Features of a Limited Liability Partnership

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March 14, 2022

This article is written by Ashutosh Singh, a student at Amity Law School, Amity University, Kolkata. The article explains the features of a Limited Liability Partnership, its advantages and its legal framework citing relevant case laws as examples.

This article has been published by Sneha Mahawar.

Table of Contents

Introduction

The Indian economy is growing with leaps and bounds. With its growth, the role played by its entrepreneurs has been acknowledged globally. Entrepreneurship, knowledge and risk capital pool provide a further stimulus to India’s economic growth. In this scenario, a need was felt for a new system of the corporate that could deliver an alternative to the traditional partnership which had unlimited personal liability and statute-based governance structure of the limited liability.

Limited Liability Partnership (LLP) is a form of business enterprise in India but different from other business organisations such as sole proprietorship, company and partnership, etc. LLP is an incorporated partnership registered and formed under the Limited Liability Partnership Act, 2008 in India. It has limited liability as the name suggests, has a separate legal entity, and perpetual succession. It is the most suitable form of business organisation for small and medium enterprises. This form of enterprise amalgamates the characters of both traditional partnership firms and limited liability corporations. A change in the partners doesn’t affect its existence, rights or liabilities.

Meaning of a Limited Liability Partnership

In a partnership firm, the partners have unlimited liability for their total debts and the legal consequences thereof. In a partnership firm, the assets are prone to get attached to fulfil the debts and liabilities of the firm, the limited liability partnership solved this problem. This means that a limited liability partnership is a kind of business partnership where all the liabilities of a partner are restricted only to the money he/she invests. In other words, in case the partners are unable to make a profit in the business, creditors cannot confiscate their personal assets. LLP has a legal existence though, and its identity is separate from the partners.

The limited liability partnership structure is mainly based on the UK LLP Act, 2000 and Singapore LLP Act, 2005. One can find LLPs in countries like the United Kingdom, the United States of America, some Gulf countries, Australia and Singapore.

The legal framework of a Limited Liability Partnership

Any two or more persons conjoining to carry out a lawful business with an aim to make a profit may set up an LLP. The Companies Act, 2013 is not well-matched for the liability and governance structure wished-for for LLPs. The general focus of the legislation to standardise widely-held companies is distinctive. Therefore, in harmony with the proposals of the Irani Committee, it was felt that separate legislation should be enacted for LLPs.

The organisation and administration of partnership firms are at the state level under the Indian Partnership Act, 1932 where a partnership firm involves full joint and several liabilities on the partners. This is the reason for many enterprises employed in fields such as Biotechnology, Intellectual Property, Information Technology, and other knowledge-based fields, find traditional partnerships incompatible. Even for multi-disciplinary combinations, traditional partnerships are considered inappropriate that comprise a large number of partners that are looking for a flexible working environment but with limited liability.

The LLP structure, however, would stimulate growth and facilitate such enterprises to expand their trade and business across different states in India as well as abroad.

On 2nd November 2005, the Ministry of Corporate Affairs cited a concept paper on LLP Law on its website. This was to enable all interested stakeholders to express their opinions and suggest constructions for the Ministry to consider on various aspects of LLP Law. The concept paper was also spread to other concerned departments, autonomous bodies and ministries for their comments like:

Securities and Exchange Board of India (SEBI),
Comptroller and Auditor General of India (C&AG),
Insurance Regulatory Development Authority (IRDA), etc.

Many suggestions and comments were sent to the Ministry of Corporate Affairs on the concept paper after which these were examined in the context of international practices in this area of law. The Indian Act, however, has been prepared while keeping in mind the Indian requirements.

Finally, the Limited Liability Partnership Act, 2008 was passed by the Parliament for governing the LLP and its businesses in the country. Section 2 of this Act defines that the LLP is a type of partnership that is registered under this Act and the LLP agreement states the written agreement between the LLP partners themselves or the LLP itself and its partners. This agreement is supposed to define the duties, liabilities, rights and powers of the partners in the LLP.

From the inputs received by the Ministry of Corporate Affairs, it was also proposed that the framework should not be restricted to only professional services as recommended earlier by Naresh Chandra Committee and thus the LLP Act does not restrict the advantage of LLP structure to some classes of professionals only. Now that the Limited Liability Partnership Act governs the LLPs, the Indian Partnership Act, 1932 is not applicable to these partnerships.

Certain other committees, which made proposals for legislation on LLPs in India are as follows:

Bhat Committee, (1972)
Naik Committee, (1992)
Expert Committee on Development of Small Sector Enterprises, (1997)
Study Group on Development of Small Sector Enterprises, (2001)

Extent of liability of a Limited Liability Partnership and its partners

Section 27 of the Limited Liability Partnership Act, 2008 describes the extent of liability of LLP. According to this section, an LLP is not bound by anything that is done by a partner if in dealing with a person because the partner in fact has no authority to act on behalf of the LLP in doing a particular act and in such a case the partner’s act is considered void and the LLP is not liable for the partner. Only the concerned partner is responsible for the liability and not the LLP itself.

An LLP is also not bound by anything if the person that the LLP is dealing with has knowledge that the LLP has no authority or does not know or believe him to be a partner of the LLP. However, the LLP is liable if its partner, for the wrongful doing or omission on the part of the partner, is liable to any person in the course of business dealing with the LLP or its authority thereof. An obligation of the LLP that arises as a result of a contract or otherwise shall be the sole obligation of the LLP and these liabilities of the LLP shall be met out of the property owned by the LLP.

Sectio n 28 of the Limited Liability Partnership Act, 2008 describes the extent of liability of a partner. A partner is not liable personally, either directly or indirectly for an obligation just because of being a partner of the LLP. However, for any wrongful doing or omissions by the partner in the course of doing business, the partner is liable but other partner/partners shall not be personally liable for the wrongful act or omission of one partner of the LLP.

Section 29 of the Limited Liability Partnership Act, 2008 states that a person is liable if he/she by words spoken, written or by his/her conduct represents as one of the partners of the LLP and an outsider in the belief of this person’s representation of the LLP, extends him/her credit, but the Section does not make a mention of the extent of the liability.

Section 30 of the Limited Liability Partnership Act, 2008 is actually an exception to the limited liability position of an LLP because it has provision for the instance in which an LLP and even its partners can end up having unlimited liability. Section 30 of the said Act is very broad in its coverage of fraud committed against the creditors of the LLP or against any other person for a fraudulent purpose in the course of business. It also covers all or any of the debts or other liabilities of the LLP. This Section generally takes away the limited liability characteristic of an LLP if any fraud committed is established and creates the risk of an LLP retaining its limited liability position.

Features of a Limited Liability Partnership

A hybrid form of organisation

The Government of India has facilitated a business environment for entrepreneurs, service providers and professionals by creating a hybrid business structure to meet the global competition such as limited liability partnership. An LLP can be said to be a hybrid form of organisation because it has features of a partnership firm governed by the Partnership Act, 1932 and a company governed by the Companies Act, 1956 / 2013. The LLPs however, are administered by the Registrar of Companies.

Limited Liability Partnership is a body corporate

A body corporate can be a partner to an LLP as per Section 5 of the Act. As per Section 2(1)(d) of the LLP Act, 2008 a “body corporate” means a company that is incorporated/registered outside India, but does not include a corporation sole, a co-operative society that is not registered under any law for the time being in force, and any other body corporate that is not a company according to Section 3 of the Companies Act, 1956. It includes the following:

An LLP registered under the LLP Act;
An LLP incorporated outside India;
An Indian company that is either private or public;
An individual.

Perpetual succession

Section 3(2) of the LLP Act provides that an LLP is a body corporate that has a legal entity of its own and is separate from its partners hence, it has perpetual succession. In other words, an LLP is capable of acquiring, owning, holding, disposing of property, shares, securities etc., in its own name be it movable/immovable or tangible/intangible. An LLP can therefore sue and even be sued. Also, it is capable of doing and undergoing other acts as a body corporate would do or undergo.

The separate legal entity of an LLP

The LLP is a separate legal entity with unlimited capacity, meaning that an LLP can do anything that a natural person can do. It has the power to hold property in its name, enter into contracts, any change in the partnership doesn’t affect its existence. LLP is a legal entity separate from that of its partners. The LLP’s existence as a separate legal entity makes it more like a company than a partnership firm. The liability of the partners of an LLP is limited only to their contribution and a partner is not liable for another partner’s misconduct, negligence or commitment to an act of fraud. All the assets and liabilities of an LLP are it’s own and no partner is permitted to claim any exclusive right in the property or assets owned by the LLP during its continuance or at the time of its dissolution/winding up. Likewise, the creditors also cannot bring any action against the partners personally.

Limited Liability Partnershipas an artificial legal person

To appreciate LLP as an artificial person one should know that the law finds it necessary to give an entity, such as a firm, certain rights and responsibilities that are generally held by humans. When that entity is founded, it is known as an artificial person that exists independently of its partners and is treated as a separate person. An LLP is considered an artificial legal person because it is formed through a legal process and is cloaked with all the rights of an individual. Although an LLP is invisible, intangible, immortal, it is not fabricated because it really exists.

Number of partners in a Limited Liability Partnership

As per Section 6 of the LLP Act, 2008 any individual or body corporate can become a partner in an LLP. However, an individual will not be qualified for becoming a partner of an LLP, if:

The person is of unsound mind certified by a court of competent jurisdiction, or
The person is undischarged.

According to this Section, every LLP should have at least two partners. In the instance that the number of partners of an LLP reduces below two and the LLP still continues to do business for more than six months then the only partner of the LLP after those six months and who has the knowledge of this fact, becomes personally liable for the obligations of the LLP encountered during that period. Section 7 of the said Act talks about designated partners of an LLP and states that the LLP should have at least two designated partners who are individuals and sets the condition that at least one of them should be a resident in India.

Any partner of the LLP may become a designated partner by giving prior consent according to the LLP agreement and a partner may conclude being a designated partner in compliance with the LLP agreement. Every LLP should have at least two partners, but there is no limit on the maximum number of partners in the LLP Act, 2008.

Common seal

Common seal means a stamp used for stamping documents generally having the name of the company to show that they have been approved officially. An LLP being an artificial person does not have a body like a natural being. Accordingly, it acts through its partners and designated partners. Having a common seal for an LLP is not mandatory. However, if it decides to have one as per Section 14(c) of the Act, then the common seal of the LLP should have its name engraved along with the place and date of its incorporation. It should at all times remain under the custody of some responsible official and it should be used in the presence of at least two of its designated partners.

An investigation by a competent authority

Section 43 of the Act, provides that the Union Government has powers to investigate the dealings of an LLP by appointing a competent inspector or authority for the purpose. However, an investigation of the LLP can be carried out even if the Central Government has information that the plan of the business was to commit fraud against its creditors, partners, or any other person for an unlawful purpose. Investigation can also be carried out if the administration of the LLP is not as laid out in the LLP Act. An LLP is subject to investigation even if the registrar or any other investigating or regulatory agency submits a negative report about the functioning of the said LLP.

Profit motive

The indispensable ingredient for forming an LLP is having lawful business with an objective to make a profit. Thus, an LLP cannot be incorporated for non-economic or charitable purposes. An LLP offers flexibility for profit sharing differently to each partner. In other words, if the partners agree then the profit-sharing, as well as the loss-sharing ratio, may be different for the different partners of the LLP. The partners of the LLP even have the flexibility that one or more partners would share profits only and no losses at all if it is mutually agreed by them.

