally, the department may also levy penalties under Section 271C and Section 276B. These sections include provisions for prosecution in cases of failure to pay taxes. It could be used to penalise the failure to deduct the correct TDS amount.
Non-filing of Form 10F can lead to non-residents paying higher tax rates on income from investments. Some investments are exempt from taxation under DTAA; without filing Form 10F they won’t be able to avail of these exemptions. It can have the impact of deterring future investments in India, which can affect the overall business strategy.
Benefits of filing Form 10F of Income Tax, 1961
Availing the benefits of DTAA is possible only by obtaining a TRC and then filing Form 10F providing the remaining information. The following are some of the most important benefits of filing Form 10F:
Filling out Form 10F allows non-residents to benefit from lower tax deducted at source rate on incomes from various sources such as interest, dividends and royalties. As per the Double Taxation Avoidance Agreement, TDS rates on the above-specified incomes are reduced compared to the standard applicable rates under the Income Tax law. It becomes possible to claim these benefits, thus avoiding higher taxes. These benefits are particularly important to foreign investors because they increase their net income from India.
Filing Form 10F is essential as per Indian tax law and non-compliance can lead to denial of benefits from DTAA. It safeguards the taxpayers from future assessments and penalties.
Accurately filing Form 10F can provide the tax authorities with all the necessary information, ensuring that they can process the returns quickly and issue refunds quickly if it is applicable. It prevents unnecessary delays and ensures that there are minimal disruptions to financial planning.
Conclusion
Form 10F is essential to avail full benefits under the Double Taxation Avoidance Agreement. It helps furnish all the information missing in the TRC. It helps non-residents optimize their tax obligations. Staying informed about the process of availing of these benefits and compliance with all regulations can help in efficient tax planning and financial management. E-filing of Form 10F has made it more convenient and accessible.
Frequently Asked Questions (FAQs)
Is it mandatory to file Form 10F online?
It is mandatory to file Form 10F electronically for non-residents with or without a PAN in India. This requires the use of other necessary documents and DSC. It has streamlined the process and made it faster.
What is the difference between Form 10F and TRC?
TRC serves as conclusive proof of residency, while Form 10F provides supplementary information specified as per DTAA. It is a self-declared document submitted by a non-resident and TRC is issued by the tax authorities of the country. TRC validates the claim under DTAA. Form 10F can be filed electronically.
What is Form 10F used for?
Form 10F is a self-declaration form used with TRC to claim the benefits under DTAA. It provides additional details required by Indian tax authorities.
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.
LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:
This article has been edited and published by Shashwat Kaushik.
Table of Contents
Introduction
Indian Penal Code 1860 was established during British Rule. And after India’s independence, it was adopted as the fundamentals of the legal system. It is the Indian Penal Code that frames the punishment for the crime committed. So it can be called the ‘mother’ of all laws.
Originally it consisted of 23 chapters and 511 sections, but with the latest Bhartiya Nyaya Sanhita 2023(BNS) it is now reduced to 358 sections and came into force on 1st July 2024.
What is waging war against the state?
An act of violence that disrupts the peace and sanctity of a country is known as treason. It encompasses a range of behaviours that demonstrate disloyalty to one’s country. Treason can manifest in various forms, including secession, insurrection, subversive activities, separatism, and actions that jeopardise a country’s sovereignty.
Secession involves the withdrawal of a region or a group of individuals from a country to establish an independent political entity. It is a blatant act of defiance against the existing political structure and challenges the authority of the central government. Secessionist movements often arise due to ethnic, religious, or cultural differences, or a desire for greater autonomy.
Insurrection, on the other hand, is an armed rebellion or uprising against the established government. It involves the use of force or violence to overthrow the existing political order and replace it with a new one. Insurrections are often motivated by political grievances, dissatisfaction with the government’s policies, or a perceived lack of representation.
Subversive activities, another form of treason, involve covert actions aimed at undermining the authority and stability of the government. These activities can range from propaganda and disinformation campaigns to acts of sabotage and espionage. Subversive elements often operate in secret, seeking to destabilise the government from within.
Separatism is the advocacy or pursuit of separation from a larger political entity. Separatist movements strive to create an independent state or autonomous region based on ethnic, religious, or linguistic differences. Separatism can lead to violent conflicts, as it challenges the territorial integrity and unity of the country.
Finally, jeopardizing a country’s sovereignty involves any action that threatens the independence, territorial integrity, or political autonomy of a nation. This can include foreign intervention, military occupation, or the imposition of unfair treaties that undermine a country’s sovereignty. Acts that compromise national security, such as providing sensitive information to foreign powers, can also be considered treasonous.
Treason is a grave offense that strikes at the heart of a country’s stability and security. It undermines the rule of law, weakens the authority of the government, and can lead to civil unrest and violence. Countries often have strict laws in place to deter and punish acts of treason, as it is seen as a betrayal of the highest order.
Secession involves formally becoming separate from a larger political body or an organisation. It is declaring themselves as an independent party. This goal can be achieved by any means of peace or violence.
Insurrection is showing anger towards the government through protest or procession through large-scale violence.
Subversive activities are any violent activity done just to create fear and instability.
Separatism is when people divide on the basis of religion, culture, race, and sex. There could be a fear of purposefully cleansing such groups or controlling their right to live in any form, like depriving them of their fundamental right, their right to live with dignity, etc., which could take the form of a revolt.
Jeopardising a country’s sovereignty is putting the country to threat by any means that makes a country’s foundation weak. For example, helping separatists, ignoring international treaties, putting restrictions on trading, breaching protocol, etc.
The case of State(N.C.T of Delhi) v. Navjot Sandhu @Afsan Guru. Four people Mohd. Afzal, Shaukat Hussain Guru, S.A.R. Gilani, and Navjot Sandhu (Afsan Guru)—were accused in the Parliament attack on 13/12/2001. They were heavily armed with automatic rifles, pistols, hand grenades, and electronic detonators. It lasted for approximately 30 minutes, causing 9 deaths and leaving 16 injured. Navjot Sandhu was accused of concealing evidence related to the conspiracy to wage war against the Indian government under Section 123 of the IPC which is now Section 150 of Bhartiya Nyaya Sanhita 2023 (BNS) and was sentenced to 5 years imprisonment.
Limitations
Waging war against the state is not just limited to the internal chaos and nuisance created within the country by any antisocial elements. Any foreign entity or group trying to disrupt the peace of the country by infiltration, bombing, sending arms and armaments or through any digital means like cyber terrorism. In a recent case India banned TikTok which is a Chinese company concerning it might access sensitive user data through the short -form video app. Same was done with PUBG. The Indian Government blocked 581 applications and 174 betting and Gambling apps for security reasons.
Some of the major cases that were turning points in Indian history are-
Let’s go back to the Khalistan movement demanding a separate homeland for the Sikhs. During the 1970’s, it gained momentum, causing bombardments, kidnappings, and several deaths, including bombing Air India flight 182, causing 329 deaths. And in 1984, under Operation Blue Star several militants hidden in the Golden Temple were killed by the Indian Army. In reaction to which Indira Gandhi was murdered by his Sikh bodyguard. Due to the government taking various measures, the Khalistan movement weakened. Lately, it again gained momentum. A big group of Sikhs living in Canada are protesting and trying to influence Sikhs within India. But the majority of the Sikhs who love India are condemning it.
The other two important cases were of the 13/12/2001 Indian Parliament attack and the 26/11/2008 Mumbai terror attack. It not only affected Delhi, Mumbai, or India, but it was criticised world wide. Various amendments and enactments were done. The parliament also passed two bills—one to set up the National Investigation Agency, which had special powers and another to amend laws so that it could provide more stringent actions against such activities. The Indian Army responded to such terrorist organisations from time to time with Uri surgical strikes and Balakot airstrikes.
Suggestions
India, with its 140 billion population and its extensive geographical entity ranging from the Himalayas in the north, the Indian Ocean in the south, the Arabian Sea in the southwest and the Bay of Bengal in the southeast. And connecting with nine neighbouring countries—Afghanistan, Bangladesh, Bhutan, China, the Maldives, Myanmar, Nepal, Pakistan, and Sri Lanka. India’s vast land borders, diverse terrains, namely deserts, fertile lands, swampy marshes, snow-covered and tropical evergreen forests, and geographical complexities play a big factor in keeping the security of the country.
Some of the major problems our country is facing are as follows:.
Cross-Border Terrorism: It stands out as one of the major reasons for disagreement between neighbouring countries. There is always the possibility of ceasefire violations, bombing. For which the government has built strong surveillance technology.
Infiltration: Political instability and crises within a country like Pakistan also lead to an upsurge in cross-border infiltration. Frequent intrusion is a threat to the nation. Illegal immigrants, smuggling, and selling of arms, armaments, and drugs have become regular practices. For which the government has constructed physical barriers like walls and fencing so that there is no unauthorised crossing across the border. And proper barricades at checkpoints with a proper Vigilance team and equipment. A recent incident happened in Reasi District of Jammu & Kashmir where a bus of pilgrims was attacked by a terrorist group.
Cyber terrorism: Launching of several online apps, games, and malicious links, which in any way can cause a threat to the country. For which the government has invested in developing cyber-forensic capabilities. The Ministry of Home Affairs has launched I4C to provide guidelines for combating cybercrime.
It can only be achieved through strong laws and machinery to promote peace and security. Some measures, not on a national level, but on a community level and within the territory and its people, can bring a big change in this reform. Economic developments can reduce the involvement of people in illegal activities. By addressing grievances and promoting social inclusion, radicalisation can be prevented. Educating communities about nonviolent alternatives and conflict resolution. The recent incident of protest about CAA, NPR, and NRC, where a certain community got outraged with it’s coming into force. There was a need for educating its advantages and disadvantages by the government rather than a few political and religious parties misinforming people, which resulted in protests like such.
Conclusion
Time-to-time steps have been taken to strengthen the laws through enactments and amendments so that an atmosphere of peace and order prevails in the country. To curb and put control over immoral and dishonest behaviour of an individual or a society, a strong legal framework is needed and IPC now Bhartiya Nyaya Sanhita 2023 (BNS) provides such a base. The regulation in laws is very much needed so that the culprit does not walk freely because of any loopholes.
Boilerplate clauses, often ignored parts, hiding within the legal maze of any contract, are those monotonous, nondescript general clauses that can be seen in the fine print of terms and conditions you hastily agree to, oblivious to the potential convolutions they may set you on a course for. Guilty as we are of dismissing these as mere jargon, boilerplate clauses, my dear unassuming reader, are far more significant aspects of contract formulations than you may fathom. These clauses lay the solidly nondiscriminatory groundwork for all modern contractual frameworks, and each party is bound by the legal standards set by these clauses. So, let this serve as an introduction to the world of boilerplate clauses—the often overlooked part of contracts.
What is a boilerplate clause
Before starting the explanation of the boilerplate clause, let’s see an example of what it is first.
Imagine you are signing up for a new social media app. We have to agree to terms and conditions before we can create an account. Well, those terms and conditions contain a lot of standard rules (clauses) and statements that can apply to any app or anyone using that app. These are boilerplate clauses. Boilerplate clauses, colloquially referred to as fine-print terms, constitute core principles of mainstream modern contract preparations.
Boilerplate clauses, often referred to as “standard” or “form” clauses, play a crucial role in commercial contracts. These clauses are not directly related to the primary commercial objectives of the contract but are of paramount importance due to their long-term legal implications. They serve as the backbone of many contracts, providing a foundation for the rights, responsibilities, and obligations of the parties involved.
The term “boilerplate” is derived from its similarity to steel plates used in constructing steam boilers. Just like steel plates, boilerplate clauses are reliable and generally remain consistent across different contracts. They are designed to address common legal issues that arise in a particular type of contract, ensuring that essential matters are addressed without the need for extensive negotiation each time a new contract is drafted.
While boilerplate clauses offer convenience and efficiency, it is crucial for parties to carefully review and understand them before signing a contract. These clauses can have significant legal ramifications, and it is essential to ensure that they align with the specific needs and objectives of the parties involved. Failure to do so could lead to unintended consequences and potential disputes down the road.
Boilerplate clauses usually include:
Force majeure
This clause essentially frees both parties from liability when an event beyond the control of either party prevents one or both from fulfilling the contract.
In legal agreements, a force majeure clause is a type of boilerplate clause, like a safety net for when things go unexpectedly wrong. For example, there is a planning of a big outdoor concert. The host has booked the band, set up the stage, and sold tickets. But then, a huge hurricane hits the city on the concert day. No one can control the weather. The force majeure clause kicks in here. It says that if something major and unexpected—like a natural disaster, war, or other “acts of God”—happens, and it makes it impossible to fulfil the agreement, then the parties involved aren’t held responsible for not being able to perform their duties.
In simpler terms, it’s like an official “get out of jail free” card for those uncontrollable events that stop everyone in their tracks. This clause ensures that if the unforeseen happens, the parties can pause or cancel their obligations without facing penalties. It’s an essential part of any robust contract because it acknowledges that, sometimes, nature throws curveballs that no one can predict or dodge.
Severability
This clause typically says if one term of the contract becomes legally unenforceable, the rest of the contract will nonetheless remain in force. In the world of contracts, a severability clause is a type of boilerplate clause that acts like a safety feature. It is like a big, gourmet meal, which includes many things to eat. Each thing represents a different part of the contract. So, if one thing has something wrong with it—maybe it’s made with an ingredient that’s not allowed—instead of throwing the whole meal away, one has to just remove the bad thing and keep enjoying the rest.
A severability clause works the same way. It says that if one part (or “provision”) of the contract is found to be invalid or unenforceable for some reason, that part can be removed or fixed without affecting the rest of the agreement. The remaining parts of the contract stay intact and continue to be effective.
This clause is crucial because it ensures that one mistake or issue doesn’t ruin the entire agreement. It maintains the stability and enforceability of the contract, even if some parts need to be adjusted or eliminated. Think of it as a built-in resilience feature that helps contracts survive and stay useful, even when they encounter bumps in the road.
A severability clause allows unenforceable terms to be removed from a contract without affecting the validity of the remaining terms. However, it’s necessary to draw from the case of World Programming Ltd vs. SAS Institute Inc. (2010), which highlighted that severability only applies if what is left of the agreement is intelligible, sensible, and effective.
Entire agreement
This clause states that the contract represents the complete agreement of the parties and that no previous oral or written agreement can change that agreement or its terms. The Entire Agreement Clause (also known as a merger clause) ensures parties understand that the written contract is the final, complete expression of their agreement, meaning an oral agreement will not override the written contract.
Alright, so imagine you’re reading through a contract, and you come across something called the “entire agreement” clause. Basically, this clause is like a big stamp that says, “Hey, everything we agreed on is right here in this document—nothing else counts.”
For example, when someone makes a deal with someone and then writes down all the details so everyone knows what’s what. The entire agreement clause makes sure that only what’s written in the contract matters. So, if there were any promises or talks before the contract that aren’t written down, they don’t count unless they’re added to the contract later.
This clause is important because it keeps things clear and avoids confusion. It means he/she can’t argue about things that were said but not written down. It’s like having a rulebook that everyone agrees to follow so there are no surprises later on.
Confidentiality clause
For example, someone is developing a unique new product, like a revolutionary app. A confidentiality clause in his contract is like a formal agreement that ensures any sensitive information shared—like the app’s unique features or marketing strategy—remains strictly confidential.