Limited Liability Partnership agreement

An LLP agreement must be prepared in detail and very carefully as it provides the foundation of the LLP, the obligations and mutual rights of the partners. The LLP Act offers a great degree of flexibility in terms of contribution of capital by the partners, profit/loss sharing ratio between the partners, admission of a partner, the retirement of partners, dispute resolution, and the management of affairs of the LLP, etc. As a result of all the aforementioned details, the LLP agreement becomes an important document.

Section 23 of the LLP Act, has provisions regarding the LLP agreement. It provides that the mutual rights and duties of the LLP and its partners should be as per the LLP agreement between the partners or between the partners and the LLP. The LLP agreement and any changes made in the agreement should be filed with the Registrar of LLP in case there is no agreement between the partners of the LLP, then their mutual rights and duties and the mutual rights and duties of the LLP and the partners should be governed by the provisions given in the first schedule of the LLP Act.

Conversion into a Limited Liability Partnership

A firm or a private company or an unlisted public company can be converted into an LLP in agreement with the provisions of the LLP Act, 2008. After the conversion, on and from the date of the certificate of registration acquired by the entity the effects of the conversion should be as specified in the LLP Act, 2008. The provisions for the conversion of a firm into an LLP is listed in clauses 2 and 3 of the Second Schedule of the LLP Act, The eligibility of a private limited company to be converted into an LLP are listed in clause 2 of the Third Schedule of the Act. The conversion from an unlisted public company to an LLP is provided in clauses 2 and 3 of the Fourth Schedule of the LLP Act, 2008.

Compromise or arrangement

Any compromise or arrangement including merger and consolidation of LLPs should be in agreement with the provisions of the LLP Act, 2008. Sections 60 and 61 of the LLP Act, 2008 deal with ‘Compromise and Arrangement’ respectively of an LLP. Section 60 states that an LLP or any of its partners/creditors/liquidator under winding up can vote for a compromise or arrangement through the Tribunal as per the directions given by the Tribunal. Section 61 on the other hand, provides that the Tribunal has powers to oversee that the compromise or arrangement ordered by it is carried out. If the Tribunal is content that the compromise or arrangement ordered cannot work properly then it may order for the LLP to wind up.

Absence of mutual agency

The fundamental principle of mutual agency of partners in a partnership is not present in an LLP, and its partners are the agents of LLP alone and not of the other partners. Thus, lack of mutual agency makes no partner liable on account of the independent/unauthorised actions of other partners. Hence the individual partners are not liable for the liability that is incurred by another partner’s wrongful acts.

Case laws

Mohammad Ibrahim v. Mr Nikhilesh Mittal (2016)

The plaintiff, in this case, asserts that he entered into a sale agreement with the defendants for purchasing a suit property for a consideration of Rupees eight crore. The plaintiff also claims that he paid a sum of Rupees fifty lakhs in cash to the defendants as earnest money. In spite of the acceptance of the earnest money, the defendants are taking steps for transferring the suit property to a stranger purchaser. Therefore, the plaintiff has filed the aforesaid suit. The High Court of Calcutta, on examination of the title deed relating to the suit property, found that the defendants are not the actual owners of the said property.

Onex Projects LLP is a registered LLP and it is the actual owner of the said suit property according to the title deed annexed to the injunction application. The defendants, in this case, are some of the partners of the said LLP. The High Court of Calcutta observed after reading the plaint and the injunction application by the plaintiff that they did not ever claim to have entered into an agreement for sale with the LLP for purchase of the suit property.

The Court did not find any privity of contract between the plaintiff and the LLP which is the owner of the suit property. Although the defendants are some of the partners of the said LLP firm, the plaint does not say that these defendants had the authority on behalf of the LLP firm to enter into any transaction with regard to the suit property as their agents. No case of fraud was made out against the defendants for attracting Section 30 of the Limited Liability Partnership Act, 2008. The High Court of Calcutta on deliberating on the facts and circumstances presented before it held that the plaintiff failed to make out a strong prima facie case to go for trial.

Jayamma Xavier v. Registrar of Firms (2021)

In this case, the petitioner claims to be the nominated partner of Sleeplock LLP which is LLP as the name suggests and is registered under the Limited Liability Partnership Act, 2008. The Sleeplock LLP, then formed a partnership firm along with Gourav Raj. A partnership deed was executed and the said deed was submitted for registration before the respondent. The respondent dismissed the application for registration on the ground that an LLP cannot be a partner of a firm. The petitioner said that the partnership was formed for processing, manufacturing, trading, importing, exporting, distribution and sales of foam, coir and other rubber products, through retail outlets and through online platforms. The petitioner submitted that a partnership along with an LLP is not barred under the Partnership Act since an LLP is a legal entity having perpetual succession and a common seal and it is separate from its partner as provided under the LLP Act. Also, under Section 14 of the LLP Act, an LLP is capable of suing and being sued, once it is registered. Thus, the petitioner claims that an LLP has the right of acquiring, developing or disposing of movable or immovable properties and hence an LLP is liable to be treated as a person. The respondent cannot have any objection therefore to register a partnership with an LLP which is a person. The LLP was also given a Certificate of Incorporation.

The respondent in the filed statement maintained its stand of the impugned order reasoning that some of the provisions relating to liability were inconsistent in the Limited Liability Partnership Act, 2008 and the Indian Partnership Act, 1932. Section 25, 26 and 49 of the Indian Partnership Act, makes the partners become jointly and severally liable with all the other partners. It also makes them severally liable for the acts of the firm, of which such a person is a partner. However, under Section 28 of the LLP Act, the provisions with respect to the liability of the partnership firm is limited to the contents (extent provided in the agreement) of the LLP agreement. The respondent added that such a provision runs contrary to Section 25 and 49 of the Indian Partnership Act. Therefore, the issue before the court was whether an LLP can be considered a person that can be allowed to form a partnership with an individual.

The Kerala High Court said that to examine the contentions raised by the learned Government Pleader it was vital to have a look at the applicable provisions contained in the Indian Partnership Act, 1932 as well as in the LLP Act, 2008.

The Court said in its judgement that Section 4 of the Partnership Act permits establishing a partnership between one or more persons. In this instant case, the partnership deed was implemented between an individual and an LLP which is a body corporate having a legal entity of its own and coming within the definition of “person”. The separate individual liability of the partners of the said LLP would not be relevant because the LLP itself would have liability that was independent of the liability of the partners. The Court elaborated that the difference in the provisions under the Partnership Act and LLP Act relating to the liability of the firm or the individual partners would not come in the way of entering into a partnership with an LLP. Hence the Court directed the respondent to reconsider the request of the petitioner for registration.

SRL Advisors LLP v. Delhi II (2021)

This case is about a refund of the erroneous payment of service tax in an appeal to the Custom, Excise & Service Tax Tribunal, Delhi. The appellants have submitted that they were incorporated as an LLP under the LLP Act, 2008 for delivering the main power supply service up to the end of March 2013. For this service, they got a project to supply manpower to V. Search HR Consultancy Services, a partnership firm up to February end 2013 after which they used the services of their own employees.

The range officer after verification said that the refund claim of the erroneous payment of service tax by the appellant was inadmissible. In the personal hearing of the dispute, the appellant said in support of his claim that they were an LLP and hence not covered in body corporate and they were not liable to pay service tax under reverse charge.

The adjudicating authority relied on the following for the definition of body corporate, company and an LLP:

Thus, it was concluded that an LLP is a body corporate having perpetual succession and is a legal entity separate from its partners. The tribunal after studying all the definitions of a body corporate concluded that a partnership includes an LLP for the purpose of giving concessions as to periodicity of payment of service tax, filing of returns etc. The tribunal further held that Rule 2(cd) of Service Tax Rules, 1994 does not mention that LLP is not a body corporate, and hence it is liable to pay service tax under the reverse charge mechanism. Consequently, the refund claim of the appellant was disallowed.

M/S Diamond Nation v. Deputy State Tax Commissioner (2019)

In this case, the petitioner filed two petitions under Article 226 of the Constitution of India against the orders passed by the respondent. The impugned orders the respondent had refused the application filed by the petitioner which was to add ‘Go Green Diamonds LLP’ as a partner in the petitioners’ firm. Since both the aforesaid petitions were arising out of identical facts they were taken up for joint hearing and disposal.

The petitioner’s side submitted that they being a registered firm under the Indian Partnership Act, 1932, wanted to introduce ‘Go Green Diamonds LLP’, a firm registered under the LLP Act, 2008 as a constituent partner of petitioners firm and this was the reason ‘Form-E’ came to be filed with the respondent- Registrar of Firms in accordance with Section 63 of the Indian Companies (Amendment) Act, 1930. However, the respondent rejected the application.

The issue for consideration before the Gujarat High Court was whether a partnership firm registered under the provisions of the LLP Act can be accepted as an integral partner of a partnership firm registered under the Companies Act. Citing the English as well as the Indian laws, the Court said that both the laws relaxed rigid notions and extended limited personality to a firm however, the general notion is still that a firm is not an entity or person in the eyes of law, but is just an association of individuals and a firm name is a combined name of those individuals who comprise the firm. In explaining the concept further, the Court referred to the following:

Section 4 of the Partnership Act, 1932;
Section 25 of the Partnership Act, 1932;
Section 49 in the Partnership Act, 1932;
Section 63 in the Partnership Act, 1932;
Section 4 of the LLP Act, 2008;
The LLP Act, 2008.

After perusal of the above-mentioned provisions and law the court said the following:

Section 4 of the Partnership Act explains the concept of ‘persons’ who have entered into a partnership with one another. These persons can only be individuals and cannot be considered as a body of persons. A body of persons like a firm cannot be a partner with other individuals.
The basic distinction in the Partnership Act and the LLP Act is relating to the ‘liability’. The Partnership Act holds the partner to be jointly and severally liable with all the other partners as well as the acts of the firm where the person is a partner.
Under the LLP Act, the liability of the partners is as per the contents of the LLP agreement. The Court added that this was against the purpose for which Section 25 of the Partnership Act was enacted.

Thus, the Gujarat High Court opined that this conflict was not a purport of the legislation as it was clearly mentioned under Section 4 of the LLP Act that the Indian Partnership Act, 1932 was not applicable to the LLP Act. In view of the aforesaid non-compliance, in some of the provisions of the two aforementioned Acts, the Court held that it was not inclined to accept the argument of the petitioner that a partnership firm under the LLP Act is merely a person or body corporate and hence it must necessarily be accepted as a partner in a partnership firm constituted under the Partnership Act.

Advantages of a Limited Liability Partnership

An LLP is a legal entity that is separate from its partners. Therefore, it can sue or be sued by a third party. Again, a partner can’t be held accountable for the misconduct or carelessness of the other partner.
Partners of an LLP can actively participate in the management of the business of LLP. There is no separation of management from ownership.
There is no minimum capital investment specified for an LLP. A partner’s contribution consists of both tangible, movable and immovable or intangible property.
In an LLP, the partners have the flexibility to draft the agreements of an LLP which defines the responsibilities, roles, powers and rights of the partners in an LLP and to each other.
The liability of partners in an LLP is limited to the extent of the amount that they have agreed to contribute.
If a fraud has been committed by a partner and it is so proved, only then that partner is held accountable for his/her actions.
The LLP has to comply with only three annual requirements that are, annual returns filing, filing of the statement of accounts, income and tax returns filing.
All companies, private or public, regardless of their share capital, are required to get their accounts audited, but this is not mandatory for an LLP. This is recognised as a significant benefit.
An LLP has to get a tax audit done only in cases when:

The contributions of the LLP exceed Rs. 25 Lakhs,
The annual turnover of the LLP exceeds Rs.40 Lakhs.

For income tax purposes, an LLP is treated at par with a partnership firm. Therefore, an LLP is liable for paying income tax but the share of its partners in LLP will not be liable to tax.
The ‘deemed dividend’ provisions under income tax law, will not be applicable to an LLP.
An LLP can be wound up very easily within two to three months, unlike a private limited company.

Disadvantages of a Limited Liability Partnership

As compared to a partnership firm an LLP has a separate legal status which requires extensive legal paperwork.
Unlike a company, an LLP does not have the concept of equity or shareholding. Venture capitalists are reluctant to make investments in an LLP because in order to make investments they would have to become partners in an LLP and eventually have to take some responsibility as partners.
There are higher penalties that an LLP has to pay if it fails to comply with the requirements as per law, as compared to a private limited company.
An LLP is required to file an income tax return each year even if it is not active or does not have any activity. Irrespective of the turnover, the LLPs are taxed at 30%.
For an LLP to get formed, it requires at least two partners. An LLP will have to be terminated if for any reason the number of partners is reduced to one.

Comparison of some features of an LLP, a private/public company and a partnership firm

Governing law

The governing law in the case of an LLP is the Limited Liability Partnership Act, 2008. Public and private companies are both governed by the Companies Act, 2013 and a partnership company is governed by the Partnership Act, 1932.

Registration

An LLP, public and private company have to get registered with the Registrar of Companies but registration for a partnership firm is optional.

Number of partners

It is mandatory for all of them to have at least two partners. However, an LLP and a public company can have as many partners as they want and there is no maximum limit on it. A partnership company can have a maximum of 20 partners while a private company can have a maximum of 200 partners.

Minimum capital

There is no specific requirement for the minimum capital investment in an LLP and partnership company. There is a minimum requirement of Rs One Lakh in a private company and Rs Five Lakhs in a public company.

Suffix used in the name

The name of the LLP should have ‘Limited Liability Partnership’ or ‘LLP’ as their suffix. The name should have ‘Public Limited’ in the case of public company and ‘Private Limited’ in the case of private company as a suffix.

Perpetual succession

A partnership firm ceases to exist on the change or death of a partner. Moreover, it does not have perpetual succession and this depends upon the will of the partners. On the other hand, perpetual succession exists in a public or private company and an LLP.

Legal identity

A partnership firm does not have a separate legal entity and has unlimited liability. Both private and public companies have a separate legal entity under the Companies Act, 1956. An LLP has also got a separate legal entity but under the Limited Liability Partnership Act, 2008.

Common seal

A partnership doesn’t have a concept of a common seal. For a company, private or public, it symbolises the signature of the company and every company should have its own common seal. The same goes for an LLP as the common seal denotes the signature but it is not mandatory. An LLP may have its own common seal, dependent upon the terms of the agreement.

Liability of partners/members

Every partner in a partnership firm has unlimited liability for all of the partnership’s debts. The partners are personally liable for debts accrued in the business, even if they personally had nothing to do with creating them. Partners in a partnership firm are severally as well as jointly liable for actions of other partners and the firm and their liability extends even to their personal assets. In a company, private or public and an LLP the liability is limited. In an LLP, the liability is to the extent of the contribution of the partners towards the LLP. For a company, it is limited to the amount required that has to be paid on each share.

Agreement

A partnership firm has to have a ‘partnership deed’ which provides the scope of operation and rights and duties of the partners. The agreement or charter document of a private or public company is the ‘memorandum and articles of association’ of the company. The LLP is bound by an LLP agreement which provides the rights and duties of the partners of the LLP.

Ownership of assets

In a partnership, the partners have joint ownership of all the assets belonging to the firm. A partnership firm cannot hold property in its own name. A private or public company is independent of the members and has ownership of its assets. So also for an LLP, it is independent of its partners and has ownership assets.

Principal/agent relationship

In an LLP, its partners act as its agents and not as other partners. In a private or public company, the directors act as agents of the company and not of the members. In a partnership firm, the partners are an agent of the firm and also of the other partners. Each partner in a partnership firm can be held responsible not only for the liabilities that result from a lawsuit but also for liabilities as a result of the contract signed by only one of the partners. This is because every partner is an agent of the partnership.

Compromise / arrangements / merger / amalgamation

Both the LLP and a company can enter into a compromise, arrangements, merger and amalgamation. On the other hand, a partnership firm cannot merge with other firms or enter into a compromise, arrangement, merger, and amalgamation with its creditors or partners. An LLP can be converted into a company, but a partnership firm, a private company, or a public company can all be converted into an LLP.

Dissolution

The dissolution of a company or an LLP can take place voluntarily or by order of a national company law tribunal. But in the case of a partnership firm it has to be by agreement, mutual consent, insolvency, certain contingencies and by court order only.

Admission as partner/member

A person can be admitted to a partnership firm as per the partnership agreement. A person can become a member of a company by buying its shares, by subscribing to the Memorandum of Association or by an agreement in writing. A person can become a partner in an LLP as per the LLP agreement.

Cessation as partner/member

In a company, a member or shareholder can stop being a member by voluntary (transfer, surrender, forfeiture, buy-back of shares by the company, etc.) or compulsory termination (insolvency of the person, death of the person, etc.) of his shares and in a partnership firm, a person ceases to be a partner as per the agreement. In an LLP, also a person can stop being a partner as per the LLP agreement or in the absence of an agreement by giving 30 days’ advance notice to the LLP.

Conclusion

The concept of LLP came to India through the United States, which introduced it after the financial crisis in the period 1980-1990 first in the city of Texas. It soon gained popularity in the other states of the United States and ultimately enabled the passing of the LLP legislation. The concept of LLPs exists in many countries that look at an LLP as a tax flow-through entity intended for professionals enabling them to have an active role in managing the partnership. Generally, professionals who opt for an LLP are lawyers, accountants, consultants, and architects.

LLP helps to overcome the drawbacks of a company and partnership firm business model, where there is a need for a hybrid form of entity that can have the characteristics of both. LLP although a newly introduced form of business partnership in India is finding favour with small and medium-sized businesses. Thus, the LLP Act also recognises the changing needs of the business environment in the current period in India, especially during the crisis created by the pandemic.

References

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Is weed legal in India

By

Rachit Garg

-

March 13, 2022

0

This article is written by Anvita Bhardwaj, a student pursuing B.A. LL.B. from Symbiosis Law School, NOIDA. In this article, the author has discussed legality of weed while throwing light on various other aspects such as effects of consumption, punishment, the status of legality in other countries and legalisation in India.

It has been published by Rachit Garg.

Table of Contents

Introduction

Cannabis in India is known by many names and exists in various forms. The most popular names are weed, charas, ganja, marijuana, etc. If you are a teenager or an adult, chances are you already know people who smoke this stuff or drink it on Holi. We are well aware that drinking bhang in Thandai is a common, socially acceptable practice. There has been a lot of hue and cry with respect to cannabis possession and consumption by celebs in the Bollywood industry. Amidst all this, the question that plagues the mind of a lot of people is “Is weed legal in India?” If you are someone who has wondered this as well, then this is the right place to find the answers. In this article, I will not only give detailed clarity on the legality of weed but also explore many other aspects related to it.

What is weed

The first question that comes to our mind is ‘what exactly is weed?’ Weed is a psychoactive drug derived from the Cannabis Sativa family. Marijuana, which is native to Central and South Asia, has long been used as a recreational and entheogenic drug, as well as in numerous traditional remedies. The main psychoactive component of cannabis is tetrahydrocannabinol (THC), which is one of the 500 recognised chemical compounds in the plant, including at least 100 additional cannabinoids. It also contains cannabidiol (CBD). Cannabis can be used in a variety of ways, including smoking, vaporising, cooking with it, and extracting it. It is also used for medicinal purposes.

Is weed legal in India

The Narcotic Drugs and Psychotropic Substances Act, 1985 is the central law in India that deals with cannabis (weed or marijuana). Different states, on the other hand, have their own legislation governing weed or marijuana consumption, possession, sale, or purchase. Possession of these narcotics is generally considered to be criminal conduct in India, and it can put you in legal trouble.

So, as of now, weed is not legal in India. However, there is a loophole for marijuana consumption.

Weed as defined under the NDPS Act, 1985

As per Section 2 (iii) and (iv) of the NDPS Act, 1985, weed is defined as:

“(iii) cannabis (hemp) means:

charas, that is, the separated resin, in whatever form, whether crude or purified, obtained from the cannabis plant and also includes concentrated preparation and resin known as hashish oil or liquid hashish;
ganja, that is, the flowering or fruiting tops of the cannabis plant (excluding the seeds and leaves when not accompanied by the tops), by whatever name they may be known or designated; and
any mixture, with or without any neutral material, of any of the above forms of cannabis or any drink, prepared therefrom;

(iv) cannabis plant means any plant of the genus cannabis;”

The NDPS Act’s definition of cannabis does not include bhang as a component of the plant.

The NDPS Act forbids the sale and manufacturing of cannabis resin and flowers, but the use of cannabis plant leaves and seeds is legal, with states having the authority to regulate and implement state rules. The states derive this authority from Section 10 of the NDPS Act, 1985. Anyone caught in possession of any of these cannabis plant parts could be arrested.

Position of legality of weed in different states

There is no complete ban on cannabis under NDPS Act and it can be used for medical, scientific, industrial, horticultural purposes by taking requisite permissions from respective state governments.

Odisha is one such State in India where marijuana is legal, and residents typically use ‘chillums’ to enjoy it within the State’s borders.
Uttarakhand is the first Indian State to legalise commercial hemp farming. Many other hilly states are considering allowing regulated production of hemp and marijuana because it is a rich crop that requires less water.
In Assam, the sale, possession, purchase, and consumption of ganja and bhang are all prohibited under the Assam Ganja and Bhang Prohibition Act, 1958.
In Maharashtra, the Bombay Prohibition Act of 1949 makes it illegal to manufacture, possess, or consume bhang and bhang-containing substances without a licence.

Loophole for consumption of weed

Bhang, a form of marijuana, is an exception. It is not only legal but also socially acceptable. On many levels, the use of bhang and other kinds of cannabis is deeply established in Hindu scriptures and mythology. Cannabis is one of the five sacred plants in the world, according to the Atharva Veda. Bhang is used as a penicillin alternative in Ayurveda. It is the nectar of the Gods and according to Hindu beliefs, Lord Shiva frequently consumed bhang.

What will happen to you if you are caught carrying weed in India

There are three legislations that determine punishment if you are caught carrying weed in India. These are:

The NDPS Act, 1985
The Juvenile Justice (Care and Protection) Act, 2000
State laws

The production, sale, purchase, transportation, interstate import/export, or any other commercial activity of cannabis is illegal under Section 20 of the Narcotic Drugs and Psychotropic Substances Act of 1985. The intention of drug possession is irrelevant, and the punishment is determined by the quantity of drugs in possession. Therefore, out of the two ingredients of crime i.e., actus reus and mens rea, only actus reus is enough to prosecute a person under this Act. If a person is arrested with drugs or is found to be a drug addict, he or she will not be prosecuted if he or she agrees to go through de-addiction treatment voluntarily. If you permit your property to be used for cultivation, you will be liable under Section 25 of the NDPS Act and will face the same penalties as stated under Section 20 of the NDPS Act, 1985.