This clause is necessary for protecting intellectual property and business secrets. It says that parties involved must keep confidential information private and not disclose it to anyone else without permission. Whether it’s trade secrets, customer data, or proprietary technology, this clause is a protection against unauthorised disclosure.
The inclusion of confidentiality clauses establishes trust and legal protection, meaning that anyone’s unique ideas and competitive advantages are secure. It’s a main part of contracts that helps maintain confidentiality and fosters a secure environment for collaboration and innovation.
Importance of boilerplate clause
Efficiency
Boilerplate clauses save time as the parties do not need to negotiate on essentials in every new contract. In simple terms, it is like instead of writing every single rule every time you draft a new contract, we use a set of standard rules that cover common situations. This way you don’t have to think of and write down all these rules each time. It would reduce the time wasted as well as reduce the chances of making errors in important statements.
Providing certainty
They provide certainty to businesses in their dealings with other parties.
These clauses tell us what we could expect from each other as parties to the contract. Both parties can dodge the future fight between parties. This is like having a rulebook that both needs to understand and accept.
Uniformity
They bring about a sense of uniformity as similar provisions are included in all agreements. The uniformity provided by boilerplate clauses is one of their key benefits. This refers to the consistency they bring to transactions by establishing the same provisions across multiple agreements (Shavell, 2006). By including the same terms and conditions in all agreements, these clauses provide uniformity and fairness, ensuring that all parties are on the same legal footing.
Further, boilerplate clauses allow for uniform interpretation of contract terms, which promotes efficiency and reduces the possibility of contentious litigation. In AT&T Mobility LLC vs. Concepcion, (2011), the Supreme Court emphasised the importance of uniformity in arbitration agreements provided by boilerplate clauses, holding that such uniformity enhances predictability and performance of contracts.
AT&T Mobility LLC vs. Concepcion, (2011): This case highlights the importance of uniformity provided by boilerplate clauses in arbitration agreements.
Risk management
They help in risk management by clearly setting out the responsibilities of each party.
Risk management is an obligatory component of contracts that clearly spells out the responsibilities of each party to ensure that both parties are protected from unpredictable risks. According to Wolaver (2002), boilerplate clauses are one of the critical devices for managing and distributing risks in contractual relationships. Their potency lies in their ability to set out the duties, rights, and expectations of each party to a deal.
Reducing uncertainties
They can reduce uncertainties since they clearly mention the rights and duties of the parties involved.
The boilerplate clause reduces uncertainties in business transactions by deeply detailing the framework under which the contract operates, hence able to enable smoother transactions. Careful stipulation of the rights and obligations of the parties helps each party understand their role, obligations, and expectations within the contract.
In most of the cases, a boilerplate clause was vital in spelling out the parameters of an agreement between the parties. This cleared all the uncertainties about aspects such as warranties, limitations of liability, and dispute resolution methods. The court favours the right of the seller to specify the terms of the contract since these were well stipulated in the given boilerplate clauses.
Conflict resolution
They can settle procedures for the resolution of disputes, therefore eliminating the need for expensive litigation. The existence of conflict resolution clauses in boilerplate contracts, therefore, greatly affects the settlement of disputes, hence eliminating the need and cost for litigation. Their absence may result in the contract ending in court with huge costs for both parties.
Providing flexibility
They offer flexibility to parties, allowing them to make additions or alterations according to their business needs.
Cost effective
They are cost-effective as parties do not have to hire legal professionals to draft every clause in every contract.
Protection of interest
They provide protection to parties’ interests under the contract. “Protection of Interest” is a term often found in these clauses. This typically ensures that each party’s interests are protected under the contract. It structures obligations in a way that allows each party to enforce their rights under the contract and provides for legal recourse in the event those rights are infringed. It provides parties with the sense of security necessary to engage in business transactions.
Global recognition
Boilerplate clauses, often found in international contracts, have gained global recognition for enhancing the efficiency of international transactions. These clauses serve as standardised provisions that bridge the gap between diverse legal systems, promoting consistency and predictability in international business dealings. Their widespread acceptance and enforceability across various jurisdictions have further contributed to their utility. Many courts have endorsed the implementation of boilerplate clauses in international contracts, acknowledging their significance in facilitating legal clarity and efficiency.
For instance, in a landmark international case, the court emphasised the role of boilerplate clauses in providing certainty and predictability for businesses operating in the global arena. The court recognised these clauses as standard terms that are universally understood and accepted, thereby eliminating potential ambiguities and disputes. This acknowledgement underscores the importance of boilerplate clauses in fostering legal clarity and minimising the risk of misunderstandings in international business transactions.
The use of boilerplate clauses not only enhances efficiency but also contributes to cost savings and timeliness in international transactions. By incorporating standardised provisions, parties can avoid the need for extensive negotiations and legal consultations, which can be time-consuming and costly. This streamlined approach enables businesses to focus on their core activities and objectives without getting entangled in complex legal matters.
Furthermore, boilerplate clauses promote legal certainty and predictability, which are essential for international business transactions. By establishing clear and uniform contractual terms, these clauses reduce the likelihood of disputes and legal challenges. This not only protects the rights and interests of all parties involved but also encourages foreign investment and economic cooperation.
In summary, the global recognition and endorsement of boilerplate clauses in international contracts have significantly contributed to the efficiency, cost-effectiveness, and legal certainty of international business transactions. These clauses bridge the gap between different legal systems, providing standardised provisions that are universally understood and accepted. As international trade continues to expand, boilerplate clauses will undoubtedly play a vital role in facilitating smooth and successful cross-border transactions.
Although various statutes and regulations do not explicitly cite boilerplate clauses, their inherent importance can be discerned from related legislation.
Why should we not overlook boilerplate clauses
Boilerplate provisions, also known as standard clauses or form contracts, are pre-written terms and conditions commonly found in various types of agreements. These clauses are often used to establish the basic framework of an agreement and to allocate risk and liabilities between the contracting parties.
One of the main benefits of boilerplate provisions is efficiency. By incorporating these standardised clauses, parties can save time and resources that would otherwise be spent on negotiating and drafting individual provisions for each agreement. Boilerplate clauses provide a consistent and predictable foundation for agreements, making it easier for parties to understand and interpret their rights and obligations.
Another advantage of boilerplate provisions is certainty. By relying on well-established and tested language, parties can reduce the risk of ambiguity and misinterpretation in their agreements. These clauses often address common legal issues and provide a framework for resolving disputes that may arise during the course of the contract.
However, it’s important to note that boilerplate provisions can also pose risks if not carefully reviewed and tailored to the specific circumstances of the agreement. A weak grasp or careless application of these clauses can lead to unintended consequences and potential legal liabilities.
One of the primary risks associated with boilerplate provisions is the potential for unfair or one-sided terms. Standard clauses often favor the party who drafted them, potentially leading to an imbalance of power and a disadvantage for the other party. It’s crucial for both parties to thoroughly review and understand the boilerplate provisions before signing an agreement to ensure that they align with their respective interests and objectives.
Another risk is the possibility of outdated or irrelevant provisions. Boilerplate clauses may not always be updated to reflect changes in the law or industry practices. Using outdated clauses can lead to legal complications and disputes. It’s important for parties to ensure that the boilerplate provisions in their agreements are current and relevant to the subject matter of the contract.
To mitigate these risks, it’s essential for parties to carefully review and negotiate boilerplate provisions before entering into an agreement. This includes seeking legal advice to understand the implications of these clauses and to ensure that they are tailored to the specific needs and circumstances of the transaction.
Overall, while boilerplate provisions can offer efficiency and certainty in agreements, it’s crucial for parties to approach them with caution and to exercise due diligence in reviewing and understanding their content. By doing so, parties can minimise the potential risks associated with these standardised clauses and ensure that their agreements are fair, balanced, and legally sound.
What we can learn from this case is that parties to a contract do not take boilerplate clauses casually but read the same in light of their respective position and legal exposure so as to avoid unnecessary dispute and litigation.
Boilerplate clauses—even if quite generic—it is important to give the correct thought and attention when drafting a contract since they can impact contractual obligations greatly, as well as disputes that may arise amongst parties that are bound by the same.
Avoid legal cases: Boilerplates help avoiding the legal issues that may creep up during the implementation of a contract. And this is done in the interest of both parties.
Traditional: They have been used for millennia and are based upon ancient practices in the legal community. Ignoring them could be a huge mistake.
Standardisation: Forward contracts are standardised, leading to ease of doing business.
Uniformity in transactional practice is achieved through boilerplate clauses because they offer a vocabulary that works similarly for many different types of transactions.
Evidence: Clarity of Rights and Liability increases the opportunity for a favourable adjudication or dispute resolution outcome because the evidence proves original intent over concluded terms agreed to by parties.
Aids to interpretation: The established usage and judicial interpretation of boilerplate clauses may be beneficial.
Conclusion
These clauses require standard language to ensure uniformity, legal consistency, and effectiveness of the contract. This way, using established or standard wording will allow both parties to clearly interpret and agree on the obligations and protections related to important information. Through this standardised approach, risks of misinterpretation or disputes are therefore minimised, aligning with principles of law while improving enforceability in the event of a breach. It also facilitates ease and speed in the drafting process, as the essential clauses must be covered by addressing all the necessary elements that avoid any ambiguity, too. Thus, standard words are at the core basis to establish trust and cover serious information in business contracts.
This article has been written by Saloni Bhatt. This article deals with Section 12 of the Trade Marks Act, 1999 which talks about honest and concurrent use of a Trade Mark. A detailed explanation of the Section has been provided with reference to relevant case laws and its essentials.
Table of Contents
Introduction
The fundamental components of brand identification are trade marks. Trade mark, as defined under Section 2(zb) of the Trade Marks Act, 1999, states that a trade mark is a mark capable of being represented graphically, which helps in distinguishing goods and services from those of others. It may include shapes, combinations of colours, alphabets, etc. The Trade Marks Act, 1999 (hereinafter referred to as the Act of 1999) serves as a legal framework for safeguarding the rights of trade mark owners as well as providing certain powers to them. The Act of 1999 outlines a series of sections that govern various aspects of a trade mark, including the process of registration, rights and ownership, authorization and licence, while at the same time setting up some limitations as well. By navigating through the Act of 1999, it helps us understand the rights and obligations of a trade mark owner. It also lays down the necessary sections relating to infringement and the rights of a trade mark owner.
During ancient times, traders and merchants used watermarks on paper or potter’s ceramic marks as trade marks in order to set their goods apart from those of their competitors. With the rise of the industrial revolution, wherein mass production was on the rise, counterfeiting and consumer confusion became common, which fueled the need for formal trade mark protection. During the 20th century, the trade mark gained industrial recognition with the establishment of the Paris Convention for Industrial Properties in 1883, which focused on standardised trade mark registration processes across member countries. As world economies diversified, the concept of trade mark was extended beyond the physical goods and also included services, slogans, symbols, etc. So that being said, trade marks have a long, enriching journey dating back to a period when there was no legal structure in place to protect the rights of trade mark owners.
Honest concurrent use of a trade mark
The concept of honest concurrent use is enshrined under Section 12 of the Act of 1999. Honest concurrent use acts as a legal doctrine under which two or more parties are able to use similar or identical trade marks for their goods and services, keeping in mind that certain conditions are met. The main objective of this section is to help the applicant of a trade mark prove that he has been using the said trade mark in good faith and that he did not have any previous knowledge of the earlier registered similar trade mark in respect of his goods and services.
It is important for the applicant to prove that he has been a bonafide user of the known trade mark. There have been certain landmark judicial pronouncements that help us give a broader view on the concept of Section 12 of the Act of 1999. As we already know, an already registered trade mark is a ground for refusal under Section 11 of the Act. However, Section 12 helps us prevent confusion among consumers as to the ownership of the goods and services. According to the Act of 1999, Section 12 states that in the case of honest concurrent use or of any other special circumstances, which in the opinion of the registrar fits the criteria, may permit the registration by more than one proprietor of the trade marks that are similar or identical in respect of the same or similar goods or services, subject to any limitations that the Registrar deems fit to impose.
Essentials of Section 12 of Trade Marks Act, 1999
Section 12 of the Act of 1999 talks about the concept of honest concurrent use of trade marks. It can be said that this provision provides an exception to the general rule that identical or similar trade marks cannot be registered for the similar goods or services. The exceptions are as follows:
Good faith use: For usage of Section 12, both the parties must prove that they have used the trademark in good faith without any intention to deceive;
Concurrent use: Under Section 12, both parties must be able to prove that they have been using the same trade mark for a long period of time that has not been in the knowledge of other’s use;
Confusion among consumers: While using the same trade marks, the parties need to make sure that there is no confusion among the consumers regarding their own goods and services;
Difference in the use of goods and services: Parties using the same trade mark should also make sure that there is a significant difference between their goods, which can help strengthen their stance to prove honest concurrent use of the said trade mark.
Special circumstances under Section 12 of the Act
Under Section 12, as honest concurrent use is already mentioned, the provision also provides what can be other special circumstances. It can be said that the term ‘other special circumstances’ provides the Registrar flexibility to permit certain registrations of identical or similar trade marks by one or more proprietors under specific circumstances. Some potential scenarios can be as follows:
Licensing agreements: In certain cases, where the licence has been granted by the proprietor for use of the said trade mark and there is a licensing agreement in place, the Registrar might exercise discretion.
Geographical limitation: When both parties operate in different geographical markets, the Registrar might consider a special circumstance. For example, McDonald’s is a globally recognized brand with trade marks registered in different countries; however, while the golden arches logo is widely associated with McDonald’s, it is possible that a local business in a country that does not have a strong presence of McDonald’s could use a similar logo without infringing on McDonald’s rights.
Distinct market segments: When the same trade mark has a different consumer base, it can be considered a special circumstance. For example, the trade mark “Candy” is being used by a proprietor to sell candies for young children, whereas the same trade mark “Candy” is also being used to sell candy-coloured clothes by another proprietor, showcasing that they do have different consumer bases for honest and concurrent use.
Mergers and acquisitions: Under special circumstances, post-merger or acquisition scenarios may be considered for unique registration.
Section 12 as a defence against trade mark infringement
Section 12 helps prevent confusion among the consumers as to the ownership or from where the goods originated. For every trade mark to get protection, it has to be registered with the Registrar of the trade mark. However, the Registrar has the power to reject the trade mark under Section 9 (absolute grounds of refusal of trade mark) and Section 11 (relative grounds of refusal of trade mark). Section 11 prevents a mark from being registered that is identical or has been previously registered. When the application for registration is denied under Section 11 of the Act, the applicant can come up with several defences.
Honest concurrent use, as mentioned under Section 12 is one such defence that the applicant can make use of to defend from getting engaged into a trade mark infringement battle. The main contention is to prove that the applicant has been using the said mark in good faith and has no knowledge or whereabouts of the trade mark being registered earlier or being used by some other proprietor as well. The burden of proof lies on the applicant to prove that the customers associate the mark with their goods or services.
Documents to prove honest concurrent use
Under Section 12, to prove that there has been honest concurrent use of the trade mark, some of the documentary evidence needed is as follows:
If the mark has already been in use, then the term of usage of the mark needs to be proved by the applicant; and
Advertisements of the mark and the proof of all the funds spent on advertising the mark is crucial evidence to showcase honest use of the trade mark by the applicant.
Submitting books of accounts showing annual sales for goods and services offered under the mark is also sufficient to prove the same;
This helps the applicant to prove that the said trade mark has been associated with his goods and has a different consumer base from that of a similar trade mark owner.
Relevant case laws
Kores (India) Limited vs. Khoday Eshwarsa And Son, And Anr. (1984)
Facts of the case
In the case ofKores (India) Ltd. vs. M/s Khoday Eshwarsa and Son (1984), decided by the High Court of Bombay, herein, the petitioners, Kores (India), filed an application in respect of carbon papers, typewriting ribbons, and stencils for a trade mark consisting of a device of a typist girl at the typewriter, which was objected by the respondents under Section 9 of the Act as an identical device and the word “khoday” was already registered by the respondents. According to Section 12(3) of the Trade and Merchandise Marks Act, 1958, the following facts were required to be taken into consideration while determining the registrability of a trade mark under such a provision:
The genuineness of the concurrent use;
The quantum of concurrent use of trade marks shown by the applicant having regard to the duration, area, and volume of trade and to the goods concerned;
The probability of confusion resulting from the similarity of the applicant’s and opponent’s trade marks, as a measure of the public interest or public inconvenience;
Whether any instances of confusion have on record been proved; and
The relative inconvenience that may be caused to the parties concerned.
Issue raised
Whether Kores Limited’s trade mark was deceptively similar to Khoday Eshwara Son’s registered trademark, leading to confusion among consumers?
Judgement
The High Court of Bombay decided that both trade marks used a similar device of a typist girl. The goods for which both trade marks were being used were identical and there was a likelihood of confusion among consumers due to the similarity of the trade marks and the identical nature of the goods. The overall expression of the devices was similar.
London Rubber Company Ltd. vs. Durex Products (1963)
Facts of the case
In this respectivecase, the respondents (Durex products) submitted an application before the Deputy Registrar of Trade Mark for registering the trade mark ‘durex’ use on the packaging of contraceptive devices manufactured and sold by them. The appellants (London Rubber Company) argued that they had been using the trade mark Durex in India since 1932, and they renewed the registration of the same in 1954 for a period of 15 years, which was ignored by the deputy Registrar of trade marks, and the trade mark Durex was registered as filed by the respondent. An appeal was filed in the Hon’ble High Court by the appellants, which was dismissed. The main contention of the appeal was that the mark durex was identical and the registration of the same had to be refused by the deputy registrar; furthermore, the requirements of Section 10(2) were not satisfied in this case.
Issue raised
Whether London Rubber Co. Ltd. had established prior use of the trademark “Durex” in India?
Whether the use of the identical trademark by both parties would lead to confusion among consumers?
Whether Durex Products (Inc.) was entitled to register the trademark “Durex” in India?
Judgement
The Hon’ble Supreme Court of India held in this case that Section 10(2) of the Act of 1999 was permitted by the Registrar to register the marks identical or similar in respect to another, provided that he is of the opinion that there was honest concurrent use of the mark by more than one proprietor or because such special circumstances existed. It was also held in this case that every small trader is entitled to protect his trade mark in case there is honest concurrent use as well.
Goenka Institute of Education and Research vs. Anjani Kumar Goenka (2009)
Facts of the case
In this respectivecase, decided by Delhi High Court on 29th May, both the applicant (Goenka Institute of Education and Research) and respondent (Anjani Kumar Goenka) had “Goenka” as a part of their trade marks, one being Goenka Public School and the other being G.D. Goenka Public School. Both parties were using the same trade mark “goenka” at the same point in time; one institution was based in Delhi while the other operated in Rajasthan. The appellant could not have known the usage of the same trade mark by the respondent, as the word “Goenka” was also part of the appellant’s trust name, through which it could be proved that all points referred to honest and concurrent adoption of the trade mark.
Issues raised
Whether the word “Goenka” could be exclusively owned as a trademark by Anjani Kumar Goenka?
Whether the use of the word “Goenka” by GIER amounted to infringement of the trademark or passing off?
Whether the doctrine of honest concurrent user could be applied in this case?
Judgement
Through this case, Section 12 i.e., honest and concurrent use of a trade mark, was established. Hence, the trade mark was allowed to be used by both parties as well as was registered with certain conditions, such that the appellant was directed to insert the name of their trust in brackets below the name of their school to clarify and differentiate between both.
Lowenbrau AG vs. Jagpin Breweries Limited. (2023)
Facts of the case
Similarly, in the case ofLowenbrau AG Another vs. Jagpin Breweries Limited(2023), decided by the High Court of New Delhi. The plaintiff Lowenbrau AG and defendant Jagpin Breweries were both beer manufacturing companies situated in Germany. They were involved in a trade mark lawsuit over the usage of the term “Lowenbrau” for their liquor, which was being sold in India as well.
Issues raised
Whether Jagpin Breweries had the right to use the trademark “Lowenbrau” in India without infringing upon the rights of Lowenbrau AG?
Judgement
It was held by the Court that Lowenbrau means lion’s drink and has been used by many other beer manufacturers in Germany since before, which meant that the word was of German origin and source as well as the beer that was being sold by the manufacturers. Moreover, there was no legal action taken by the plaintiffs for a long period of time, as both of them were involved in their businesses incorporated in different countries as well. The word “Lowenbrau” was termed as a generic word or having become public juris. After taking such things into consideration, the Court did not grant injunction in favour of plaintiffs and allowed the defence of honest concurrent use in favour of defendants.
Conclusion
To conclude, the concept of honest concurrent use acts as a delicate balance between protection of trade mark rights and navigating through marketplace realities. This provision offers a potential platform for multiple parties to co-exist with the usage of identical or similar trade marks; however, it should be approached with caution. When it comes to trade marks, each case is unique depending on its facts and circumstances. While navigating through such lawsuits, the registrar of trade marks has to keep a broad discretion in evaluating claims of honest concurrent use. It is always advised to seek legal help in such scenarios. Usage of extensive, honest and concurrent use of a disputed mark mitigates the likelihood of confusion among customers. A trade mark, being a primary source finder of goods and services, should fall under the criteria of being distinctive and unique for it to be registered.
Frequently Asked Questions (FAQs)
Can Section 12 be used as a defence in a trade mark infringement case?
Section 12 provides the concept of honest concurrent use. It cannot be used as a direct defence to a trade mark infringement case; however, it can be used in determining the scope of potential rights and remedies of the trademark.
What are the risks of claiming honest concurrent use?
The burden of proof has to be established by the applicant to prove honest concurrent use. It can be challenging to prove all necessary elements and provide all the details. If the claim is unsuccessful, it can further lead to damages or an injunction.
Can the Registrar refuse to allow honest concurrent use?
Yes, the Registrar does have the power to refuse to allow honest concurrent use if certain conditions are not met. The Registrar shall consider factors such as, likelihood of confusion, geographical limitations, etc. while granting the right of honest concurrent use.
What if a trade mark has been in use but not registered?
If a trade mark is being used but is not registered, it may not be granted protection without registration. Rights will be granted based on common law practices, but registration offers greater protection against infringement as well. Without registration, the usage of a trade mark would amount to passing off and not infringement.
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This article is written by Arkadyuti Sarkar. This article discusses Section 91 of the Trade Marks Act, 1999, which entails the provisions concerning appeals to the Appellate Board against the orders or decisions of the Registrar of the Trademark. This article provides an in-depth explanation of Section 91 of the Trade Marks Act, 1999. The article includes the establishment and composition of the Intellectual Property Appellate Board, grounds for appeal, the limitation period for filing an appeal, and explains the appellate jurisdiction of the High Court under the Act. Further, it also discusses relevant case laws under this section.
Table of Contents
Introduction
Rakesh has planned to start his salon in the Park Street Area of Kolkata under the name “Hairesh.” He decided to file for the trademark on a proposed-to-be used basis, i.e., filing for registration before starting its actual use. On 20th February 2020, he filed the trademark through a renowned attorney. However, in March, the Union Government declares the lockdown and everything comes to a standstill. However, in 2021 when things improved a bit, Rakesh started his salon business by the name of “Hairesh” in March, during which he built the website, printed invoices containing the brand and logo, and even advertised in newspapers. The registry had been in stagnation due to the pandemic but finally, by the end of 2021, it issued an examination report to Rakesh conveying that the mark is non-registrable as per the provisions of Section 9 of the Trade Marks Act, 1999. Rakesh filed the reply through his attorney and the registry, still not satisfied, calls for a hearing, which is scheduled for April 2022. Before the hearing, Rakesh furnished all the necessary documents, through his attorney, to the registry showing his usages since March 2021, showing continuous and uninterrupted usage since 2021. However, the registry, still not satisfied with his contentions and the documents, rejected the Mark. Rakesh, now aggrieved by the refusal order, enquires from his attorney about the available options, who mentions the review and the appeal.
When it comes to trademark registration, trademark licensing, assignment, etc., most of them are long and time-consuming processes that pass through multiple stages before the Trademark Registry as in the situation mentioned above, until their acceptance or refusal. Moreover, it is not uncommon for the Registrar of Trademarks to refuse the registration of any mark or pass some adverse order concerning any trademark-related matter pending before the Trademark Registry. When the registrar passes any adverse order or decision, there are only two options left for the applicant/owner, i.e., either filing a review before the concerned Trademark Registry or appealing against the decision of the registrar.
In this article, we will discuss the provisions concerning such appeals against the orders or decisions of a registrar under the Trade Marks Act, 1999. Until 2021 such appeals lay before the Appellate Board, also known as the Intellectual Property Appellate Board for appeals concerning all intellectual property matters. However, vide Tribunal Reforms Act, 2021 the Intellectual Property Appellate Board was abolished, and the matters pending before them and all future appellate matters were transferred to the High Courts, under whose jurisdiction a concerned Trade Mark Registry lies. We will discuss that as well, but for now, let us go through the appellate provisions under Section 91 of the Trade Marks Act, 1999. Before that, however, let us understand what used to be the provision for the constitution of the Intellectual Property Appellate Board.
The Intellectual Property Appellate Board
The Intellectual Property Appellate Board (hereinafter referred to as “the IPAB”) was a quasi-judicial appellate body that was established on 15th September 2003 by the Indian Government for hearing and resolving appeals against the Registrar of Trade Marks under the Trade Marks Act, 1999 and the Geographical Indications of Goods Act, 1999. On 2nd April 2007, the IPAB was further authorised to hear appeals against the Patent Controller under the Patents Act, 1970 and the Copyright Board under the Copyright Act, 1956, as well.
Establishment and composition of the Appellate Board
Establishment
According to Section 83 of the Trade Marks Act, 1999, the Union Government established the Intellectual Property Appellate Board to exercise the jurisdiction, powers, and authority vested in it or under the Act.
Composition
Section 84 of the Trade Marks Act, 1999, provides for the composition of the IPAB.
The IPAB shall consist of a chairman, vice chairman, and other members as the Union Government may consider appropriate. Subject to other provisions of the Act, the power, jurisdiction, and authority of the IPAB may be exercisable by the benches.
Depending on other provisions under this Act, an IPAB Bench shall have one judicial member and one technical member who shall sit at a place that the Union Government may notify in the Official Gazette.
Not being affected by anything under Section 84(2) of the Act of 1999, the chairman may:
Discharge the functions of the judicial member or technical member of any other bench in addition to discharging the functions of the judicial or technical member of the bench of his appointment;
Transfer one member from a bench to another;
Authorise the vice chairman, the judicial/the technical member appointed to one bench, to discharge the functions of members from another bench.
Where any benches are formed, the Union Government may provide for the distribution of the business of the IPAB amongst the benches and specify the matters to be dealt with by each bench.
The chairman shall hold the final authority to determine whether any matter falls within the purview of the business allocated to a bench. Moreover, “matter” includes an appeal referred to under Section 91 of this Act of 1999.
Upon a difference of opinion on any point, the members of a bench shall mention the point or points leading to such a difference and refer the same to the chairman, who shall hear them himself or refer the same for hearing by one or more members who shall decide the same based on majority.
Explanation of Section 91 of Trade Marks Act, 1999
This Section entails the provisions for an appeal against the order or decision of the trademark Registrar or the Trade Mark Rules before the IPAB within 3 months of receiving such an order or decision.
Grounds for appeal under Section 91
According to Section 91(1) of the Act of 1999, any person aggrieved by an order or decision of the registrar under this or the rules made thereunder may appeal before the Appellate Board within 3 months of the communication of such an order or decision to him. Therefore, it becomes abundantly clear that any person can appeal against the order or decision of the Trade Mark Registrar if such person is aggrieved by such order or decision. However, such an appeal must be made within three months of receiving such an order/decision. Now for receiving such an order/decision the word “communication” has been used, which leaves room for us to interpret that such communication includes communication from the registry by post or electronic medium. Therefore, Rakesh is entitled to appeal against the refusal order, as mentioned earlier, under this provision before the IPAB. However, the same must be done by him within three months from the date on which he receives the refusal order.
Limitation period for filing an appeal
According to Section 91(2) of the Act of 1999, no appeal shall be admitted if the same is preferred after the end of the period mentioned under Section 91(1). Simply put, if any appeal is preferred to the IPAB after the end of the three-month limitation period mentioned in Section 91(1), then such an appeal shall not be entertained by the IPAB. However, Section 91(2) also allows such an appeal by the IPAB if the board is satisfied that the appellant had sufficient cause(s) for failing to refer such an appeal within the limitation period of 3 months.
If Rakesh appeals after the expiration of the three-month limitation period mentioned earlier, then IPAB may refuse to entertain the appeal. Now, let us imagine a scenario where Rakesh’s attorney communicates the refusal order after a month and Rakesh miscalculates the same from the date of issuance files after the expiration of three months and mentions the reason for such delay. Then, IPAB may exercise its discretionary authority to permit such an appeal to be heard.
Prescribed form, fees, and documents
Section 91(3) of the Act of 1999 mentions that an appeal before the IPAB must be in the prescribed format and the same has to be verified in a prescribed manner. Moreover, such an appeal must contain a copy of the order or decision of the registrar against which the appeal is being preferred to the IPAB and the prescribed fees must be paid by the appellant for filing the appeal.
To appeal against the refusal order, Rakesh will have to fill out the necessary form, attach a copy of the refusal order, pay the required fees, and file the appeal before the IPAB.
Appellate jurisdiction of the High Court under the Act
Till now, we have discussed the provisions concerning an appeal before the IPAB. However, things have changed since 2021 although the same is not reflected in the statutory language of Section 91 of the Act of 1999. As we had mentioned earlier, the IPAB was dissolved on 4th April 2021 vide the Tribunal Reforms Ordinance 2021.
With the IPAB being abolished, the pending cases were transferred back to the High Courts. The IPAB was established in 2003 to reduce the burden on the High Courts by transferring appellate matters concerning intellectual property to the IPAB. However, IPAB was severely criticised for being understaffed and lacking the necessary resources to deal with the subjects under its adjudication. Moreover, even the decision of the IPAB could be appealed before the High Courts, thereby complicating the process. Afterwards, the jurisdiction of the High Courts was removed in 2019 to alleviate the processes but the same remained unfruitful.
In 2021, the IPAB was dissolved and the Appellate Authority returned to the concerned High Courts. This time, however, special and separate Intellectual Property Rights Division (“IPRD”) and Intellectual Property Rights Division Benches have been announced for dealing with various original and appellate matters arising from trademarks and other intellectual properties.