Section 20 of the NDPS Act, 1985 : punishment for possession of weed

As we know, punishment is dependent upon the quantity of possession. Therefore, we should understand how much quantity comes under personal consumption or commercial use.

Small quantity

Hashish or Charas: 100 grams or less
Opium: 25 grams or less
Ganja: 1kg or less

Commercial quantity

Hashish or Charas: 1 kg or more
Opium: 2.5 kgs or more
Ganja: 20 kgs or more

Punishment

For cultivation of any cannabis plant

The statutory punishment for a term extending up to ten years, and a fine extending up to Rs. 1 lakh.

For production, manufacture, possession, sale and purchase, transportation, inter-state import and extort

The statutory punishment for possessing a small quantity is rigorous imprisonment for up to 6 months, a fine of Rs. 10,000, or both.
The statutory punishment for possessing more than a small quantity but less than the commercial quantity is rigorous imprisonment for up to 10 years, a fine of Rs. 1 lakh, or both.
The statutory punishment for possessing commercial quantity is rigorous imprisonment for up to 10-20 years, a fine of Rs. 1-2 lakh, or both.

Other sections of the NDPS Act related to punishment for possession/consumption of weed

Section 27

Section 27 lays down the punishment in cases of consumption of any of the narcotic drugs or psychotropic substances.

Nature of the offence

The offences committed under Section 27 of the NDPS are non-bailable and cognizable (as mentioned under Section 37 of the NDPS Act).

Section 28

Section 28 states the punishment for an attempt to commit an offence mentioned under the NDPS Act. It is thereby stated that whoever attempts to commit any offence punishable under this Chapter or to cause such offence to be committed and in such an attempt does any act towards the commission of the offence shall be punishable with the punishment provided for the offence.

Section 29

This Section states the punishment for abetment and criminal conspiracy. It is stated that whoever abets, or is a party to a criminal conspiracy to commit any offence punishable, shall, whether the offence is or be not committed in consequence of such abetment or in pursuance of such criminal conspiracy, be punishable with the punishment provided for the offence.

Legalisation of weed : an ongoing debate

Legalisation of marijuana is a controversial topic. Proponents argue that there are many benefits attached to it while opponents are concerned about the adverse effects it will have on individual and public health. Let us look at some arguments from both sides:

Proponents of weed legalisation

The very first argument is that despite weed being illegal, it is pretty easily available in all parts of the country. Smoking accessories such as rolling papers, pre-made joints are sold online and are easily accessible offline. Illicit marketplaces have developed as a result of criminalisation, which have been defined by violence, corruption, and the enrichment of cartels.
The justification for arresting, fining, criminalising, and forcing a marijuana user into treatment is presumably that people need the government to protect them from themselves, from the evils of their decision to use marijuana. The harm of deeming someone a criminal, on the other hand, is greater than the potential harm produced by marijuana.
People could have benefitted from medicine derived from cannabis. Only if the government allowed research and development of medicine. When you will not allow the scientists to research and doctors to conduct clinical trials then how will we know about the medical efficacy of weed? Anecdotal evidence has brought to light that weed consumption helps relieve pain, creates an appetite for cancer patients and helps people suffering from HIV-AIDS.
The government has grossly exaggerated the dangers of marijuana when there are significantly fewer health-related consequences connected with marijuana use than there are with alcohol use, and alcohol usage is associated with far more violent and aggressive conduct.
Weed criminalisation makes it impossible for the government to have any kind of control over the production and distribution. Marijuana cannot be tested for purity or potency because it is illegal to possess. There is no way to protect yourself from harmful pesticides, pollutants, moulds, germs, or even marijuana lacing. There are no safety restrictions in place. There will be no testing. People are completely unaware of what they are consuming. If regulated, producers and sellers would follow rules regarding health and safety, security, and zoning, among other things. When the foods and chemicals we consume are regulated, everyone benefits.
There have been 0 deaths recorded due to the consumption of weed to date.
Lastly, legalising and regulating weed would be beneficial as the government can collect tax on it.

Opponents of weed legalisation

This is a summary of official reasons given by the Indian government as to why weed should not be legalised.

Weed is a gateway drug. Once an individual starts smoking weed, they will get access to other, more harmful drugs such as heroin, cocaine, etc.
There isn’t any hard evidence that justifies its therapeutic use. There haven’t been many clinical trials with respect to using weed for medicinal purposes. Data appraising the effectiveness of marijuana is limited and often only anecdotal.
Not good for immunocompromised people as regulation for growth of it is not standardised. The crude plant may have mould or fungus which would cause more harm than good for immunocompromised people.
There are many active cannabinoids. We have no means of knowing which cannabis combinations are beneficial and which are harmful.
Long-term effects of smoking weed on the lungs may be harmful. Negative long term health effects may affect other parts of the body, for example, the brain. It also results in impairment of cognitive thinking for a short term.
Weed is not addictive, it is merely a myth. Data has been found that shows it may be addictive in 10% of the cases. Withdrawal symptoms include anxiety, depression, etc.
Increased risk for short- and long-term psychosis for adolescents.

Countries where weed is legal

Uruguay

It is the first country in the world that legalised weed for recreational purposes. People above the age of 18 would only have to make sure they are formally registered with the government before purchasing, selling, or cultivating anything. Commercial weed is now available in Uruguay’s pharmacies as of 2017. This is the liberal vision of the future.

Canada

Marijuana consumption is permitted in Canada for both recreational and therapeutic purposes. Publically, people aged 18 and older are permitted to possess up to 30 grams of cannabis in either dried or non-dried form. People can also grow up to four marijuana plants from legal seedlings at home. Only licensed retailers and producers are allowed to sell cannabis.

Netherlands

Carrying weed home is illegal in the Netherlands, but you can enjoy it simply by stepping into a coffee shop. Officials permit the sale of cannabis because it is “illegal but not punishable,” so long as stores obey certain restrictions, such as not promoting or creating a nuisance.

South-Africa

Marijuana consumption, possession, and cultivation became legal in South Africa in 2018. However, the use of space outside of one’s home for the sale and consumption of marijuana is still illegal. South Africa’s government published a master plan in August aimed at tapping a 28-billion-rand ($1.9-billion) cannabis economy that could generate 25,000 jobs and help attract international investment.

Spain

You are free to smoke whatever you want without facing any penalties or legal consequences. You’re fine as long as you smoke it in the privacy of your own house or on private land. While it is technically illegal to consume marijuana in public in Spain, purchasing from a Spanish cannabis club is an exception. Consumers can also buy marijuana at clubs. Only Spanish citizens are eligible for membership.

United States of America

The Controlled Substances Act (CSA) of 1970 makes it illegal for anyone in the United States to use or possess cannabis for any reason. Cannabis is classed as a Schedule I substance under the CSA, meaning it has a high potential for abuse and no recognised medicinal benefit, making even medical usage of the drug illegal. State policies on medical and recreational cannabis usage, on the other hand, vary widely, and many states’ policies conflict with federal law.

In the USA, recreational and medicinal use is not legal throughout the country. Out of 51 states, 18 states have legalised the use of recreational weed while 37 states allow the medicinal use of weed if you have a doctor’s prescription.

Should India legalise weed

The government in India can choose to legalise weed. Legalising weed would be more beneficial than harmful for India.

If India establishes a legal market, it would provide greater safety and product quality assurance. As a result, the chance of being victimised while buying weed, the risk of being sanctioned, search costs (particularly for first-time purchasers), and the psychological discomfort associated with purchasing an illegal good is all reduced. From the consumer’s perspective, this translates to lower quality-adjusted relative prices. Furthermore, once the market is legalised, retail prices would fall on average due to reducing supply-side risk. Given that cannabis is a commonly consumed item, lowering its price should result in more consumption.

Secondly, legalisation of weed would bring in a lot more tax revenue. It is a rich crop, i.e., high in monetary value. Moreover, there would be generation of employment once the government regulates it. It would lead to job creation. So, one good reason for legalisation is the potential economic benefits of marijuana’s regulated commercial availability. Increased tax income, employment creation, and investment opportunities are all compelling reasons to support legalisation.

Thirdly, we will be able to tap into the medicinal and therapeutic benefits of weed. Government can allow research and clinical trials.

Fourthly, the environmental benefits of decriminalisation of weed in India cannot be ignored. Not only can we use the plant for medicinal purposes, but we can also use it to replace over 50,000 products currently in use in society that cause an entire chain of environmental harm from extraction to processing to manufacturing to transportation to consumption to disposal and recycling into eco-friendly, biodegradable, renewable alternatives.

The Great Legalisation Movement India

The Great Legalisation Movement India (GLM India) is a non-profit organisation dedicated to making cannabis use legal in India for medical and industrial uses. Viki Vaurora founded it in November 2014. In many Indian communities, the social stigma attached to cannabis has existed for a long time. The campaign’s goal is to educate people about cannabis’ history and uses in order to prepare the way for its legalisation, which will kick off a nationwide green industrial revolution that will replace thousands of environmentally harmful products with sustainable hemp-based alternatives.

The official website gives us the information that GLM filed a petition at the Delhi High Court in July 2019.

As per GLM, it’s not just about smoking marijuana.

Weed has nutrition, medicinal remedies, and ecological and environmental benefits. This plant has the ability to re-invent the entire way humans live, with a tremendous impact on our entire environment and ecology. Cannabis as a crop is humanity’s best hope for undoing the harms of twentieth-century living and forging a better future by increasing its usage throughout the twenty-first century.

Long and short term effects of smoking weed

Weed has mind-altering components. This affects you both physically and mentally. THC travels from the lungs to the bloodstream when someone smokes marijuana. It then travels to the brain and other organs. THC binds to a receptor on the surface of nerve cells in the brain. THC’s actions on the nerve cells that regulate sensory perception and pleasure cause the marijuana ‘high.’

You get high

Getting high is nothing but THC’s effect on your brain. For most people, it alters the mind in such a way that they enter a state of euphoria, they feel calm and happy. However, it is pertinent to note that the effect of smoking weed may not always be positive.

Short term effect of weed on the brain

THC binds to receptors on nerve cells in various areas of the brain, affecting intelligence, memory, coordination, and concentration. This can have unfavourable consequences, such as:

difficulty with memory, forgetfulness;
loss of coordination;
challenges with thinking and problem solving; and
erroneous perception.

Though these adverse effects are fleeting and short-lived, they can make it risky to do activities like driving while you are high on marijuana. Other short-term effects that people may notice are a rise in appetite and a drop in inhibitions that can make you feel lightheaded or drowsy.

Emotional effects of smoking weed

While smoking weed puts your mind in a euphoric state, continued and regular use can lead to anxiety or depression. If someone has a diagnosis like schizophrenia or bipolar disorder, consuming marijuana can make symptoms worse.

Harmful for lungs

Smoking weed irritates and inflames the lungs. You may have the same lung issues as someone who smokes cigarettes if you smoke weed on a regular basis. People who consume weed frequently may develop respiratory issues such as excessive mucus, a chronic cough, and bronchitis.