Delhi High Court, Bombay High Court, and Madras High Court already have operational IPRD and IPRAD benches, wherein the first is a single bench and the latter is the division bench. This time, the appellate process is expected to be faster than before, as special benches headed by specialized Judges shall be authorized to deal with intellectual property matters in the High Courts.
Relevant case laws surrounding Section 91 of Trade Marks Act, 1999
Ashwa Ghosh vs. Vizrt Ag and Others (2023)
Facts
In this case, an appeal was preferred under Section 91 of the Trade Marks Act 1999 against a decision involving domain names by the World Intellectual Property Organization’s (WIPO) administrative panel.
Issues
Whether a decision by the WIPO Administrative Panel is fit to be appealed under Section 91 and deemed the decision of the Registrar?
Decision
The Delhi High Court held that no appeal lies under Section 91 of the Act of 1999 against the orders passed by the Administrative Panel of WIPO because the Section provides for appeals against the orders or decisions passed by the registrar.
The term registrar has been defined under Section 2(y) of the Act. Section 3 of the Act provides for the appointment of a specific officer as the Controller General of Patents, Designs, and Trade Marks by the Union Government after notifying the same through the Official Gazette.
Therefore, the Delhi High Court held that since the decision was not made by the Registrar of Trade Marks and that the WIPO Administrative Panel does not come under the purview of the Registrar under Section 3, the decision of the Administrative Panel cannot be appealed under Section 91.
Kamdhenu Ltd. vs. The Registrar of Trade Marks (2023)
Facts
In this case, the appellant, i.e., M/S Kamdhenu Ltd., had appealed under Section 91(1) of the Act of 1999 against an impugned order dated 23rd April 2019 by the respondent, i.e., the Registrar of Trade Marks, New Delhi, under Rule 124 of the Trademark Rules 2017.
The registrar stated that the primary reason for rejecting the grant of application was that the appellant had failed to provide evidence of the well-known status of the mark “KAMDHENU” through an affidavit.
Thus, the appellant preferred an appeal before the IPAB in 2019; however, the same was transferred to the Delhi High Court in 2021 after the dissolution of the IPAB vide Tribunal Reforms Act, 2021.
Issues
The question in this case is what is to be the nature of evidence and documents to be filed by an applicant with the registrar for determining a well-known trademark under Section 11 read with Rule 124 of the 2017 Rules.
Arguments by the petitioner
The appellant/petitioner submitted through its counsel that the respondent’s approach was erroneous because the primary reason for rejecting the application for a well-known mark was due to the non-filing of evidence through an affidavit.
The petitioner argued that it is not mandatory under Rule 124 to file evidence only through an affidavit and that the appellant had already filed multiple documents in support of their claim for “KAMDEHNU”.
The petitioner further relied upon Rules 45, 80, 86, 95, and 96 of the 2017 Rules and argued that these provisions specify the types of evidence that can be adduced and hence even if documentary evidence is filed in the present case, the same is sufficient for compliance under Rule 124, and the same must be examined by the registrar (“Respondent”).
The appellant also relied on the provisions of the Indian Evidence Act, 1872 (now Bharatiya Sakshya Adhiniyam 2023) and argued that evidence can be oral and documentary. Moreover, Section 1 of the Act of 1872 is not applicable to affidavits presented before a court or an officer. Hence, a mere affidavit by itself is not evidence and the rejection of the appellant’s application by the respondent is unsustainable.
Arguments by the respondent
The respondent’s counsel relied upon a public notice dated 22nd May 2017 issued by the Office of the CGPTDM, which requires the filing of evidence for the declaration of a well-known mark.
The respondent further submitted that, by the nature of the required evidence, it is implicit that the same needs to be filed through an affidavit, and non-filing of the same would mean that the application cannot be considered by the registrar.
Judgement
The Delhi High Court gave a detailed reading of the provisions of the Act of 1999, especially Section 29, along with the 2017 Rules and concluded that the registry should have given an opportunity to the petitioner to file an affidavit without going through the statement of the case if it had so opined that an affidavit was necessary and non-filing means dismissal of the application. Hence, the court allowed the appeal and provided an opportunity for the appellant to file the affidavit necessary to claim the well-known status.
Navaid Khan vs. Registrar of Trademarks Office (2023)
Facts
Here, the appellant had filed an application for registering his mark “CruzOil” on 21st February 2020 under Class 4 of the niche classification.
The Trade Mark Registrar issued an examination report on 4th May 2020 and objected to its registration under Section 9(1)(b) of the Trade Marks Act, 1999, such that the mark consists exclusively of words that may designate the intended purpose of goods in the trade.
On 29th May 2020, the petitioner replied to the abovementioned examination report and stated that the concerned mark should be considered as a whole and that the same lacks dictionary meaning nor has any common usage.
The respondent called for a hearing, to which the appellant appeared through his representative and made his submissions, and on 12th January the respondent passed a refusal order against the registration of the appellant’s mark.
Thus, the appellant filed this appeal under Section 91 of the Act of 1999.
Arguments by the petitioner
The petitioner’s counsel argued that the concerned mark is arbitrary and distinctive and does not relate to the goods, i.e., industrial lubricants.
The word ‘CruzOil’ has no dictionary meaning.
The petitioner further submitted that a device mark having a combination of words and devices needs to be considered in its entirety for registration.
The appellant also mentioned that he has made a disclaimer with regard to the exclusive right to use the word “Oil”.
Arguments by the respondent
The respondent opposed the appeal and relied on the impugned order passed by it under Section 9(1)(b).
The respondent further submitted that the grounds for refusing the concerned mark of the appellant under Section 9(1)(b) are absolute and since the concerned mark is descriptive and designates the kind and intended purpose of the goods, the respondent has correctly refused the application for registering the same.
Judgement
The High Court of Delhi noted that the appellant had applied for registering a composite device mark containing the word “CruzOil” along with other elements. However, the respondent’s impugned order proceeded on the basis that the mark is a word mark and treated it as such.
The court opined that a mark having a combination of words and devices must be considered as a whole for granting registration.
The court further noticed that the impugned mark contained several unique and arbitrary elements, like a tagline, a yellow background with two purple rings, and unique semi-circular patterns with images of 4 stars on alternative sides with a pattern of slanting parallel lines.
The court relied on Abu Dhabi Global Market vs. Registrar of Trademarks (2023), wherein this court had interpreted Section 9(1)(b) and had opined that “composite marks ipso facto stand excluded from the purview of Section 9(1)(b) of the Act, even if parts of the same consist of marks or indications that may come under the absolute grounds for restriction under Section 9(1)(b).
The court observed that only if the entire mark exclusively falls within one of the excepted categories under Section 9(1)(b) can the mark be treated as statutorily proscribed.
Hence, the court held that the respondent had erred by dissecting the subject mark into individual parts while considering it for registration. The court further noted that the appellant had provided a disclaimer with regard to the exclusive right to use the word “Oil”.
Thus, the court allowed the appeal to set aside the respondent’s refusal order and further directed the respondent to proceed with the journal publication of the mark under Section 20 of the Act.
Conclusion
After analyzing the provisions of Section 91 of the Trade Marks Act and reading some recent landmark judgements we can conclude that Section 91 provides a great opportunity for an applicant/trademark owner to oppose any order/decision of the Trademark Registrar and appeal the same before the concerned High Court.
The statutory language of Section 91 of the Act of 1999 still mentions the Appellate Board, i.e., the IPAB, as the appellate authority against the decisions of the Trademark Registrar, although the same was abolished about 3 years ago vide Tribunal Reforms Act, 2021. The IPAB failed to perform its objectives from its very inception and thus appellate authorities concerning intellectual property matters were returned to the High Courts. However, this time, separate benches for dealing with intellectual property matters are being established and the same brings hope for speedy resolution to the cases concerning intellectual properties.
Section 91, along with several other provisions of the Trade Marks Act, needs to be amended as soon as possible; otherwise, confusion may occur for the applicants as well as the practitioners concerning the current appellate authority. The need for having an effective appellate mechanism further arises because most trademark registries are operating through the employment of contractual employees who have a severe lack of specialised knowledge of intellectual properties and trademark law in India. These contractual employees render orders and judgements based on their whims and fancies rather than the provisions of the Trade Mark Act.
Frequently Asked Questions (FAQs)
Who can appeal under Section 91?
Any person aggrieved by the order/or decision of the Registrar of Trade Marks, i.e., the Trademark Registry, can appeal before the Intellectual Property Appellate Board (now the High Court) as provided by Section 91. Such person may be the applicant, registered owner, registered licensee, registered assignee and others.
Before whom does an appeal under Section 91 lie?
Previously, it lay before the Intellectual Property Appellate Board, but now it lies before the concerned High Court, within whose jurisdiction the concerned Trade Mark Registry is located.
Does IPAB exist anymore?
No. It was abolished in 2021 vide the Tribunal Reforms Ordinance 2021 and the matters have been transferred to the concerned High Courts. In some High Courts like the High Courts of Delhi, Mumbai, and Madras, there are dedicated benches for dealing with the IP appellate and other related matters. For others, the commercial bench deals with the IPR appellate and related matters.
Why was IPAB abolished?
IPABs were established to deal with appellate matters against the orders or decisions of the registrar of trademarks. However, from their very inception, the appellate bodies suffered from issues like delay, lack of trained staff, lack of office spaces and necessary resources, etc.
Is there any time limit for referring an appeal before IPAB?
Yes, an aggrieved person, i.e., the appellant, must prefer the appeal before the IPAB (now the concerned High Court) within three (3) months of being communicated with the impugned order by the Trademark Registry.
What should I do if the time limit has been exceeded?
The appellant must satisfy the High Court with reasons for such a delayed filing and the IPAB (now the concerned High Court) may allow such a delayed appeal subject to its discretion.
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This article was written by Ilashri Gaur and has been further updated by Stuti Mehrotra. This article deals with all the aspects of the curative petition, consisting of its history in India, grounds for a curative petition, guidelines for filing a curative petition, the procedure for filing a curative petition, related judicial precedents, and other recent developments on the discussed topic. This article also delves into the details of where the powers for a curative petition are provided, the circumstances and cases that led to the filing of a curative petition, and the circumstances under which a curative petition may be filed. This article also deals with the power of the Supreme Court of India on the curative petition.
Introduction
A curative petition is a legal remedy available after a review petition against a final conviction by the Supreme Court. Constitutionally, a final ruling of the Supreme Court can typically be challenged only through a review petition, which is limited to procedural grounds. However, curative petitions serve to accredit grave miscarriages of justice. Its main aim is to prevent miscarriage of justice and deter abuse of the legal process. However, these petitions are typically decided by judges in chambers. The guidelines or principles governing curative petitions were established by the Supreme Court in Rupa Ashok Hurra vs. Ashok Hurra & Anr. (2002)which will be further established by the author in the article.
Consider a scenario in which you have been convicted of murder and consequently imprisoned. In such a situation, what is the recourse available to you for self-protection? One possible course of action available is to file a curative petition. It is essential to address several pertinent questions that may arise, such as: What necessitates a curative petition? How does this petition help? Are the fundamental rights insufficient to safeguard an individual against any form of injustice?
Let us understand a curative petition in detail.
What is a curative petition
A curative petition is a way to ask the court to review or revise the decision even after a review petition is dismissed or used. The court has been very aware of the use of such a petition.
There is a Latin maxim used by the court, “Actus Curiae Neminem Gravabit,” which means that an act of the court will prejudice no one. The court should pass an order ensuring that the interests of none of the parties are harmed. The maxim becomes applicable when the court is under an obligation to undo a wrong done to a party by the act of the court itself.
In the Constitution of India, we have been provided with different types of rights, like the right to education, the right to dignity, and the right to life, but like the example given above, we can say that there is no meaning to rights until and unless they are protected. To understand it in more simple terms, let us take an example, whenever we buy any jewellery, the first thing that we keep in mind is safekeeping. Similarly, constitutional remedies are available for the protection and enforcement of fundamental rights.
Objective of curative petition
Curative petitions aim to prevent miscarriage of justice and discourage abuse of the legal process. Article 147 of the Constitution of India serves a limited purpose to clarify the reference regarding any substantial question of law.
Curative petition under the Constitution of India
The curative petition in India has relevance with respect to Article 137, Article 145, and Article 147 of the Constitution of India. According to Article 137, the Supreme Court has the power to review any judgement or order passed by it. Article 145 of the Constitution provides for rules of the court i.e. subject to the provisions of any law made by the Parliament, the Supreme Court may from time to time with the approval of the President make rules for regulating the practice and procedure of the court. Also, according to clause (3) of Article 145, in any case involving a substantial question of law as to the interpretation of the Constitution, the number of judges should be five. Article 147 of the Constitution of India serves a limited purpose to clarify the reference regarding any substantial question of law.
Relation of this petition to the Nirbhaya case
As it was discussed earlier, a curative petition is the final remedy that is available to convicts. Going out with the procedure regarding the potential grounds, the lawyer of the convict provided the argument that “young age and the socio-economic background should be considered as a mitigation factor.”
The advocate challenged the reasoning of the Supreme Court by pointing out reports and studies by law universities and the National Crime Records Bureau stating that a death sentence won’t have any restraining effect on society, which is the reason on which the sentencing by the Supreme Court was based.
Because of the existing media and political pressure on this case from the beginning, it will be interesting to see the adverse result of the petition, which would go down as one of the landmark judgements in the history of this nation’s legal system.
Jurisprudence
The petitioner seeks to allow such an appeal to mitigate or prevent legal processes and to rectify the failures of law in the administration of justice. Consequently, this appeal is regarded as the final or ultimate recourse available for the redress of justice.
It is for the most part, not permitted to occur in an open court and it is heard in the workplace of the appointed authority. It is uncommon that the equivalent might be heard in an open court. The concerned assemblies possess the requisite rights to request bids or audits, grounded in the principles of discourse and pertinent issues.
The constitutional framework governing bids allows parties to exercise their rights in the highest court of the nation. When the choice is given by the Supreme Court of India, the equivalent might be viewed as last and authoritative. The reasoning behind this concept is rooted in the Latin proverb “interest reipublicae ut sit finis litium”, which suggests that, in the interest of society as a whole, it is important to reach a definitive conclusion after a matter has achieved its final result.
In light of a legitimate concern for equity, the framers of the Constitution embedded Article 137 of the Indian Constitution, which permits the Supreme Court to review its own judgements and orders passed.
The inquiry raised concerns about whether the parties felt that justice had not been served even after the appeal for correction. The primary objective of the judiciary is to ensure that the provisions of the law are properly applied, as any miscarriage of justice can be detrimental to society at large. This inquiry is considered both reasonable and fair.
History of curative petition in India
The concept of a curative petition was developed by the Supreme Court of India in the case of Rupa Ashok Hurra vs. Ashok Hurra and Anr (2002). This measure was intended to address miscarriage of justice and the abuse of the judicial process in the context of marital disputes.
In this case, after the dismissal of the review petition, a question arose as to whether an aggrieved party was entitled to give any relief against the final order of the Supreme Court. Also, in this case, the Supreme Court said that to prevent and rectify a miscarriage of justice, it is necessary to reconsider its judgements in the exercise of its inherent powers. To address this need, the court has come up with a term known as ‘curative petition.’ In a curative petition, the petitioner must present grounds previously raised before the court but not adequately addressed.
From that point onward, the curative petition is reviewed by the three senior-most appointed authorities, the adjudicators, who convey the legitimate judgement. For recording the curative petition, there is no time limit. This is ensured under Article 137 of the Indian Constitution, which says that laws and rules are made under Article 145 of the Indian Constitution. To put it plainly, it implies that the Supreme Court has the ability to review any judgement articulated by it.
Pathway to curative petition
Curative petition is a term coined by the Supreme Court in the case of Rupa Ashok Hurra vs. Ashok Hurra. This was an extraordinary special jurisdiction carved out by the Supreme Court under its inherent power in this case in 2002. Normally, one files a petition in the Supreme Court challenging the High Court’s order, and then against the order of this petition a review petition is filed. Eventually, in the rarest of the rare cases, as a final resort one may take the path of a curative petition subject to the fulfilment of the conditions prescribed for filing of such petition.
There are two situations for a curative petition when a curative petition can be filed. Firstly, where review was dismissed by circulation, curative can be entertained and it has to follow the normal procedure enumerated below. The other one is when the review was heard in open Court and dismissed, curative shall not ordinarily be entertained.
The normal procedure for a curative petition is that where the review petition was dismissed by circulation and not heard in open Court, is generally that once it is filed, it goes before the top three senior most judges of the Supreme Court of India including the Chief Justice of India plus the judges who dismissed the review petition, if they are available. However, if for the reason of retirement or any other reason, any or all of the Judges who heard the review are not available, then only the three senior most judges of the Court will hear the curative petition.
However, these conditions and guidelines have been made explicit time and again by the Supreme Court of India also with the procedural aspects and the Judges who will be hearing the curative petition.
Conditions for filing a curative petition
The Supreme Court has laid down various specific conditions or procedures that are needed to accept the curative petitions, including:
The applicant should demonstrate that there was a certifiable infringement of standards of regular equity and dread of the bias of the judgement and the adjudicator that will antagonistically influence him.
One of the important conditions is that the petitioner will have to specifically mention the grounds that have been taken in the review and that it was dismissed by motion.
The curative petition must go along with the certification by the senior lawyer relating to the fulfilment of the above requirements.
It is required that the petition be sent to the three most senior judges and the bench of judges who passed the judgement that affects the petition, if available.
Additionally, if most of the judges in the above seat concur that the issue should be heard, at that point, it is shipped off to a similar seat beyond what many would consider possible.
If the petitioner’s plea lacks merit, then the court could impose ‘exemplary costs’ (it means that a huge cost is given to them so that from the next time others would change their way of doing any act) on him.
It must be rare rather than regular.
A curative petition needs to be filed within 30 days of the judgement or order.
Except if there is a particular solicitation for an open court hearing, the therapeutic appeal is normally chosen by decision in their workplaces.
The bench, at any stage of consideration of the curative petition, can ask the senior counsel to assist it as a friend of the court.
Grounds for rejection
The petition may be rejected if it is found without merit, and in such cases, the court has the authority to impose a penalty on the petitioner. This implies that if the petition does not present a valid or substantial legal argument, the court will not only reject it but also sanction the petitioner with a penalty.
Guidelines for filing a curative petition
As we all know about the famous case of Mukesh & Anr vs. State for NCT of Delhi & Ors (2017) (Nirbhaya case), in which the respondent Akshay, who is also one of the convicts in this case, filed a curative plea in the Supreme Court. The curative petitions serve distinctive purposes, depending on the specific case at hand. In this case, the petition was filed to address a potential miscarriage of justice rather than to seek increased compensation which was the concern in the Bhopal Gas Tragedy case. The Indian government filed a petition to seek a higher compensation amount for the victims of the Bhopal Gas Tragedy. A curative petition represents the last opportunity available to seek redress from the court for an injustice in court after a review petition has been dismissed or exhausted.
The Supreme Court rules of 2013 were amended by the judgement of the Rupa Ashok Hurra Case to implement the judgement passed by the court in the case, particularly regarding the conditions for filing of a curative petition. The provisions for the curative petition were amended through Order 48 of the Supreme Court Rules, 2013, which stipulates the preconditions for filing a curative petition. The guidelines established to file a curative petition follows:-
Grounds for a curative petition: The grounds mentioned in the curative petition must have been raised in the review petition, which must have been dismayed by circulation.
Initial certification by a senior advocate: The petition must include a certification from a senior advocate, emphasising significant reasons for its consideration and highlighting errors in the procedure.
Certification by Advocate on Record: The Advocate on Record must clarify that the curative petition filed is the first curative petition in the impugned matter.
Initial review by judges: It is initially reviewed by a panel of the three most senior judges and, if available, the judge(s) who passed the original ruling.
Hearing: A hearing is scheduled only if there is a majority of judges who find it necessary, preferably before the same bench that passed the initial judgement.
Procedure for filing a curative petition in India
A curative petition is supported by Article 137 of the Constitution of India. According to the article, in matters relating to laws and regulations made under Article 145 of the Constitution of India, the Supreme Court of India has the power to review any judgement or order made by it. A curative petition needs to be made within 30 days from the date judgement is passed. A curative petition may be filed when:
A curative petition may be filed after the review petition has been dismissed.
A curative petition may be filed only when the petitioner has established that there was a violation of the principles of natural justice and that he was not given an equal opportunity by the court to be heard before the order was passed.
It is also required from the petitioner to state or assert specifically the grounds on which the review petition was undertaken and that it was dismissed by circulation, which is in turn certified by a senior advocate.
It must be rarer than regular, i.e., curative petitions are not like regular petitions like review, revision, or appeal. They should be filed in the rarest of the rarest cases.
A curative petition must first be circulated to a bench of the three senior-most judges and the judges who passed the concerned judgement, if available. Only when a majority of the judges conclude that the matter needs a hearing should it be listed before the same bench.
If a request for an open-court hearing is made, then such a hearing is allowed, but a curative petition is decided by the judges in the chamber.
The bench, at any stage of consideration of the curative petition, can ask a senior counsel to assist as amicus curiae.
A curative petition is usually decided by the judges in chambers unless a special request for an open-court hearing is made.
If the petition lacks any grounds for reasonable consideration, then the court could impose “exemplary costs” on the petitioner.
Extent of judicial discretion in the curative petition
The judicial discretion of the curative petition rests with the Supreme Court. The court emphasises that curative petitions should be made in rare cases and reviewed with due care and caution to maintain the integrity of the judicial system.
Special powers of the Supreme Court in the context of jurisdiction
Dispute resolution
The Supreme Court gets exclusive original jurisdiction under Article 131 of the Constitution of India in disputes between the Government of India and one or more states or between the states themselves. This jurisdiction is exercised in cases involving legal rights, providing a direct forum for the resolution of inter-governmental disputes.
Discretionary jurisdiction
The Supreme Court has been granted the power to grant special leave to appeal through Article 136 of the Indian Constitution from any judgement, decree, determination, sentence, or order in any cause or matter passed by any court or any tribunal in India, but this power does not apply to military tribunals and court martials. The Supreme Court exercises this discretionary power to address significant legal questions, prevent injustice, and maintain uniformity in the interpretation of laws.
Advisory jurisdiction
Under Article 143 of the Constitution, the Supreme Court has advisory jurisdiction, where the President of India can refer specific matters to the court for its opinion. This allows the court to provide guidance on important legal questions or issues of public interest referred to by the President. The court’s opinion in this article is not binding but holds significant persuasive value and helps clarify complex legal issues.
Contempt proceedings
Under Article 129 and Article 149 of the Constitution of India, the Supreme Court has the authority to punish for contempt of court, including contempt of itself, either suo moto or petition by the Attorney General or any individual. This authority ensures that the dignity and authority of the judiciary are upheld, and any action undermining the court’s functioning or disrespecting its orders is adequately addressed.
Differences between review petition and curative petition
A review petition means that a binding decision of the Supreme Court can be reviewed in this petition. The parties to any order of the Supreme Court that contains an obvious error can file a review petition. In this case, the court will not take fresh stock, they will just correct the errors.
Whereas the curative petition is considered the last source, even after the review petition, if the aggrieved party wants to revise the decision of the court or the judgement, then they file a curative petition, which is not normally given during an open court hearing. It is also supported by Article 137 of the Indian Constitution.
In other words, we can say that the main difference between the review petition and the curative petition is the fact that the review petition is inherently provided in the Constitution of India, whereas the emergence of the curative petition is in relation to the interpretation of the review petition by the Supreme Court, which is provided in Article 137.
Basis
Review petition
Curative petition
When filed
Can be filed after the final decision of the Supreme Court.
Can be filed even after the review petition after the final conviction.
Provided in
It is inherently provided in the Constitution of India.
A curative petition is in relation to the interpretation of the review petition by the Supreme Court under Article 137.
Filed for
Correction of any obvious error in the order by the Supreme Court.
Is it filed by the aggrieved party if they want to revise the decision of the aggrieved party.
Important judgements
Rupa Ashok Hurra vs. Ashok Hurra & Anr (2002)
Facts
In this case, the Supreme Court’s honourable judge, Syed Shah Mohammed Quadri, conducted a series of inquiries to determine whether an individual who has been oppressed is eligible for assistance in challenging a final judgement of the court. The inquiry is relevant after the dismissal of a review petition, which may be filed under Article 32 of the Constitution or other applicable provisions. Article 124 of the Indian Constitution builds up the Supreme Court of India in a setting that indicates its ward and controls and empowers Parliament to give it. Since the power of this court under Article 32 of the Indian Constitution is summoned in these writ petitions, solutions for the usage of rights are mentioned below:
The option to move the Supreme Court by suitable procedures for the requirement of the privileges of basic rights is ensured.
The Supreme Court has the ability to give requests or writs, whichever might be fitting for the authorisation of any rights given by any gathering.
Without bias, that can be an influence on the Supreme Court, considering point (1).
With due process of law, Parliament entitles any other court to exercise within the local limits of its jurisdiction any power that is exercisable by the Supreme Court.
Under this article, the right guaranteed will not be suspended except if it is not provided by the Constitution.
Issues
The main question before the five Judge Constitutional Bench was to recognize if a curative petition is a final remedy to reconsider the review petition which was dismissed.
Judgement
It was held by the Supreme Court that the appointed authorities have fundamentally analysed the nature and the chronicled foundation of writs in India, just as English laws do. It was determined that a High Court cannot issue a writ to another High Court, nor can a division or bench of the High Court issue a writ to a different division or bench of the same High Court. When a review petition has been dismissed then a curative petition can be filed before the Supreme Court as the ultimate remedy.
National Commission For Women vs. Bhaskar Lal Sharma (2010)
Facts
In this case, the review petition was dismissed and the respondents came to the court by way of criminal appeal. The said petition was dismissed by the two judge bench upon the fact that there was no case under Section 498A or 406 of the I.P.C. against one of the respondents and the other respondent should only proceed with Section 406 of the I.P.C. the petitions of the aggrieved were dismissed and the present petition was filed by the National Commission for Women.
It was submitted by the aggrieved that the manner in which the appeals had been heard and disposed of, quashing the summoning order at the very initial stage was also improper since the trial was not even conducted and evidence was yet to be adduced in the matter.
Issue
The main issue was to decide whether the matter was disposed of in the right manner or without the party the chance of being heard and also whether they were dealing with a statutory right or constitutional provision.
Judgement
The curative petition was allowed by the Supreme Court which was filed by the National Commission for Women. It was also held that as far as the question regarding making out of a case under Section 498A I.P.C. is concerned, it has to be kept in mind that the appeals were against the initial order summoning the accused to stand trial. Accordingly, it was too early a stage in the view of the Supreme Court, to take a stand as to whether any of the allegations had been established or not.
Naresh Shridhar Mirajkar vs. State of Maharashtra (1966)
Facts
In this case, the writ examined by the Supreme Court of India has tested an oral request of the High Court of Bombay. It has been proposed that the High Court may issue a writ directing this court, as well as another High Court and a designated authority or judicial seat, while the Supreme Court could issue a writ to another adjudicator or judicial seat.
Issues
The petitioners challenged the validity of the impugned order on several grounds urging that the fundamental rights guaranteed under Article 19(1) were violated. The main question was whether the petitioner’s husband was an evacuee or not and whether his property was evacuee property or not.
Judgement
Subsequent to hearing both gatherings, the court held that Article 32 under the Indian Constitution can’t be conjured and tested a last judgement passed by this court in the wake of depleting the final retreat given under Article 137. It was also held that the High Court cannot issue a writ to the Supreme Court because writs are issued in a descending manner, from higher to lower courts. Similarly, the High Court can’t give a writ to another High Court. In the context of the nation’s legal practice within the High Court, it was determined that the writ had been improperly issued.
Navneet Kaur vs. State of NCT Delhi (2014)
Facts
In this case, the petitioner was sentenced to death and his conviction was upheld by the High Court of Delhi. Thereafter, the petitioner filed a curative petition to challenge the sentence imposed upon her and argued that her death sentence should be commuted to life imprisonment on the grounds of her mental illness and the prolonged delay of her mercy petition. The curative petition in this case was also filed in recognition of the increasingly unsustainable judicial demand for the death penalty in light of the severely inconsistent application of its imposition by the court.
Issues
While deciding a mercy petition, the Bench was simultaneously called upon to decide a specific issue which is whether there is rationality in distinguishing between an offence under the Indian Penal Code, 1860 and the Terrorist and Disruptive Activities (Prevention) Act for considering the supervening circumstances for commutation of death sentence to life imprisonment.
Judgement
The Supreme Court of India, reviewing her petition, upheld the validity of her arguments and recognised that prolonged incarceration precedes death row, especially for individuals suffering from mental illness, which amounted to inhumane and degrading treatment. Consequently, the Court ruled in favour of Navneet Kaur, commuting her death sentence to life imprisonment.
Therefore, this case led to a significant shift in capital punishment cases. This case set a precedent for considering mental health and delays in the judicial process as critical factors in determining appropriate capital punishment. It also underscored the importance of safeguarding human rights and ensuring justice through curative petitions, thereby upholding the principle of fairness and equity in the Indian judicial system.
Delhi Metro Rail Corporation Ltd. vs. Delhi Airport Metro Express Pvt. Ltd. (2024)
Facts
In this case, in 2008, Delhi Metro Rail Corporation (DMRC) worked with Delhi Airport Metro Express Private Limited (DAMEPL) to construct, operate, and manage the Delhi Airport Metro Express. After several disagreements over safety and operational difficulties, DAMEPL terminated the deal in 2013. This sparked a series of court fights, culminating in an arbitration panel declaring in favour of DAMEPL and forcing DMRC to pay approximately Rs 8,000 crore. However, the Delhi High Court ordered DMRC to deposit 75% of this sum in an escrow account. The government filed an appeal, and in 2019, the High Court overturned the verdict in favour of DMRC. DAMEPL then took the case to the Supreme Court, which initially upheld the arbitration verdict in 2021.
Issues
The main issues involved in the case were whether the curative petition was maintainable and whether this court was justified in restoring the arbitral award which had been set aside by the Division Bench of the High Court on the ground that it suffered from patent illegality.
Judgement
The Supreme Court recently issued a judgement in favour of the Delhi Metro Rail Corporation (DMRC), citing a “fundamental error” in an earlier order. This decision is important in emphasising the importance of curative petitions, establishing legal frameworks for public-private partnerships in infrastructure projects, and demonstrating the court’s willingness to correct errors and maintain justice even after a final verdict has been issued.