Conclusion

Now that you have gone through the article and reached the end, I am sure you have a lot of new information. And if you have just skimmed through the article, let me summarise it for you. Smoking weed in India is not legal. However, the one and only exemption for it is consuming it as bhang. The NDPS Act, 1985 lays down the punishment for carrying weed on the basis of the quantity you possess. For possessing a small quantity you can face rigorous imprisonment for up to 6 months, a fine of Rs. 10,000, or both. For a quantity that is more than a small quantity but less than the commercial quantity you can face rigorous imprisonment for up to 10 years, a fine of Rs. 1 lakh, or both. For possessing commercial quantity you can face rigorous imprisonment for up to 10-20 years, a fine of Rs. 1-2 lakh, or both.

Many countries in the world have adopted the use of weed for both recreational and medicinal purposes. It is my sincere belief that rather than focusing on the drawbacks of weed, the government should see that the positives outweigh the negatives. One of the many reasons is because the negatives can be controlled and regulated by the government. Many of the problems listed by the government can be tackled easily such as:

Legalisation would create regulated markets, weed would not be a gateway drug;
Conducting more research would make it possible to ascertain if the drug has therapeutic use;
The problems of mould and fungus associated with crude marijuana can be inspected as after regulation of weed there would be concerned authorities to deal with contamination and adulteration issues;

The revenue generated would be beneficial especially for the hilly areas where weed can be cultivated. Because those areas receive less rainfall and weed requires less water to grow, commercialisation in such areas would be beneficial.

Lastly, I would like to conclude by saying that drug use is very different from drug abuse. It is in the hands of individuals if they want to abuse weed consumption as, despite criminalisation, people have easy access to it.

How do I quit smoking weed

If you’re someone who has started noticing some side effects and want to stop smoking weed, here is how you can quit it.

Weed addiction

Marijuana has the potential to be addictive. One out of every ten people who use marijuana on a regular basis may develop a “marijuana use disorder.” These people are unable to stop using marijuana, despite the fact that it is giving them trouble. People who start using marijuana before the age of 18 are significantly more prone to develop this condition.

When people, who have used marijuana for a long time, try to quit they may experience withdrawal symptoms. They may feel irritated, restless and anxious, or depressed. They may face difficulties while eating or sleeping as they would be prone to loss of appetite and insomnia. It usually becomes worse after a day or two of not taking marijuana. Withdrawal symptoms will eventually fade after that. They normally go away once the person stops using the drug for a week or two.

How to quit smoking weed

Firstly, you need to have a strong resolve in your mind. No one can help you quit unless and until you are determined to.
Recognize that you cannot help yourself, you need to accept help from friends, family and professionals.
Make it clear to your friends that you do not want to continue. Do not give into peer pressure. Change your company if your friends try to force you.
If you are afraid to tell your parents, you can take help from your siblings or cousins and confide in them.
Finally, make sure you see a counsellor to guide you through the process. Since they are bound by a contract of confidentiality, it is best to trust them and seek professional help from them.

References

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Types of breach of contract that you should know about

By

Sneha Mahawar

-

March 13, 2022

0

This article has been written by Oishika Banerji of Amity Law School, Kolkata. This article discusses the different types of breach of contract that signify the violation of a contract’s agreed-upon terms and conditions.

This article has been published by Sneha Mahawar.

Table of Contents

Introduction

A breach of contract is any violation of a contractual contract’s agreed-upon terms and conditions. A breach might range from a late payment to a more serious offence like failing to deliver a promised item. A contract is legally binding and will hold up in court. It is essential to be able to establish that a contract breach occurred in order to effectively pursue a breach of contract claim. When one party to a legally binding agreement fails to deliver according to the terms of the agreement, it is called a breach of contract. A contract violation can occur in both written and oral contracts. In the event of a contract violation, the parties may address the matter among themselves or in a court of law. A minor or material violation, as well as an actual or anticipatory breach, are examples of contract breaches. The article aims to discuss types of contracts and additional information related to the same.

Understanding the concept of breach of contract

Anyone who enters into a legal arrangement runs the risk of a breach of contract. If you deal with a lot of agreements, from employment contracts to vendor and customer agreements, you are bound to encounter one that doesn’t meet all of the parties’ expectations. Fortunately, because contracts are legally binding agreements, there may be recourse if one party fails to satisfy their contractual commitments. A breach of contract occurs when this happens, and recognizing that a breach has happened is the first step towards reclaiming your contractual rights.

When one party violates the conditions of a contract between two or more parties, it is called a breach of contract. This encompasses situations where a contractual obligation is not met on time, such as when you are late with a rent payment, or when it is not met at all, such as when a renter vacates their flat owing six months’ back rent. The procedure for dealing with a contract violation is sometimes spelled out in the original contract. For instance, a contract could include that if a payment is late, the offender must pay a Rs 5000 charge in addition to the missed payment. If the penalties for a specific breach are not specified in the contract, the parties may resolve the matter among themselves, which may result in a new contract, or by means of adjudication, or another sort of settlement.

It is also possible that a violation of a contract is in the best interests of society as a whole, even if it doesn’t benefit the parties to the contract. If the entire net cost of violating a contract to all parties is less than the total net cost of sustaining the deal, then breaching the contract can be economically efficient, even if one (or more) parties to the contract are hurt and left worse off economically.

Ingredients of breach of a contract

The elements that must be present in order for a party to a contract to claim damages over a breach of contract are:

The fact that a contract exists: In order to show the court that the contract was valid, it must be shown that there was an offer, acceptance of the offer, and consideration involved in accepting the offer.
Plaintiff’s performance or some reason for non-performance: Take, for instance, even if the contract’s provisions were not carried out exactly as requested, the defendant obtained services that were basically as requested. The defendant is obligated to pay at this time. For example, if a person painted a room but the receiver didn’t like the colour clarity, he or she will be obligated to pay, even if not the whole sum, at least something. If the colour was a key term in the contract, he or she may refuse to sign it.
The defendant’s failure to execute the contract: The defendant cannot claim that the plaintiff is not entitled to compensation because of his or her own fault. The plaintiff will not be held liable if he or she was unable to fulfil specific tasks because the defendant made them impossible to complete. He or she has the right to make a claim.
The plaintiff’s damages as a result of the defendant’s failure to perform as per their contractual terms: Each party’s pledge should be included in the contract they have entered into. The quality of the contract’s preparation will determine whether or not there is a breach of contract. Therefore, before signing into a contract, having an attorney analyse it is quite beneficial.

Reasons behind the breach of a contract

It is the court that will determine if the violation of a contract had a legal justification or not. The defence, for example, may argue that the contract was fraudulent because the plaintiff misrepresented or suppressed key facts.
The defendant might also claim that the contract was signed under duress, claiming that the plaintiff used threats or physical force to compel it to sign the agreement.
In other circumstances, both the plaintiff and the respondent may have committed mistakes that led to the breach.

What are the types of breaches of contract

A contract violation might be classified as minor or material. When you don’t obtain an item or service before the due date, it is referred to as a minor breach. One may, for example, bring a suit to your tailor for custom fitting. The tailor guarantees (in an oral contract) that the altered garment would be delivered in time for your essential presentation, but it arrives a day later.

When you obtain something that differs from what was specified in the agreement, it is referred to as a material breach. Take for example your company hires a vendor to supply 200 copies of a bound handbook to a convention in the car sector. However, when the boxes arrive at the conference venue, they are filled with gardening brochures.

Furthermore, a breach of contract can be classified as either an actual breach (when one party refuses to completely implement the contract’s obligations) or an anticipatory breach (when one party declares in advance that they will not be delivering on the contract’s terms).

Material breach of contract

In essence, a material breach takes place when “all the circumstances are wholly or partly remediable and are, or are likely to become, serious, in the wide sense of having a serious effect on the benefit which the aggrieved party would otherwise derive from the performance of the contract in accordance with its terms.” ‘The scale of the breach’ is strongly tied to the word ‘material.’ The scale of a breach in a business contract might be presumed to relate to the commercial repercussions of the breach if it is not corrected.

Justice Colman had analysed the terminology ‘material breach’ while referring to “a serious violation of any of the guilty party’s responsibilities,” enabling termination of the contract if the remedy of such breach had not been initiated within seven days, in National Power plc v. United Gas Company Ltd. (1998). The judge ruled that the fact that a material breach could be remedied was the factor responsible for distinguishing it from a repudiatory breach and that a clause restricting the innocent party’s common law rights in relation to a repudiatory breach made no commercial sense, so ‘material breach’ must refer to a non-repudiatory breach.

Application of a material breach of contract

When one party obtains considerably less advantage or a significantly different result than what was stipulated in the contract, it is considered a serious breach. Failure to execute the contract’s responsibilities or a failure to perform are examples of material breaches. A good application of the breach is when someone is looking to buy a property. A substantial breach of contract occurs when a buyer completes the necessary documentation and pays the seller before closing, but the seller suddenly decides not to sell or refuses to hand over the deed and keys to the house.

Difference between breach and material breach of contract

A contract violation might be classified into ‘material’ or ‘non-material’ breaches. The less serious of the two is a non-material violation.

A non-material violation is one that involves a minor or peripheral contract element. A non-material violation might arise, for example, if a homeowner and an electrician agreed that the electrician should wire the residence with yellow wire but the electrician instead used blue wire, the same results in a non-material violation since it has nothing to do with the contract’s core terms. Although the wire’s insulation has a different colour, this is only a tiny difference that has no bearing on the wire’s operation. Furthermore, because the cables are buried within the home’s walls, the colour difference isn’t even evident.

A material breach of contract is a more serious sort of contract violation. A major breach reduces the contract’s worth and is deemed a failure to execute a contract’s fundamental part. Take, for example, there was an agreement between a house owner and an electrician to install copper wire since it is more reliable and durable. However, in order to save money on materials, the contractor opts for aluminium wire, which is more prone to failure and requires extra attention if future electrical work is carried out. Thus the same results in a material breach of the contract since the deficiency in the performance of the same affects the electrical system’s performance, longevity, and safety, or put simply, the ‘heart of the matter.’

Legal implications of a material breach of contract

When a material breach of contract occurs, the non-breaching party may be excused from completing their contractual obligations, and may even be forced to stop doing so as soon as a breach is detected. They may also file a lawsuit against the other party to collect any damages.

Termination of a material breach of contract

When there is a genuine basis to terminate the contract before the performance has been finished, it is regarded as a legal termination of a contract. The most fundamental way to end a contract is to terminate it. A contract can be legitimately cancelled by providing justifiable grounds, under the Indian Contract Act, 1872, for instance, by means of frustration, a violation of contract, or a prior agreement. If termination is deemed as unjust, it might be considered a breach of contract in and of itself.

Minor breach of contract

A minor breach of contract, also known as a partial breach of contract or an immaterial breach of contract, occurs when the contract’s deliverable is eventually received by the other party, but the party in breach fails to fulfil some element of their commitment.

The UK Court of Appeal had decided in Rice (t/a the Garden Guardian) v. Great Yarmouth Borough Council (2000), that a clause stating that the contract could be terminated “if the contractor commits a breach of any of its obligations under the contract” should not be taken literally. It was deemed contrary to business common sense to allow any breach, no matter how minor, to be grounds for termination.