Union Carbide Corporation vs. Union of India vs. (1989)
Facts
This case is also popularly known as the Bhopal Tragedy Case. In this case, the central government filed a curative petition in 2010 for more compensation for the Bhopal gas tragedy victims.
Issues
The validity of the order passed by the High Court of Madhya Pradesh was challenged based on the grounds of whether the settlement amount was justifiable or not and whether the dropping of criminal proceedings against Union Carbide was justified.
Judgement
In 2023, a bench of five judges rejected the petition, stating that the compensation that had been decided previously was sufficient. The bench also emphasised that a curative petition can only be entertained in cases of a gross miscarriage of justice, fraud, or suppression of material facts, none of which were present in the current case.
Conclusion
The special powers of the Supreme Court of India in the context of curative petitions are an essential tool for ensuring justice. They provide a mechanism to correct judicial errors and uphold the principles of natural justice. However, these powers are exercised sparingly to maintain the balance between the finality of judgement and the prevention of miscarriage of justice.
A curative petition is a new concept and judicial innovation in the Indian legal system. It is considered the last and final resort. When we are talking about the context of justice, like in the Nirbhaya case, it gives a drop back for the judges to give the judgement on time. There are so many loopholes in our legal system. It gives a way to escape a criminal’s punishment. The request for a hearing is considered unusual rather than standard. It is typically beneficial if the solicitor establishes that there was a breach of the principle of natural justice and that the petitioner was not heard by the court before the decision was made.
The special powers of the Supreme Court of India, especially in the context of curative petitions and the jurisdiction of dispute resolution, reflect its pivotal role in maintaining justice, ensuring legal uniformity, and preserving the integrity of the judicial system. Through its discretionary, advisory, and contempt jurisdiction, the court upholds the rule of law and provides a robust mechanism for addressing complex legal issues and disputes.
A curative petition should not be confused with a review petition, despite their similarities. A curative petition is submitted only after a review petition has been denied to guarantee that no injustice has happened as a result of the honourable court’s negligence or for other reasons. Typically, Supreme Court decisions are final and cannot be appealed within the court itself. However, review and curative petitions allow aggrieved parties to seek restitution and ensure justice in the judicial system by addressing potential flaws in Supreme Court decisions.
Frequently Asked Questions (FAQs)
What is a petition and what are the types of petition available in India?
A petition is a formal written request made to an official person or body for equitable relief. There are three types of petition available in India namely review petition, curative petition, and mercy petition.
In which case were the basic principles for curative petitions laid down?
Basic Principles governing the curative petitions were established in Rupa Ashok Hurra vs. Ashok Hurra & Anr., 2022.
What is a curative petition?
The curative petition is the last chance available for protection from the compensation of injustice in court after the review petition is dismissed or has been exhausted.
How is a curative petition different from a review petition?
The curative petition is the last chance available for protection from the compensation of injustice in court after the review petition is dismissed or has been exhausted. A review petition means that a binding decision of the Supreme Court can be reviewed in this petition.
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:
Financial knowledge is the ability to understand and employ different sets of financial skills in an efficient way, including personal financial management, savings, and budget management. Financial literacy helps an individual achieve financial stability in his life.
In the ever-changing dynamics of the financial environment, financial literacy since early childhood has become of paramount importance for making an individual financially independent. Financial skills like budgeting and saving go a long way toward creating wealth for an individual. Early financial knowledge allows an individual to traverse the path of financial dynamics and plan their savings, fund the education of their kids, and plan a retirement corpus for themselves in an efficient way. By navigating the intricacies of personal finance, helping adolescents with the avenues to make informed decisions, and nurturing a sense of financial responsibility.
The present article looks into how financial literacy empowers individuals to take on challenges, seize opportunities, and secure their financial lives in the long term.
The importance of early financial education/literacy
In a rapidly evolving world, financial education is important to secure younger individuals financial goals from an early age. The RBI data manifests a critical gulf in financial literacy among adults, emphasising the urgency of financial education in schools.
Dr. D. Subbarao, former Governor of RBI, is of the opinion that financial literacy strengthens individuals with knowledge and skills necessary to make informed decisions about finance, investments, and future planning. A prudent financial decision is critical to economic well being. Financial literacy and its importance for making investment accessible across India. A financially illiterate individual without any knowledge of credit scores, interest rates, responsible borrowings, or the magic of compounding may find himself in massive debt.
Dr. Swati Bhatt, a lecturer at Princeton University, believes that early financial literacy lays the groundwork for responsible financial behaviour and empowers people to make informed financial decisions throughout their lives.”
India is making progress in closing the gap in financial literacy, but there are still many obstacles to overcome.
There are many obstacles that rural dwellers must overcome in order to build wealth from their savings. For rural investors, the lack of financial literacy and accessible investment avenues provides a challenge.
A significant portion of savings in rural areas are invested in non-traditional savings vehicles such as gold, chit funds, real estate, and mostly bank accounts.
This gap can only be bridged by building a financial curriculum from an early age for individuals, which will impart the necessary financial skills throughout each stage of their career.
Financial literacy will inspire increased involvement among the youth in the financial markets and other investment avenues to set financial goals and objectives, develop credit discipline, and avail facilities of financial avenues from the institutions.
The risk of illiteracy
Financial literacy, a crucial skill that equips individuals with the knowledge and abilities necessary to make informed financial decisions, plays a pivotal role in empowering people to manage their finances effectively. Among the fundamental aspects of financial literacy is the understanding and management of debt.
One of the common pitfalls of financial illiteracy is the amalgamation of debt. This occurs when individuals accumulate multiple debts from different sources, such as credit cards, student loans, and mortgages, without a clear plan for repayment. This can lead to a cycle of debt that becomes increasingly difficult to break free from.
To avoid such pitfalls, it is essential for young people to be aware of the different types of debt and their potential consequences. By understanding the terms and conditions of each debt, such as interest rates and repayment schedules, individuals can make informed decisions about borrowing money. It is also important to establish a budget and stick to it, ensuring that debt payments are prioritised and do not exceed a manageable portion of monthly income.
Effective debt management and financial governance are essential for long-term wealth creation. By developing good financial habits early on, individuals can avoid the burden of excessive debt and build a solid financial foundation for their future. This includes setting financial goals, such as saving for retirement or a down payment on a house, and creating a plan to achieve those goals.
Incorporating financial literacy into educational curricula and providing accessible financial resources can help young people develop the knowledge and skills needed to make informed financial decisions. This can empower them to take control of their financial future and achieve financial success.
Examples of successful financial education initiatives
In recent years, there has been a growing recognition of the importance of financial literacy at the grassroots level. Some organisations and government initiatives have taken the lead in promoting financial literacy among children, recognising that it is a critical life skill that can empower them to make informed financial decisions and achieve financial well-being in the future.
One such initiative is the National Institute of Securities Markets (NISM), which is a public institution under the Ministry of Finance, Government of India. NISM has been actively promoting financial literacy in children through its various programs and initiatives. These initiatives aim to provide children with a strong foundation in financial concepts and equip them with the skills they need to manage their money effectively.
For example, NISM’s “Financial Literacy for Children” programme is designed to introduce children to basic financial concepts such as budgeting, saving, investing, and responsible borrowing. The programme uses interactive workshops, games, and activities to make learning fun and engaging for children. NISM also collaborates with schools and educational institutions to integrate financial literacy into the school curriculum, ensuring that children are exposed to these concepts from an early age.
Another notable financial literacy initiative is “Money Smart Kids,” launched by the Securities and Exchange Board of India (SEBI), which is the regulatory body for the securities market in India. Money Smart Kids is a comprehensive financial literacy program that introduces schoolchildren to basic financial concepts through interactive workshops and games. The programme aims to foster a culture of financial responsibility among children and empower them to make informed financial decisions as they grow older.
Money Smart Kids covers a wide range of topics, including budgeting, saving, investing, and financial planning. The workshops are conducted by trained facilitators who use engaging activities, videos, and games to make learning fun and effective. The program also provides resources for parents and teachers to help them support their children’s financial education.
These initiatives by NISM and SEBI, along with other organisations and government efforts, are playing a crucial role in promoting financial literacy among children at the grassroots level. By equipping children with the knowledge and skills they need to manage their money wisely, these initiatives are helping to create a generation of financially literate adults who are better prepared to navigate the complexities of the financial world and achieve their financial goals.
Long-term effects on financial stability
By teaching financial literacy to young minds, the long-term effects on financial stability can be leveraged. This is because a financially savvy mind will invest wisely by creating a diversified portfolio, managing debt wisely, using mental budgeting, and exercising self control for long-term financial goals. Mental budgeting lets you calculate and evaluate future and present savings expenses and debt. This helps in the non-accumulation of debt. This financial literacy metamorphoses into prosperity and justifiable development and creates financial sustainability in individuals, society, enterprises, and national economics.
Responsible spending habits
A financial education since early childhood in an individual inculcates a sense of responsibility and ownership in him that prioritises his needs over his wants and checks his overspending. It is a natural habit for an individual to overspend and thus accumulate debt without much income.
Boosts saving
Financial literacy is a crucial skill that empowers individuals to make informed decisions about their finances, a journey that should commence in early childhood. By instilling a solid understanding of financial concepts and decision-making processes from a young age, children develop a sound foundation for navigating the intricate world of personal finance. In this endeavour, schools and parents have a pivotal role to play as motivators and educators, shaping young minds’ outlook towards money matters.
By integrating financial literacy into school curricula and promoting it at home, children can gain insights into fundamental concepts such as budgeting, saving, investing, and responsible borrowing. This knowledge equips them to make prudent financial choices, manage their resources effectively, and plan for their future financial security. Moreover, it cultivates a habit of financial responsibility, helping them avoid common pitfalls such as impulsive spending and excessive debt.
Empowered with financial acumen, individuals can harness their earnings to their best advantage. They become adept at creating and sticking to budgets, setting financial goals, and making informed investment decisions. This financial literacy not only boosts their savings but also increases their financial worth over time. By avoiding costly mistakes and making wise choices, they can accumulate wealth, secure their financial future, and achieve financial independence.
Furthermore, financial literacy has a positive impact on overall well-being. Individuals who are financially literate experience lower levels of financial stress, anxiety, and depression. They are more confident in their ability to manage their finances, which contributes to their overall sense of control and well-being. By equipping young individuals with the tools and knowledge they need to make sound financial decisions, we empower them to lead financially secure and fulfilling lives.
Preparing for emergencies
There are lots of challenges and unpredictability when traversing daily chores, and it’s mainly due to money matters. When an individual is empowered with knowledge and resilience in money matters, the path to financial success becomes easier. A financially savvy person can gauge any unseen eventualities beforehand, like a recession, a job loss, or any financial emergency. Only people who are equipped with financial knowledge have the preparedness or know the importance of creating an emergency fund to weather storms from any unseen eventualities, and that too without compromising their financial status.
Early financial education is the stepping stone to creating a knowledgeable group of individuals. The idea of inculcating and enshrining money habits, planning for future financial goals, understanding debt and credit, and being prepared for future uncanny events cannot be underestimated. A financially savvy person recognises the significance of creating an emergency corpus. In the present market scenario, we should always be prepared with an emergency fund with at least six months of expenses. It is a decisive way to avoid debt.
Parental saving socialisation
We all develop financial education through parental financial socialisation, which inculcates and develops financial skills and knowledge to make responsible financial decisions throughout our lives. Its parents who first impart financial knowledge through conversation converging on money matters by sending kids to markets to buy household articles to gain first-hand knowledge of financial intricacies. This can include:
Discussing budgeting, savings, and financial goals
Setting up bank accounts
Monitoring spending
Imparting financial education and habits
Help them create a home budget
Saving and investing for the future
Increased saving
A financial education since the nascent age goes a long way in creating a good investment and amassing wealth. Most people are not financially savvy and lack knowledge of financial terms such as interest rates, compounding, credit scores, debt, and budgeting. Any individual with a solid financial mind can calculate the good financial value of their investment with a set of good financial skills. So, we may make the assumption that early financial literacy helps in making informed financial decisions, which helps in wealth creation and financial security.
Facilitates debt reduction
A financially savvy person is less likely to fall into the trap of debt and financial loss compared to a financially uninformed person. A person with a sharp mind and savvy financial skills can avoid garnering unnecessary loans or splurging more than earning. This can only be achieved by educating young minds in all spheres of finance to save them from the debt trap. It is with good financial acumen that a person achieves debt reduction in his financial goals.
So, a financially savvy individual is less likely to fall into the trap of debt accumulation and financial stress over a period of time. Any individual can ward off financial stress, debt, and scams and minimise tax burdens by skilfully investing and thus improving their credit score.
Enhance financial planning
Financially literate individuals are equipped with the knowledge and skills necessary to navigate the complexities of personal finance. They possess a deep understanding of financial concepts, including budgeting, saving, investing, and debt management. This financial literacy empowers them to make informed decisions that align with their long-term goals, such as retirement planning and ensuring the well-being of their families.
Early financial education is paramount in shaping financially savvy individuals. By introducing financial concepts at a young age, children and young adults develop a solid foundation for future financial success. They learn the importance of delayed gratification, responsible spending, and the power of compound interest. This early exposure to financial education helps them develop healthy financial habits, such as regular saving and mindful spending.
One of the key benefits of financial literacy is the ability to plan for retirement effectively. Financially savvy individuals understand the importance of saving for their golden years and making wise investment decisions. They create a retirement plan that considers their income, expenses, and risk tolerance. By starting to save early and investing wisely, they increase their chances of enjoying a comfortable and financially secure retirement.
Furthermore, financially savvy individuals are better equipped to handle unexpected financial emergencies. They have an emergency fund in place to cover unforeseen expenses, such as medical bills or job loss. This financial cushion provides them with peace of mind and protects them from falling into debt.
In addition to retirement planning and emergency preparedness, financially savvy individuals make conscious decisions to ensure the well-being of their families. They set up education funds for their children and plan for their marriages. This financial planning demonstrates their commitment to providing their loved ones with the opportunities and resources they need to succeed in life.
Improved credit management
From a young age, a financially educated individual recognises the significance of responsible credit management as a cornerstone for securing a promising future. Through prudent financial decisions, they leverage their creditworthiness to make wise investments, building a solid financial foundation.
In contrast, a financially illiterate person may fall into the trap of impulsive spending without considering the long-term consequences. This reckless behaviour can lead to the accumulation of significant debt, jeopardising their financial stability. The lack of financial knowledge and poor spending habits can result in a negative credit score, which serves as a red flag for lenders. This unfavourable credit history can make it challenging to obtain loans, secure favourable interest rates, and even hinder employment opportunities.
Furthermore, the absence of financial literacy can escalate into severe financial pitfalls, such as bankruptcy. Bankruptcy not only carries legal implications but also damages an individual’s creditworthiness for an extended period. It becomes increasingly difficult to rebuild trust with lenders, making it challenging to secure loans or credit cards. The financial fallout from bankruptcy can linger for years, affecting a person’s ability to secure housing, obtain insurance, or even open a bank account.
Increased financial inclusion
The government has some schemes running for financial inclusion for vulnerable sections of society to uplift them socially. Early financial inclusion can close the gap in India by equipping them to make informed financial decisions for their own good.
Mitigates financial stress
An early financial education creates an informed investor and strengthens his ability to manage his finances in a prudent manner. This makes the individual financially well off due to prudent investment.
Provides long-term financial stability
Early exposure to financial tools for an individual creates financial independence and wealth accumulation in the long run. The accumulated wealth and satisfaction of it are ingrained in a person’s personality. As a kid, after being educated in financial matters since his early days, he makes well informed financial decisions and manages his resources later efficiently.
Conclusion
In the context of the Indian scenario, early financial education is imperative for fast-track economic growth and urbanisation, accelerating access to credit and financial products . By introducing the finance curriculum in school education, our country can prepare and equip with practical skills to thrive in the adult world and create more financially literate citizens. Making them well-versed in financial acumen to navigate the intricacies of personal finance and achieve long-term wealth creation.
This article is written by Shreya Patel. It exhaustively covers the doctrine of indoor management along with its origin, history, meaning, and importance of the doctrine along with some examples. The article further explains the exceptions to the doctrine, the key differences between the doctrine of indoor management and the doctrine of constructive notice, and the judicial interpretation of the doctrine in India. The article also includes a detailed explanation of the doctrine and its position under company law in India.
Table of Contents
Introduction
Businesses continuously engage with third parties whether customers, suppliers, or their investors. They regularly enter into many types of contracts, partnerships and transactions wherein the main elements are trust and good faith. Both parties rely on trust and assume that the other party is adhering to all rules and regulations. It is also assumed that the internal processes of the companies are functioning steadily. What happens when something goes wrong in the company’s internal process? And the third party is also not aware of the same? How will the third party protect themselves in this case? This is where the doctrine of indoor management comes in. The doctrine protects the third parties who have acted in good faith.
There are numerous doctrines present in the corporate world which help in establishing the relationship which guarantees the protection of the company’s stakeholders, the indoor management doctrine is one such doctrine. The doctrine of indoor management is one of the oldest concepts. The doctrine of indoor management is famously referred to as the ‘Turquand Rule’. The doctrine of indoor management is a 150 year old principle.
This legal principle observed in India emerged to protect the external parties from the companies. As per this doctrine, it is stipulated that the in-house matters of the company are to be taken care of by the company’s directors and not by any external parties. The doctrine relies on the concept that the directors of the company are the ones who are fully aware of the company’s affairs and its internal procedures.
Before moving on to the detailed discussion of the doctrine of indoor management, let’s briefly discuss what this doctrine is all about and how it has evolved over time in India.
Doctrine of Indoor Management
The doctrine of indoor management oversees the relationship of external parties with investors, creditors, customers of the company as well as the stakeholders. The doctrine attempts to protect the rights of the third parties who enter into the business under the presumption that the internal issues are managed by adhering to the bylaws of the company. If the representatives and the executives of the company have insufficient legal capacity and still act on behalf of the company, the external parties then depend on the presumed authority.
This doctrine helps in establishing the balance between the interests of the stakeholders and the internal control of the company. The doctrine of indoor management emphasises that when the outsiders’ actions are in good faith at the time of entering into a transaction, it can be presumed that there are no irregularities in the internal and other procedural requirements of the company and the company has complied with all such requirements.
The case of Raja Bahadur Shivlal Motilal vs. The Tricumdas Mills Company, Limited (1911)is the first case ever where the doctrine of indoor management was applied in India in the year 1911. In the case of Ramaswami Nadar vs. Narayana Reddiar AIR 1967 Mad 115, the third party had advanced money from the company using a promissory note which had to be signed by 2 company directors and a resolution was supposed to be passed for the same. The board had passed no resolution relating to it and hence the company denied such recovery. The Bombay High Court applied the doctrine and held that the third party was not bound to conduct an inquiry on whether such a resolution had taken place or not.
Objective of Doctrine of Indoor Management
The main objective of this doctrine is to protect third parties from the consequence which takes place due to internal irregularities. It protects the external parties when they enter into a contract with a company and if any discrepancies take place from the side of the company. The doctrine is based on the assumption that the external parties are often incapable of finding internal irregularities in the company. In such instances, the company is considered liable. Acting in good faith is a prerequisite for the application of this doctrine.
Evolution of Doctrine of Indoor Management
The doctrine of indoor management is a legal principle that protects the external parties when they are dealing with the officers of the company who hold certain authority to conduct some acts. The doctrine has been in place for years to protect third parties, the same being used in India since 1911. The origin of the doctrine of indoor management can be traced to one of the most significant English cases of Royal British Bank vs. Turquand, (1856) 6 E&B 327, hence the doctrine is also known as ‘Turquand rule’. This case held that the people who are interacting with the company are entitled to assume that all the internal processes are followed by the company even when the same is not the case.
Royal British Bank vs. Turquand (1856) 6 E&B 327
Facts of the case
In this case, the directors of the Royal British Bank issued a bond to Turquand who was not a company’s employee. The claimant had borrowed the money from the directors of the company. All the required internal processes which were mentioned in the AoA (Articles of Association) of the company were not followed. It was mentioned in the AoA that a general meeting has to be set up and a resolution has to be passed for the same, which was not done in this case. The shareholders argued that there was no resolution passed and no general meeting was conducted, hence they were not compelled to pay. It was stated by the bank that Turquand was expected to have the knowledge that the directors had violated the laws and the bond was hence unlawful.
Issues raised
Whether the bank could recover the loan, when there was an irregularity in the resolution of the board?
Whether the Royal British Bank was responsible for payments of the bond?
Judgement of the case
The court ruled in favour of Turquand. It was ruled by the court that the company was liable because the people who deal with the company were under the impression that the company had followed all rules and regulations along with the internal procedures which were required. Turquand had relied on the authority of the directors and hence had no reason to believe that there were any mandatory internal processes which were not followed.
In this case, a rule was formed that the transactions which were a part of the company’s normal business course, and involved third parties, it would be assumed that all the required internal processes and other requirements were being followed. If the transaction was considered as a standard procedure of the company it would be deemed that all the internal policies were followed.
The doctrine was affirmed in the case of Mahony vs. East Holyford Mining Co. [1875] LR 7 HL 869. In this case, the AoA of the company required the signature of both the secretary and the two directors on the cheques. It was later found that the signs of the director and secretary which were taken on the cheques, were not properly appointed by the company as per the requirements laid down in the AoA. The House of Lords (Ireland) in this case held that the cheque’s recipient was eligible for the payments because the director’s appointment was regarded as an internal procedure and the people who were dealing with the company were not required to oversee such matters.
Evolution of Doctrine of Indoor Management from Indian perspective
The doctrine was first used in the case of Raja Bahadur Shivlal Motilal vs. The Tricumdas Mills Company, Limited (1911). The plaintiff had given a loan to the defendant’s company. After the death of the principal director, the company went into liquidation and a charge was established on the property which was mortgaged by the plaintiff. The plaintiff and his lawyers were not aware that the respondent company’s board of directors lacked the minimum requirement of the directors as mentioned in the AoA and proceeded with advancing the loan. Now the company is denying such a loan.
The Bombay High Court ruled that both the plaintiff and his legal counsel had the right to believe that all the steps that were being taken were legal and correct. They also believe that all the required steps were taken for executing the contract and the same was completed accurately as well by the respondent’s company. The plaintiff and his legal counsel had no means to know that the board of directors of the respondent company were understaffed and that they lacked the minimum requirement which was mentioned in the AoA. The plaintiff had the right to believe that his settlement was passed within the timeline stated.
Though the doctrine is not explicitly mentioned under the Companies Act till now but its legal basis is found in some of the statutory provisions like Section 176 of the Companies Act, 2013 (hereinafter mentioned as 2013 Act) or Section 290 of the Companies Act, 1956(hereinafter mentioned as 1956 Act), (which is now repealed).
Let’s assume that you are dealing with a company and have entered into a contract with them. As an external party you will fully trust the company and their employees for eg. a director. As an outsider you will believe that all the internal processes are followed by the director. If something is not right in the later stages due to an act conducted by the director, the third party will not be harmed or blamed for the same. The below given Sections explain the same that if any company or their employees miss something or make any mistake the doctrine will protect these external parties.
Section 176 of the 2013 Act states that the defect in the appointment of the directors will not nullify their actions. The Section further states that the defects made in the director’s appointment will not invalidate the actions that are taken by them. If the companies use the same as a defence, stating that the decision which is taken by the director is invalid as they were not appointed properly as per the rules and regulations mentioned in the Act, or have some defects or disqualifications it will not be considered by the courts. Provided that the company is already aware of the same and has taken or is taking steps in order to rectify the same.
Similarly, Section 290 of the 1956 Act (which is now repealed) directly states that the acts which are done by the directors will be considered valid. It does not matter that after such an act has been carried out, such a director’s appointment was discovered to be invalid due to any reasons.
Importance of Doctrine of Indoor Management
The doctrine of indoor management focuses on the principle of convenience which is why it is considered one of the important doctrines under corporate law. It will be hard to conduct business if the external parties have to contact the company’s agents who have the authority and ask for proof related to the internal affairs and procedures that are being followed. This doctrine is based on the concept of perceived convenience in business partnerships. The AoA and MoA are public documents, but there are other internal procedures that are private and are known only to those who have authority. Hence the external parties are aware of the contents in AoA and MoA but they might not be aware of the internal affairs of the company.
It protects the external parties who are innocent, have acted in good faith, and assume that the company works by fully adhering to the public documents.
It provides protection to the external parties who conduct valid and legal business and releases them from responsibilities if any irregularity takes place in the internal procedures of the company.
The doctrine also recognises that it is unreasonable to expect that the external parties are familiar with the company’s internal affairs. It would be considered unfair to hold third parties responsible for something that they were not aware of.
The fluidity of the business transactions is maintained by the doctrine of indoor management which results in promoting the sector’s growth and also fosters various investment opportunities.
The doctrine of indoor management helps the business streamline transactions and promotes trust between the company and third parties.
The doctrine helps in reducing the abuse of the principle of constructive notice (a principle that states that all parties involved with any company are assumed to have the knowledge of AoA and MoA of the company), which is why it is followed by the courts and is applied till date.
This doctrine in the company law allows the external parties to enter into transactions and contracts with the business and also rely upon the documents and representation of that particular company without having the need to inquire or carry out an investigation in relation to the internal affairs of the company. If all the documents of the company seem to be legal, the external parties can assume all the internal processes of the company are completed accurately.
In the case of Sri Krishna Rathi vs. Mondal Bros. And Co. (P) Ltd And Anr (1965), the manager of the company as per the MoA and AoA had the authority to borrow a specific sum of money. The manager borrowed money from Hundi (a traditional financial instrument). The money that was borrowed was not placed in the company’s strongbox. The Calcutta High Court held that the company had to acknowledge the Hundi. The money was lent with a bonafide intention. The lender could not get the money due to the fraudulent actions of the manager. Hence the company was held liable for the same as the lender believed that the manager was functioning under the authority given to him by the company.
Provisions related to the doctrine of indoor management
The objective is to protect the external parties from the companies’ fraudulent transactions. The provisions related to indoor management are not explicitly codified in many jurisdictions but are backed by the principles of company law and other statutes which give significance to preserving the integrity of the business transactions.
For instance, Section 134 of the 2013 Act mandates that the companies have to make financial statements that are true and fair in nature so that the shareholders can view and the same get an idea of the company’s finances. This Section helps in preserving the integrity of the business transactions.
Similarly, Section 188 of the 2013 Act deals with related party transactions which states that all the transactions are to be carried out with the approval of the company’s shareholders or the board. The Section aids in avoiding future conflicts between third parties and the company. And if such conflicts take place the doctrine of indoor management can be used to protect the third parties if they have acted in good faith.
The company laws outline the powers and duties of the director and officer along with all the procedures required to conduct different acts in the company. These laws recognise the internal governance and the practical aspects of business transactions. A framework is established by the company where all the responsibilities and the company laws are made transparent for the outsiders, so they can rely on these when they enter into a contract with the company.
Illustrations
Let’s understand the doctrine of indoor management with some illustrations.
A company known as Sheetal Ltd. has a director named Ms. Sheetal, and she has the authority to sign contracts. Ms. Sheetal entered into a contract with a construction company to renovate the first floor of the office without the approval of the board. The construction company was not aware of the internal processes which are to be followed for the same and assumed that the contract was totally valid in nature as Ms Sheetal had the authority. Ms Sheetal acted out of her authority, still, the construction company can enforce the contract on Sheetal Ltd. The doctrine of indoor management will protect the rights of the construction company as they entered into the contract in good faith and were not aware of the internal irregularities.
XYZ bank’s policy stated that if a loan exceeding Rs. 25,00,000 is given, a board’s approval is required to approve such a loan. Mr. Sharma, an executive of the bank signed an agreement for a loan with another bank ABC for Rs. 35,00,000. Mr. Sharma did not have the authority to do the same with the approval of the board. ABC Bank simply assumed that Mr. Sharma had the authority which was required. As per the doctrine of indoor management ABC Bank can legally enforce the agreement with XYZ Bank. ABC bank can be protected as it relied on the apparent authority which they believed Mr. Sharma had, and XYZ bank’s internal affairs and procedures are not the concern of the other party.
A sales manager in Greentech Industries had some specified authority. There was an old memo used for internal uses which listed that the sales manager had some extended powers to sign certain documents. The sales manager negotiated a deal with a contractor on the basis of the old internal memo. The company which entered into the deal can enforce the deal with Greentech Industries. The doctrine will protect the external party as they relied on the sales manager’s authority.
Prima Sphere is a design company, where the company’s seal is required on all contracts. The company’s manager Mr. Ghosh entered into a partnership agreement with Wellness Fibres. At the time of signing the agreement, Mr. Ghosh did not put the seal. With the doctrine of indoor management Wellness Fibres can still enforce the agreement as they simply relied on the apparent authority of the manager, despite the absence of the seal of the company.
These illustrations explain the relevance of the doctrine in protecting the external parties who act in good faith and rely upon the assumed authority of the company.
Criticism of Doctrine of Indoor Management
Like every coin has two sides, so does this doctrine. Along with the significance of the doctrines there are some criticisms as well. One of the criticisms of the doctrine of indoor management is that it provides only limited protection to a company. When a prohibited activity is carried out by an employee or a director of the company, this doctrine in that case offers very little defence. Despite not knowing the internal procedures of the company, the external parties enter into agreements with them, which exposes the companies to a high amount of unauthorised transactions which may result in fraud as well.
The application of the doctrine of indoor management is often subjected to unanticipated outcomes. It is also very challenging to determine whether the external party really had a reason to believe that the company’s directors and employees were overstepping their authority. There is no accurate description of what is constituted as the normal activities of the company. It is also viewed that the doctrine of indoor management at times also encourages a clash of interests between the directors of the company and their shareholders.
The directors of the company can abuse their powers and also act against the AoA of the company. This happens because the parties believe that directors have the power to carry out such activities. In these situations, the shareholders of the company are the ones who have to suffer due to the incompetence of the director and his actions. On a practical note, it is also observed that there can be difficulty in finding the legality of these transactions and objections which may result in legal proceedings.
In the case of Hely-Hutchinson vs. Brayhead Ltd [1968] 1 QB 549, the English Court had brought to notice the concerns related to the doctrine of indoor management and its applicability. This doctrine should be used only when the external parties act in good faith and there is no reason to believe that they assumed something was not right. The doctrine of indoor management is a rule of evidence and not a rule of law. This doctrine has often attracted criticism on the note that it has the tendency to cause harm to the interests of the shareholders even if this doctrine provided protection to the outsiders.