Material vis a vis minor breach of contract

A minor breach of contract happens when one of the contracting parties fulfils the majority of the contract’s conditions. The party may breach a minor contract provision that has no substantial impact on the other contract conditions.

A material breach of contract, on the other hand, is deemed a serious violation of the contract’s provisions. A minimal violation of contract normally does not prohibit the deal from being completed in a timely and satisfactory way. A major breach, on the other hand, makes achieving a satisfying result difficult or impossible.

Anything less than complete performance is considered a significant breach of contract in some countries. Any breach in such jurisdictions releases the non-breaching party from the contract. In other words, the contract’s non-breaching party has no further performance obligations and may claim for damages.

However, some states’ laws require a judge to decide whether a minimal breach of contract has occurred and if any remedies are necessary. Even if there was a slight breach of contract, damages may or may not be given if the non-breaching party obtained the same result, as was guaranteed by the contract. Also, the non-breaching party will be compelled to fulfil the contract’s requirements.

Anticipatory breach of contract

When one party thinks that the other party is not going to keep their half of the bargain, the same is termed as an anticipatory breach. This is usually demonstrated by a firm refusal to fulfil a contract, doing an action that makes it impossible to finish the contract, or when the contract’s subject matter becomes unavailable. In certain cases, the ‘non-breaching’ party has the option to terminate the contract. An anticipatory breach of contract is an activity that indicates a party’s intention to break its contractual obligations to another party. The counterparty’s responsibility to execute its obligations is terminated in the event of an anticipatory breach. The counterparty can start legal action after demonstrating the other party’s intent to violate the contract. Put simply, an anticipatory breach, also known as repudiation, occurs when one party fails to satisfy its contractual commitments to another. If parties seeking compensation in court assert an anticipatory breach, they must make every effort to limit their own damages. To qualify as an anticipatory breach, the purpose to violate the contract must be a complete unwillingness to perform the obligations. It is worth noting that by claiming an anticipatory breach, the counterparty can take legal action right away rather than waiting for the contract’s provisions to be violated.

Take for example the case of a real estate developer who hires an architecture company to design blueprints for a new building by a certain date. It is not sufficient to establish an anticipatory breach if the developer demands regular updates on the project and is dissatisfied with the current outcomes. While working on the project, the architects may be behind schedule. Even in this situation, the architects may be able to make their deadline provided remedial measures are adopted. An anticipatory breach would occur if the architects took activities that made meeting the deadline difficult. For instance, the architects may put the first project on hold and devote all of their energies on a new project with a different developer.

Explicit and implicit repudiation

Explicit repudiation occurs when a party expressly breaches a contract by openly refusing or being hesitant to carry out his or her portion of the deal before the contract’s real date.

Implicit repudiation occurs when a party does not expressly refuse to carry out his or her commitment. Rather, his or her failure to execute the promises before the contract’s due date is implied by his or her words or behaviour or the current situation.

Need for compensation consideration in anticipatory breaches

If parties seek compensation before a court asserts an anticipatory breach, they must make every effort to limit their own damages. This might include suspending payments to the party responsible for the breach and promptly investigating measures to mitigate the incident’s impact. It might also involve enlisting the help of a third party to carry out the tasks stipulated in the original contract.

The requirements for an anticipatory breach

To qualify as an anticipatory breach, the purpose to breach the contract must be a complete unwillingness to perform the obligations. The anticipated breach must only be founded on the presumption that the other party would fail to fulfil his or her duties.

How to determine an anticipatory breach

The two key elements which are used to assess if a case of anticipatory breach of contract exists are provided hereunder:

When a party has made it apparent that they will not perform or fulfil a part of their responsibility, and that performance is at the heart of the contract, renunciation or refusal to execute the contract cannot be subject to any circumstances or conditions. The aversion would then be absolute.
The perspective of a sensible and prudent person would be considered in assessing the position of the aggrieved party and also the decisions about the refusal to be clear and absolute when determining the magnitude of suitable refusal of performance of the responsibilities pursuant to the contract.

Judiciary’s take on anticipatory breach of contract

The Supreme Court of India while deciding the case of Food Corporation v. J. P Kesharwani (1994), had observed that if one party made unilateral modifications without informing the other and subsequently cancelled the contract, this amounted to a violation (repudiation). It can also be plainly stated that any sort of contract can be judged to be violated if one of the parties is unwilling or unable to fulfil their contractual obligations, regardless of when the performance is due to take place. A repudiation to enter into a contract is defined as an unqualified rejection or refusal to enter into a contract.

The respondent in the case of Aslhing v. S. John (1983), was a party to an ongoing contract with the government to enlarge the road, and he addressed a letter to the executive engineer informing him that the contract had been cancelled. The appellant claimed that the letter’s substance had no bearing on the contract’s cancellation, the same was maintained as well. However, it was clear from the letter’s specifications that the contractor unilaterally terminated the contract and notified the appropriate authorities, as well as resigning from the PWD Manipur contractor list. Thus, following this message, the contract was repudiated and recognition by the authority of the message was insufficient for the termination of the contract, although the breach may give rise to a suit for damages.

Actual breach of contract

An actual breach of contract refers to a breach that has actually happened, indicating that the breaching party has either refused to fulfil their responsibilities by the due date or has executed their duties badly, or has left them incomplete. When a breach occurs, the opposite party has numerous options for resolving the situation. Take for example on July 21, 2018, Mr. X signs a deal with Mr. Y, pledging to deliver 50 bags of jute to him. However, he fails to provide the same on the designated day. This is a clear case of an actual breach of contract.

Types of an actual breach of contract

Actual breach of contract due to late performance

This occurs when one of the parties fails to meet contractual duties and obligations within the specified time period for conformance. In such cases, the other party is not obligated to fulfil their obligations and can hold the defaulting party liable for the breach of contract. The defaulting party, on the other hand, may show a willingness to continue with the contract’s performance. In such a case, the decision to enable the defaulting party to complete the contract would be based on whether the contract’s crux was time or the duration. If time is a critical factor, failing to meet contractual duties by the deadline will be considered a breach of contract; however, if time is just a minor factor, or if time is not an important requirement, the aggrieved party may accept performance and seek damages for late delivery.

Actual breach of contract during the course of performance

It refers to a party’s failure or reluctance to carry out their contractual duties during the course of their performance. It can also happen if a party fulfils its responsibilities but refuses or fails to comply with the contract’s key terms and conditions.

Actual breach of contract and its supported case laws

In Bishamber Nath Agarwal v. Kishan Chand (1989), the Allahabad High Court had opined that when an agreement specifies that a specific activities relating to a contract must be completed within a certain period or manner, it must be performed in that manner or period only, and the parties do not have the ‘right’ to perform it in their own way or time.

In the case of Haryana Telecom Ltd. v. the Union of India (2006), the Delhi High Court had observed that even if one of the contracts’ provisions stated that exchanges made after the delivery period had expired, the same did not disenfranchise the party’s right to liquidated damages and that an examination of all the clauses revealed that time was the essence of the contract.

Anticipatory vis a vis actual breach of contract

When one party fails to execute his or her portion of the deal by the due date or performs incompletely, this is referred to as an actual breach. When one party declares his or her intention to not execute his or her share of the deal ahead of the due date for performance, an anticipatory breach takes place.

The entire contract is rejected or cancelled in the event of an anticipatory breach of contract. The breach might be of a condition, guarantee, or an indefinite term in an actual breach of contract.

In an anticipatory breach of contract, the aggrieved party can rescind or cancel the contract and file a lawsuit for damages without having to wait until the contract’s due date, or they can wait until the contract’s due date and then file a lawsuit against the defaulting party for contract breach. In the event of an actual breach of contract, the injured party has no choice but to file a lawsuit.

Remedies for a breach of contract

Under Section 73 of the Indian Contract Act, 1872, when a contract is broken, the party who is aggrieved by the breach is entitled to receive compensation for damages, from the party who has broken the contract. The damages must have naturally arisen in the normal course of things from the breach or which the parties knew when they made the contract to be likely to result from the breach. The damage is only payable if the loss was caused by the breach, according to Section 73 of the Indian Contract Act, 1872. There are no damages if there is no loss as a result of the breach. No loss from the breach automatically leads to any damages. Compensation is not paid for any remote or indirect loss or damage sustained because of the breach.

The Section also adds that ‘in assessing the damage or loss resulting from the breach of contract, the inconvenience caused by the non-performance of the contract must also be taken into consideration’. The difference between the market price and the contract price at the time of the breach is the measure of damages for a breach by the buyer at the time of the breach.

The repercussions of a contract violation are determined by the laws of the state to which the promisor belongs. If you reside in a state where a minor violation of contract does not result in the agreement being voided, your choices and remedies for breach of contract may be restricted. However, if the other party breaches the agreement materially, you may have the legal right to stop performing your responsibilities and claim for damages. It is essential to contact an experienced contract attorney near you before filing a breach of contract lawsuit. The aggrieved party necessarily doesn’t want to be held liable for failing to execute their responsibilities due to a minor contract violation that does not result in the contract becoming invalid.

Potential legal remedies for breach of contract cases vary depending on different states’ laws and the facts of one’s case, but they may include, but are not limited to:

Rescission (releases the non-breaching party from performance obligations).
A court orders the breaching party to perform the terms of the agreement (specific performance).
Compensatory damages (monetary damages for losses caused by the breach of contract).
Punitive damages (typically only awarded in cases involving fraud).
Restitution (returning the injured party to the position it was in before signing the contract).

Conclusion

In an ideal world, business contracts would be signed, both parties would earn profit and be satisfied with the outcome, and there would be no disagreements. However, in the actual world of business, delays, financial troubles, and other unforeseen occurrences might obstruct or even block the execution of a written contract, leading to one party suing the other. Therefore, the concept of breach of contract holds relevance in the everyday world.

References

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What you need to know about ransomware in the context of the laws in Brazil

By

Sneha Mahawar

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March 13, 2022

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This article is written by Shams Rizwi and pursuing a Diploma in Technology Law, Fintech Regulations, and Technology Contracts.

This article has been published by Sneha Mahawar.

Table of Contents

Introduction

On May 7^th 2021 Colonial Pipeline, which is a major American oil pipeline was hacked by a Russian Hacker group that demanded ransom in form of cryptocurrencies. The Pipeline soon shut down which also created a temporary energy crisis in America. The same event was repeated on 31^st May 2021 when JBS, the world‘s largest meat processing company was hacked and had to pay the ransom of $11 million US dollars to the hacking group and had to halt its operations in the United States. In both these instances, huge multinational corporations and billions of dollars worth of assets were systematically targeted which were strategic to a nation‘s growth and development. There is another similarity in both of these cyber-attacks, both attacks were conducted through ransomware, through which these cybercriminals made millions of dollars. Ransomware attacks are now increasing from day to day as most of these sophisticated attacks are done by hackers to earn money and are profitable for them. It also poses a threat to the physical and digital infrastructure of nations as most of them are targeted and sophisticated attacks and as the ransom usually is collected in crypto, it provides anonymity to the hacker from law enforcement agencies and makes it difficult to trace them. This creates a serious threat to most nations and their economic and strategic interests. In this article, I will discuss the rise of Ransomware threats in cyberspace and what Ransomware is, analysis of Ransomware in the context of Brazilian laws, and how international governments are creating new legislation to counter the rise of Ransomware in cyberspace, and conclusion.