Applicability of Doctrine of Indoor Management on government authorities
The Apex Court of India in the case ofM/S. M.R.F. Ltd vs. Manohar Parrikar & Ors (2010) analysed the doctrine of indoor management for the first time. The case was not directly related to the doctrine as it was a public law case, but the doctrine was referred to in the case in order to draw a comparison in cases where the doctrine was directly applicable.
A notification was issued by the State Government, which stated that a rebate would be granted in tariff for twenty-five percent in relation to the power supply to both low and high-tension industrial consumers. The same notification was nullified by another notification which was issued by the Ministry of Power. The validity of the notifications was challenged stating that both notifications were not in compliance with Article 166 of the Indian Constitution when read with Article 154 and also the Governor framed Business Rules of the Government.
The decision was taken without submitting the same to the Chief Minister or the Council of Ministers. The concurrence of the financial department was also not obtained. Due to this, it was held that the notifications were not sustainable in law. A decision is only considered when all the requirements laid down are followed by the issuing authority. When a decision which has financial ramifications is taken by any minister without consulting the finance department and the same is mentioned in the rules, it will not be considered as a government decision as per Article 154. These decisions were void ab initio and all the consequent actions taken in relation to these decisions were null and void.
It was also discussed in the case that –
“Both the doctrine of constructive notice and doctrine of indoor management are in direct contract which leads to a presumption that the same results in a favour for the company and is against the third parties. The indoor management notion is an exception to the constructive notice rule. The doctrine of indoor management imposes a limitation on constructive notice rule. As per the doctrine the external parties presume that the employees of the enterprise are observing the internal requirements which are mentioned in the AoA and MoA properly.”
“Hence the external parties are protected by this doctrine when they are dealing with the companies and on the other hand the doctrine of constructive notice safeguards the corporation’s employees and directors when they are dealing with third parties. The suspicion of irregularities is one of the most recognised exceptions for the doctrine of indoor management. If there are circumstances which lead to suspicion then an inquiry is carried out”
In this case, the exception was applied. There was reasonable doubt in relation to the conduct of the minister’s powers when the notifications were issued. Therefore the doctrine of indoor management was not considered to be applicable in this case.
Exceptions to the Doctrine of Indoor Management
There are some exceptions to this doctrine, where the external parties are not protected under this doctrine as they were aware of the irregularities which might take place in the company.
Forgery and fraud
When the acts are done in the name of the company and the company is not aware of the same then these acts are considered void ab initio as it a fraud. When a document is forged and the external parties rely on the same, then in such instances, the doctrine of indoor management will not apply. If the documents themselves are forged, then the company and its employees will not be held liable for forgery, as the same was not conducted by them.
In the English case Ruben vs. Great Fingall Ltd. [1906] 1 AC 439, a share certificate was received by the plaintiff which was issued by the company with a seal on it. The share certificate was forged and was issued by the company’s secretary by forging the director’s signature and affixing the seal. The plaintiff’s side argued that determining the genuineness of the documents should be counted as an internal matter of the company and the company should be liable for the same. The court in this case ruled that the doctrine of indoor management does not cover forgery matters. The Apex Court in the case of Vishwa Vijai Bharti vs. Fakhrul Hasan & Ors (1976) ruled that when a document is forged, it will be considered void ab initio and hence it will not create a legal claim.
Similarly, in the case of Kreditbank Cassel vs. Schenkers Ltd. [1927] 1 KB 826, the manager himself signed a bill of exchange, and wrote that he had signed the bill on behalf of the company. This was considered a forgery when the bill was drawn. The bill of exchange was issued with the intention of making a payment of the debt of the manager and not the company, hence this was considered forgery. It was held that it was a different document and it was alleged that it was on behalf of the company.
Suspicion of irregularity
If the external parties can carry out certain inquiries and examinations regarding the internal procedures of the company and even then enter into a contract and an irregularity which was known occurs the protection under this doctrine cannot be taken. if there are circumstances which make the requirements of inquiry quite important and the outside party ignores the same and moves ahead, in that case also the doctrine of indoor management does not provide protection.
In the Anans Behari Lal vs. Dinshaw And Co. (1945)case a property was transferred by the accountant of the company and the same was accepted by the plaintiff. The Bombay High Court held that transferring such property is considered invalid. And the accountant of the company cannot have such powers to transfer the company which is very easily known to the plaintiff as well, because how can an accountant of the company transfer any property of the company.
Knowledge of irregularity
When the third parties at the time of dealing with the company are aware of the internal irregularities and also have the actual constructive notice, and still choose to enter into that contract, then the external parties will not be considered eligible to seek protection under the doctrine of indoor management.
In the popular case of Howard vs. The Patent Ivory Manufacturing Company (1888) 38 Ch D 156, the agreement of the company mentioned that the director may borrow up to one thousand pounds from the company. If the limit for borrowing the money is to be increased then first permission has to be taken in the general meeting. One of the company’s directors got 3500 pounds without passing such a resolution. A fine was levied from the company of one thousand pounds under the doctrine of indoor management as the company’s director was aware of the resolution and still chose to ignore the same and move ahead.
In the case of Devi Ditta Mal vs. The Standard Bank of India (1927) 101 IC 558, the transfer of shares was approved by 2 company directors. The transferor has the prior knowledge that one of the directors is disqualified to make such approval as he himself is a trustee. And the other director was not appointed validly. Despite this, he entered into the transactions. The transfer of shares was considered invalid and ineffective.
Ignorance about the contents of Articles of Association
This exception states that the doctrine will not apply in cases where the parties have not consulted the MoA or AoA before entering into the transaction. If some action is clearly mentioned in the AoA of the company where it is stated that no general meeting has to approve the action and it can be taken solely by the director of the company using his knowledge and experience then in such cases, the company cannot say that the director did not pass a resolution. The power to the director is mentioned in the AoA itself hence this defence cannot be used by the company.
In the case of Rama Corporation vs. Proved Tin & General Investment Co. (1952) 1 ALL ER 554, the director entered into a contract and took the cheque from Rama Corporation acting on behalf of the investment company. The AoA of the company included that the director can delegate the power to one director to carry such acts. The content of the AoA was never read by Rama Corporation. In the later stages, it was found that the director who had entered into the contract was never delegated such powers. The plaintiff relied on the indoor management doctrine. The court held that they could not rely on the doctrine as they were not aware in the first place that such delegation of power was even possible.
Doctrine of Indoor Management under Company Law
There is no specific mention of the doctrine of indoor management in the Companies Act, 2013. Section 176 of the 2013 Act and Section 290 of the 1956 Act both mention that the acts considered by the directors will not be considered invalid, even if it is found that their appointment had some defect due to any reason. The courts in India recognize and acknowledge the doctrine. There are many cases in India where the judges used the doctrine of indoor management.
In Varkey Souriar vs. Keraleeya Banking Co. Ltd (1957), the doctrine of indoor management was approved. It was observed by the court that it is true that it is expected that when a company is governed by the AoA and MoA and has a public office, those parties that do business with such company are required to go over the content of AoA and MoA and other vital documents to ensure that the transaction they are going to enter is not in conflict with any of the rules of the company. The outside parties are not required to examine the internal procedures of the company. The external parties dealing with the company will believe that the activities that the director of the company is carrying out fall under his normal course of activities if there is mention of the authority in the AoA where the power for the same is delegated to the director.
In the landmark judgement of Lakshmi Ratan Cotton Mills Co. Ltd. vs J.K. Jute Mills Co. Ltd. (1956)it was stated by the Allahabad High Court that when a loan is taken by the company, the creditor can assume that all the required rules and regulations are followed by the company in doing the same and taking a loan is not against any rules of the company. If there is a requirement for the resolution for a board meeting, then the same has taken place and the creditor does not have to consider all these things as they are a part of the internal affairs of the company. There should be good faith from the creditor’s side at the time of entering such a transaction and there should not be any suspicions related to the same.
Doctrine of Indoor Management and board resolution
A formal decision which is made by the board of directors is referred to as a board resolution which takes place during the meeting and acts as documented proof of the decision that is taken by the board in the meeting. The board resolutions are legally binding to the company, its employees, and the directors. Resolution can be special or ordinary and it is the duty of the company director to define what kind of resolution will be needed.
For a board decision to be valid, there must be a quorum present for the same. All the directors have the right to vote in such board meetings unless there is an involvement of any personal interest of any director. When majority votes are given regarding a matter such a resolution is passed and approved in the meeting. When changes in AoA are to be made they are also to be registered with the Registrar of Companies in order to be effective. If not registered in the time period given then the resolution will be deemed to be invalid.
There are a lot of other decisions taken by the board that do not require to be reported to any third party and can be kept in the internal records. As per the doctrine of indoor management, public documents such as AoA and MoA are presumed to be available in the public domain. Hence anyone dealing with the corporation assumes that the internal affairs of the company are being followed and there is no need to inquire about anything and check decisions which are made by the directors of the company.
Landmark judgements on Doctrine of Indoor Management
Charnock Collieries Co. Ld. vs. Bholanath Dhar (1912)
The Calcutta High Court in the case of Charnock Collieries Co. Ld. vs. Bholanath Dhar (1912)determined that the lender had the right to believe that the managing agent had the approval and permission of the directors. The lender believed that approval of the board of directors was received by the managing agent when the lender provided the funds to the company up to a certain amount.
Official Liquidator, Manasuba And Co. vs. Commissioner Of Police And Ors. (1967)
InOfficial Liquidator, Manasuba And Co. vs. Commissioner Of Police And Ors. (1967), it was stated by the Madras High Court that it is expected of the third party entering into a transaction with the company to read all the important documents about the company such as AoA and MoA. However, the chances of the external parties examining the regularity, legality, and propriety of the director’s act are very low and unlikely. The recent judgement by courts in India has extended the doctrine of indoor management’s scope. The object of the doctrine will remain the same which is protecting the third party from internal irregularities when they have simply acted in good faith.
Hi-Tech Gears Ltd. vs. Yogi Pharmacy Ltd. And Ors (1997)
In Hi-Tech Gears Ltd. vs. Yogi Pharmacy Ltd. And Ors (1997), the Allahabad High Court stated that the plaintiff was an honest borrower who had borrowed the funds using the inter-corporate deposit. The complainant had the right to presume that the defendant company had met all the conditions laid down by the management and the directors had followed the protocol decided in the board of director’s meeting.
M/S. M.R.F. Ltd vs. Manohar Parrikar & Ors (2010)
In the case of M/S. M.R.F. Ltd vs. Manohar Parrikar & Ors (2010), the Supreme Court stated that the indoor management doctrine would not apply to Goa due to the fact that there were irregularities in internal affairs and it had to be taken care of first. There should always be a balance when it comes to protecting the rights of the company as well as the third parties. An over-extensive use of the doctrine is prevented.
Interrelation between Doctrine of Indoor Management and Doctrine of Constructive Notice
Both doctrines work closely together to protect both the third parties and the company when they enter into a contract. With the help of these doctrines, both the companies and the third parties can be kept in check and it can be ensured that no party to the contract is making unethical gains. Both doctrines were developed and are applied till today to ensure that the companies as well as the external parties can protect themselves if one of them acts unfairly.
The doctrine of indoor management was developed as an alternative to the doctrine of constructive notice. Both these doctrines are vital in the company law as they help create a balance between the rights of the company and the external parties and provide protection to both when there is a need.
Doctrine of Constructive Notice
The doctrine of constructive notice protects the companies from the false claims of third parties. The doctrine states that when the third parties enter into any type of contract with the company, it is assumed that the third parties are aware of the rules and regulations of the company and they have inspected the same. It is assumed the third parties have thoroughly gone through the Articles of Association (AoA)(A document which contains bylaws or rules that govern the company).
Difference between Doctrine of Indoor Management and Doctrine of Constructive Notice
Basis
Doctrine of indoor management
Doctrine of constructive notice
Origin
The doctrine of indoor management evolved during the case of Royal British Bank vs. Turquand, (1856) 6 E&B 327.
The doctrine of constructive notice was proposed by the House of Lords.
Objective
The main objective of this doctrine is to protect the external parties.
The main objective of this doctrine is to protect the companies from outside parties that claim they were not aware of the contents mentioned in the public documents (AoA and MoA).
Awareness
As per this doctrine, the parties are not aware of the internal affairs and procedures of the company. The internal affairs of the company are not published anywhere and can change from company to company. This kind of information may not be available to the public.
The two main documents of the company which are AoA and MoA are open to the public. As these documents are published and registered with the authority they are in the public domain and everybody is aware of the contents.
Procedures and affairs of the company
This doctrine only talks about the internal procedures of the company which are not known to external parties.
This doctrine is limited to the company’s external affairs only.
Scope
The scope of the doctrine of indoor management is limited to protecting the external parties when they are not aware of the internal procedures.
The doctrine of constructive notice has a broad scope as compared to the doctrine of indoor management as it is applicable to all the documents that are published publicly.
Example
For example, if the company has an internal rule which states that before signing any loan agreement with the external party a meeting is to be considered first. The outside party will not know of such internal procedures.
For example, if a company’s MoA clearly mentions that the signature of only the company directors will work on the loan agreements, and if a party enters into a loan agreement with the company and takes the signature of the secretary then it is assumed that external party had the constructive notice of the same and still chose to enter in such contract.
Conclusion
The doctrine of indoor management plays a vital role in protecting the external parties who are engaged in the company transactions. Efficiency is promoted by this doctrine as it allows outsiders to rely on the officers of the company and their authority and establishes trust in commercial activities. It is also crucial to note that this principle has its own criticisms and exceptions where outsiders may not be given protection. This proves the significance of awareness and diligence in commercial transactions.
With this principle, the external parties are provided the benefit of not conducting an inquiry or having any knowledge of the internal procedures of the company. The doctrine of constructive notice and indoor management has been used by the courts to date to maintain the balance between the rights of the company and the third parties.
Frequently Asked Questions (FAQs)
What does Section 166 of the Companies Act, 2013 entail?
Section 166 of the 2013 Act entails the doctrine of indoor management which states that the board of directors of the company will manage all the business of the company. Under this Section, the authority to delegate some specific powers (such as granting loans, fund investment, borrowing monies, representation power, etc.) is also granted to the board. These specific powers can be delegated to officers of the company, committees, or individual directors.
Which is the most important document relating to the doctrine of indoor management?
The Articles of Association (AoA) is the most vital document with respect to the doctrine of indoor management as well.
What are the limitations of the doctrine of indoor management?
The doctrine of indoor management does not apply when a forgery takes place, for there is negligence from the side of the third party or there is some irregularity or suspension which is already present.
Is the doctrine of indoor management applied in India?
The application of the doctrine of indoor management is seen in India. In the case of Dewan Singh Hira Singh vs. Minerva Mills Ltd (1959), in relation to the allotment of shares, the directors only had the authority to allot 5000 shares, but they allotted more than that. It was held by the court that the allottees of the share assumed that the directors of the company had the power to do so and only acted in good faith. The allottees are not bound to know these kinds of internal details of the company.
What are the exceptions to the doctrine of constructive notice?
The exception to the doctrine of constructive notice is the principle of indoor management. Both doctrines are directly opposite in nature.
Is the doctrine of indoor management defined under the Companies Act, 2013?
There is no specific provision that defines or uses the word ‘doctrine of indoor management’ under the Act. But there are some provisions that indirectly explain the same notion, for example, Section 166 of the 2013 Act.
References
G.K. Kapoor and Sanjay Dhamija, Company Law & Practice, Taxmann, (26th ed., Sept. 2022).
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