What is ransomware and how does it work

Ransomware is malware that encrypts a victim’s data hostage for a price. The critical data of such a corporation or group is encrypted, making it nearly impossible for them to access files, database systems, or applications. A ransom is then demanded in order to get access. Ransomware is commonly designed to spread across a network and target database and file servers, crippling an entire organization in a short amount of time. It is a rising threat, generating billions of dollars in payments to cybercriminals while causing extensive damage and expenses for governments and businesses.

In most Ransomware, asymmetric encryption is used. This is a form of cryptographic algorithm that encrypts and decrypts a file using a pair of keys. The hacker generates a unique public-private pair of keys for the victim, with the private key used to decrypt files stored on the attacker’s server. The hacker only makes the perpetrator’s private key available after the fee is paid, though as seen in recent cyber campaigns, that isn’t always the case. It is virtually impossible to decrypt the files being taken hostage without access to the private key.

There are various kinds of ransomware. Ransomware (and other malware) is frequently distributed via email spam campaigns or targeted attacks. After establishing its presence, the malware remains on the system until its task is completed.

Ransomware drops and executes a malicious binary on the compromised device after a successful exploit. This binary then searches for and encrypts critical data like Microsoft Word documents, images, databases, and so on. The ransomware may also reap the benefits of system and network weaknesses to spread to other systems and, possibly, across organizations.

Once systems are compromised, ransomware demands a ransom be required to pay within 24 to 48 hours in order to decrypt them, or the files will be lost forever. If a data backup is not accessible, or if backups have been encrypted, the victim must pay the ransom to retrieve personal files.

Rise of ransomware threat in cyberspace

After reading and understanding about Ransomware in the above chapters, one can easily understand how serious a threat Ransomware poses to cyber security. The above incidents of Ransomware attacks which were mentioned in the above chapters are not the only ones. There are many Ransomware attacks that do not come under the limelight and remain unnoticed by the media. One of the key features, why Ransomware has become a favourite form of cybercrime, is that it maintains the anonymity of the cybercriminal as most ransomware is paid in cryptocurrency which is virtually impossible to trace. It is also a profitable venture for cybercriminals as they get hefty amounts from host organizations and companies in the form of ransom.

Interestingly, there is also a geopolitical angle that is in play here. Just like the nuclear arms race, governments are heavily investing in cyber warfare as well. As most governments are in consensuses that cyber attacks are a potential threat to their respective national security many international governments including the American government. I believe that one of those threats is the rise of ransomware in cyberspace. In a report of the US Department of Homeland Security on Cybersecurity Strategy dated May 15^th 2018, the federal government has outlined the increasing use of ransomware by rough players and foreign governments to target the national infrastructure of the US and its allies. The report also outlines various high-profile incidents such as targeting the Ukrainian electric grid in 2015 and the WannaCry incident. Although it is suspected that most of these cyber attacks are done by rogue hackers who are suspected to have the support of the Russian government and intelligence agencies.

Apart from Russia, there are many governments that are in play here. Most of them are creating an army of government-backed hackers. Some of those nations include Iran, Saudi Arabia, Israel, and China. This makes the threat of cyber-attacks and ransomware more devastating as extradition and successful prosecution of these government-backed hackers are next to impossible.

Analysis of ransomware in the context of Brazilian laws

When cyberattacks have threatened major international governments and economies alike. Latin America is not a place that remains untouched, especially Brazil as it is one of the major economies of South America and a key member of various international economic organizations such as BRICS. In recent years there have been many cyberattacks that were directed towards Brazil. JBS, whose cyberattack was discussed in earlier chapters, was a subsidiary company whose parent company is Brazil-based. In November 2020 Brazilian Superior Court of Justice along with the Ministry of Health were also subjected to cyber-attacks. Due to domestic and international cyber threats, the Brazilian government on May 27, 2021, made some changes to the legislation which were approved that enforce strict penalties on cybercriminals who target Brazilian businesses and the general public.

According to reports, the Brazilian Penal Code approved law 14.155, which imposes severe penalties on cyber criminals who commit serious offences such as “device intrusion, theft, and misconduct in digital media environments, as well as crimes committed with the information given by someone induced to or erroneously through fraudulent emails, social networks, or telephone contacts.” According to the new legislation, fines and prison terms for cybercrime have been increased if: Economic harm is suffered by the victim.

The cybercriminal invades electronic devices such as smartphones and computers without the user’s consent to obtain, tamper with, or destroy data. The cybercriminal installs malicious software in order to gain unauthorized access to the device or network. The new legislation update has also increased the prison time for cybercriminals. The range has now been set between 1 and 8 years in addition to monetary fines, based on the intensity of the cybercrime. These penalties, however, become harsher if the cybercriminal is from another nation or if the victim is an elderly or vulnerable person or entity. These rapid changes in existing legislation and introducing new laws which are tougher on cybercriminals show the way the Brazilian government is responding regarding the new threats of cyber-attacks and crime.

Currently, there are two legal frameworks in play that are responsible for governing cyber law in Brazil. One is the Penal code and the other is LGPD, which stands for Brazilian General Data Protection law. As the name suggests LGPD is inspired by Europe‘s General Data Protection laws. In the penal code, the main law which covers most cybercrimes is Section 154-A of the Penal code. This section prohibits the unauthorized access of computers or other electronic devices to change or destroy existing data of the host computer or obtain illicit advantage from it. Section 154-A has a wide ambit when it comes to cyber law as it includes denial of service attacks (commonly known as DOS attacks), ransomware attacks, phishing, identity thefts, etc.

In recent years the legal scenario with respect to cyber laws has become highly fluid in nature. Understanding the seriousness of the situation, the government is coming up with new laws and changing old ones to create better legislation in order to fight the rising cyber threat, which Brazil as a state is trying to overcome.

The international scenario of cyber laws regarding ransomware

As many countries are affected by the rise of cyberattacks in recent times, many countries have started to work with other nations in regard to cyber security. In December 2018 the United Nations General Assembly (UNGA) passed two major resolutions: 73/271 on ‘Developments in the Field of Information and Information technology in the Context of International Security’ and 73/2662 on ‘Advancing Responsible State Behaviour in Cyberspace in the Context of International Security.’ The UNGA has set up two parallel mechanisms for dealing with cyber-security through these two resolutions. In accordance with the first resolution, an Open-Ended Working Group (OEWG) consisting of the entire UN membership will be formed in 2019. In 2020, the OEWG will report to the UNGA. Its main functions include continuing researching potential threats to information security and identifying possible cooperative measures to address them; investigating how international law applies to states’ use of information and communications technologies and investigating confidence-building and capacity-building measures. The other resolution also talks about setting up a committee to study the question of norms and behaviours in cyber-space. There is an international effort underway to preserve the security and freedom of expression of users in cyberspace. Hence in countering cyber-security issues, international corporations are most important.

Conclusion

Ransomware attacks are increasing day by day, and they are becoming more and more sophisticated as the existing technology progresses. The biggest issue regarding cyber-attacks including Ransomware is that cyberspace is a place without borders, but the law does have borders. Hence it is highly difficult for nations to keep up their laws in accordance with the changing world especially with changing technology. There are many laws that need to be amended and changed in accordance with the current technical aspects of society.

Nations also need to consider the angle of current geopolitical situations and current international political trends in order to counter this issue effectively. As in this coming day and age, cyber warfare is becoming a reality, and most countries should be prepared for it along with appropriate laws to complement the efforts of the state to counter it, along with effective international cooperation. These are some of the challenges which every nation needs to consider while countering cyber-security issues effectively.

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All you need to know about the doctrine of escheat

By

Rachit Garg

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March 12, 2022

0

In this article authored by Nidhi Bajaj, of Guru Nanak Dev University, Punjab, you will learn about the meaning of escheat, application of the doctrine of escheats in Indian case laws and the legal provisions relating to the same under the Hindu Succession Act, 1956 and the Constitution of India.

It has been published by Rachit Garg.

Table of Contents

Introduction

If it belongs to none, it belongs to the State.

The term ‘escheat’ means a reversion to the state in the absence of legal heirs. If a person dies intestate leaving no heirs whatsoever, then the doctrine of escheat can be invoked, whereby the estate of the deceased reverts to the state. For example, if A dies intestate (i.e., without making a will) and it turns out that he has no legal heirs or claimants, then the state shall assume the permanent ownership or temporary custody of his property.

In this article, the author will take you through the meaning of escheat, background of the doctrine of escheat, the legal provisions and relevant case laws governing the law of escheat in India.

Escheat in English and American law

In feudal English Land law, the term ‘escheat’ means the return or forfeiture of the land held by a tenant to the lord of land. Generally, two conditions were required to be fulfilled for the land to escheat:

Death of tenant without heirs,
Conviction of the tenant for a felony. In this case, if a tenant gets convicted for committing a felony, the land would lose its inheritability and escheat to the lord. The lord would hold the land subject to the crown’s right to exploit the felon’s lands for a year and a day. In time, this exploitation right of the crown was commuted in return for a money payment or service rendered to the crown by the lord.
Conviction of tenant for treason. In this case, the land escheated directly to the crown and the lord had to forfeit all rights in the tenant’s land.

As per the Black’s Law Dictionary, ‘Escheat’ in American law, signifies a reversion of property to the state in consequence of a want of any individual competent to inherit.

What is escheat

The term “escheat” is derived from the French word “eschoir” which signifies ‘to happen’ because it falls to the lord from an event and an unforeseen circumstance.

Escheat is the right of the government to own unclaimed property and assets. The doctrine of escheat is invoked when a person dies without any will or heirs. However, it also applies to cases where property remains unclaimed for a long period.

The concept of escheat maintains that property always has a recognised owner, which would be the state or government if no other claimants to ownership exists or are readily identified.

Escheat also refers to the ‘property’ the owner of which has died intestate and without leaving a legal heir.

Doctrine of escheat in India

The doctrine of escheat is a remnant of the English feudal system of land tenure and a companion of its common law counterpart bona vacantia. However, it is interesting to note that the doctrine of escheat was not unknown to India. The Ancient lawgiver Manu has written in Manusawhita(Chapter IX, Verse 189):-

“Aharajyam Brahmanadravyam Rajna Nityamiti Sthiti, Itareshantu Varnanam Sarbabhave Harenripa.”

This means that the King has a right to all the properties belonging to persons who die without leaving any heir. But the King had no right to Brahminical property even on the failure of all heirs.

Legal provisions regarding the doctrine of escheat: Section 29 of the Hindu Succession Act, 1956

In Indian law, the principle/doctrine of escheat is embodied in Section 29 of the Hindu Succession Act, 1956. Section 29 provides for “Failure of heirs”. It states that “if an intestate has left no heir qualified to succeed to his or her property in accordance with the provisions of this Act, such property shall devolve on the Government; and the Government shall take the property subject to all the obligations and liabilities to which an heir would have been subject.”

Thus, as per the doctrine of escheat, when an individual dies intestate and does not leave behind any heir who is qualified to succeed to the property, the property shall devolve on the Government. However, the government takes the property subject to all its obligations and liabilities.

Case laws : Application of the doctrine of escheats

The Collector of Masulipatam v. Cavaly Vancata Narrainappah (Privy Council, 1860)

The case belongs to the pre-independence era and was decided by the Privy Council. In this case, the question arose that whether on the death of a Brahmin without heirs, the sovereign power in British India is entitled to take his estate by escheat. The Sadar Diwani Adalat held that there is a general right of the Crown by escheat in case of failure of heirs but as per the Hindu law, there lies an exception to such right with regard to the property of Brahmins. As per Manu, and other ancient authorities, it appeared that the beneficial enjoyment of a Brahmin’s property ought not on his death without heirs pass to the King.

The Privy Council held that the Hindu Law was to be administered in case of succession to properties of a Hindu dying intestate but only in those cases where he had any heir to succeed thereby providing the occasion for private succession. But if there is a total failure of heirs, then the properties and succession ceases to be governed by the personal law of succession and has to be governed by the general law of universal application which was that “private ownership not existing, the State must be the owner as of the ultimate Lord”.

Biswanath Khan and Ors. v. Prafulla Kumar Khan (1988, Cal HC)

In this case, a company, which was a Thika tenant under the plaintiff-appellants in respect of the disputed land was dissolved. The question arose as to whether the tenancy extinguished on such dissolution and the land reverted to the landlords or would the tenancy vest in the state by escheat or as bona vacantia. The Court answered the first question in negative and affirmed the second.

The Court observed that the doctrine of escheat was declared to be part of the law in India by the decision of the Privy Council in the Collector of Masulipatam v. Cavary Vancata Narrainappah (1860).

The Court held that the right to acquire by way of escheat is not an attribute of any private law of succession but is an attribute of sovereignty. The Court opined that the right to escheat would very much exist even in the absence of statutory provisions such as Section 29 of the Hindu Succession Act, 1956. The Court held that the interest of a Thika tenant, however limited it may be, is a ‘property’ and therefore liable to be vested in state by escheat or as bona vacantia.

State of Punjab v. Balwant Singh (1991, SC)

The issue, in this case, relates to the construction of Section 15 and Section 29 of the Hindu Succession Act, 1956.

The brief facts of the case are as follows: ‘M’ inherited certain agricultural lands from her husband. Some of the land was under the mortgage and in possession of defendants no. 2 to 6. ‘M’ died intestate after coming into force of the Hindu Succession Act, 1956. Since there was no legal heir, the mutation was sanctioned in favour of the State. M’s grandson filed a suit for possession of the property on the ground that he was a legal heir and also claimed a declaration entitling him to redeem the mortgage from defendant no. 2 to 6.

The State i.e., defendant no.1 opposed the suit and claimed that the mutation in favour of State was valid as the intestate had left no legal heir. Defendants no. 2 to 6 contended that the right of redemption of the mortgage had been extinguished and they had become the owners of the property as they were in its possession for more than 60 years.

The Trial Court dismissed the suit and held that the plaintiff had no right over the property since the deceased had inherited it from her husband. The question of mortgage was left to be decided between the parties by mutual agreement.

An appeal was filed by the plaintiff to the District Judge but the same was dismissed.

Thereafter, a second appeal was preferred before the High Court which decreed the plaintiff’s suit of possession even against Defendants no. 2 to 6.

Defendant no. 1 i.e. the State and Defendants no. 2 to 6 preferred appeals by way of special leave before the Hon’ble Supreme Court.

Decision of the Supreme Court

The Supreme Court held that a property is escheated to the Government only when an intestate has left no heir who is qualified to succeed to his or her property. When the property devolves upon the Government, the Government shall take the property subject to all the obligations and liabilities of the property. Hence, it is only when the deceased has left no heirs to succeed, that the State shall step in to take the property and the State does not take the property as a rival or preferential heir of the deceased but as the Lord paramount of the whole soil of the country.

Section 29 cannot operate in favour of the State if there is any other heir of the intestate. Section 29 envisages a failure of heirs. There must be ‘failure’ of heirs i.e. total absence of heirs to the intestate.

It was held that if a female Hindu leaves behind any heir either under Section 15(1) or 15(2), her property cannot be escheated. The Court held that Section 15(2) only intended to change the order of succession specified under Section 15(1) and did not eliminate the other classes of heirs.

Kutchi Lal Rameshwar Ashram Trust v. Collector, Haridwar (2017, SC)

In this case, a person named Mohan Lal died intestate leaving no qualified heir. The Collector held that the property vests in the government under Section 29 of the Hindu Succession Act, 1956, and this decision was affirmed by the Bombay High Court. An appeal was preferred to the Supreme Court against the said decision.

In its decision, the Hon’ble Supreme Court held that the principle that the law does not readily accept a claim to escheat and that the onus rests heavily on the person who asserts that an individual has died intestate, leaving no legal heir, qualified to succeed to the property, is founded on a sound rationale. Escheat recognizes the paramountcy of the State as the ultimate sovereign in whom the property would vest upon a clear and established case of failure of heirs. The Court opined that this principle is based on the norm that in a society governed by the rule of law, the court will not presume that private titles are overridden in favour of the state, in the absence of a clear case being made out on the basis of a governing statutory provision.

The Court also held that allowing the administrative authorities such as the Collector to adjudicate upon matters of title involving civil disputes would be destructive to the rule of law. The Court was of the view that it is not necessary to go into the question of credibility of title claimed by the Petitioner trust as the Collector was not competent to decide the matter. The adjudication on titles must follow recourse to the ordinary civil jurisdiction of a court of competent jurisdiction under Section 9 of the Code of Civil Procedure 1908.

Other cases dealing with the doctrine of escheats

Pierce Leslie and Co. Ltd. v. Violet Ouchterlony Wapshare (1968, SC)

In this case, the Supreme Court held that on the dissolution of a company, its properties are vested in the government. The Court noted that the right of the government to take properties by escheat of owners who die without leaving any lawful heirs or as bona vacantia for want of a rightful owner is well recognized in India. As per various Central and state laws, the government is entitled to take by escheat both movable and immovable property for want of an heir. This is an incident of sovereignty and is based on the principle of ultimate ownership by the State of all property within its jurisdiction.

State of Bihar v. Radha Krishna Singh (1983, SC)

In this case, the Hon’ble Supreme Court reiterated that when a claim of escheat is put forward by the government, the onus to prove the absence of any heir of the respondent anywhere in the world lies heavily on the appellant. The Court shall not allow the taking of an estate by escheat unless all the conditions for escheat are fully and completely satisfied. The Court held that issuing a public notice is a prerequisite for entertaining a plea of escheat. The public notice must be given by the government so that if there is any claimant anywhere in the country or for that matter in the world, he may come forward to contest the claim of the state.

Narendra Bahadur Tandon v. Shankerlal (since deceased) by LRs. and Anr. (1980, SC)

This case dealt with the question of the effect of the dissolution of the company on the lease- hold interest which the company had in the land. In this case, the Supreme Court has held that the property of an intestate dying without leaving any lawful heirs and the property of a dissolved corporation devolves upon the state by way of escheat. It was further held that if a company has any subsisting interest in the lease on the date of dissolution, then such interest shall also pass on to the government by way of escheat or as bona vacantia for want of a rightful owner.

What kind of properties can be acquired by escheat

The doctrine of escheat applies to various kinds of properties(not just tangible property) which include:

Property which belongs to a dissolved corporation;
Leasehold interest subsisting in a dissolved corporation on the date of dissolution;
Tenancy interest;
Debts, being a species of property;

Article 296 of the Indian Constitution

Article 296 of the Constitution of India provides for ‘Property accruing by escheat or lapse or as bona vacantia’. It states that any property in the territory of India which, if this Constitution had not come into operation, would have accrued to His Majesty or, as the case may be, to the ruler of an Indian State by escheat or lapse, or as bona vacantia for want of a rightful owner, shall, if it is property situate in a State, vest in such State, and shall, in any other case, vest in the Union.

The proviso to Article 296 further states that any property which at the date when it would have so accrued to His Majesty or the ruler of an Indian State was in the possession or under the control of the Government of India or the government of a state shall, according to the purposes for which it was then used or held were purposes of the Union or a State, vest in the Union or in that State.

Thus, Article 296 makes it clear that the principle of escheat as applicable prior to the enactment of the Constitution would continue.

Important points with respect to the doctrine of escheats in India

In India, several states have their legislations governing escheats such as the Andhra Pradesh Escheats and Bona Vacantia Act 1974, The Rajasthan Escheats Regulation Act, 1956, The Telangana Escheats and Bona Vacantia Act, 1974 and West Bengal Escheats and Forfeitures Act, 2012, etc. Generally, these laws specify the authorities having general superintendence of escheat assets, and contain provisions regarding giving of notice, possession and disposing of claims and challenges, etc.
It is pertinent to note that the law of escheats shall have no application if there are legal heirs of the deceased or if the deceased has died after making a will.
Two of the most important conditions for the claim of escheat to succeed are proof of the absence of heirs and the giving of a public notice for the claimants to come forward.

Key action points for readers

Make a will. As mentioned above, your property shall vest in the government only if you die intestate i.e. without making a will.
Ensure that the chosen heirs of your property and assets are aware of the same. Educate yourself on the process of claiming property on demise.
Make due nominations for your financial assets and other benefits, wherever possible.

Conclusion

In India, the concept of escheat has been there for a long time. However, there is still some inconsistency in the law regarding various aspects such as the fluctuations in the definition of ‘property’ in different states and the absence of an independent institutional framework. In some states, there is a lack of clarity as regards different types of assets i.e. whether an unclaimed asset would go into permanent ownership or temporary custody of the government. Hence, there should be a uniform framework or guidelines regulating the various aspects of the doctrine of escheats including giving of notice etc.

The concept of escheat can be summed as follows: Property has to be owned by someone and the last resort of property left without heirs clearly must be the state.

References

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Section 10 of Hindu Marriage Act, 1955

By

Rachit Garg

-

March 12, 2022

0

This article is written by Khushi Sharma pursuing B.A. LLB from IIMT, IP University (Trainee Associate, Blog iPleaders). This article deals with the analysis of judicial separation under Hindu marriage laws.

It has been published by Rachit Garg.

Table of Contents

Introduction

The Hindu Marriage Act, 1955 (“HMA”) was made to codify and amend the laws of marriage among Hindus. The motive of the Act was to provide uniformity of the laws among the Hindus regarding marriage and other subsequent laws. Coming to Section 10 of the Hindu Marriage Act, talks about judicial separation among the partners and about the alternate reliefs available to either of them.

Section 10 of Hindu Marriage Act, 1955

Section 10(1) of HMA explains that if a marriage is solemnised under Hindu laws and if the party to marriage wants to seek a judicial separation they can do so by filing a petition of the same in the court. The party can present the application of separation by mentioning the grounds which are herein mentioned under Section 13(1) of the HMA and the wife can further also take support of the grounds of separation from Section13(2) which we are going to study ahead in this article.

Section 10(2) of HMA additionally mentions that if a decree under Section 10(1) is passed, it is no longer obligatory for the parties to reside together and the court by the application of petition by either of the parties and being satisfied by the application their decree may be rescind.

Judicial separation

Judicial separation in a generic sense means that the couple is separated from each other by a court order through an application instituted by them but is still married in the eyes of law. The court does not grant it for any reason except the grounds mentioned under the grounds of divorce [Section 13(1)].

Who can file a petition under Section 10 of Hindu Marriage Act

Any couple who has solemnised their marriage under the customary Hindu laws.
Any spouse aggrieved can file a petition in a District Court under Section 10 for judicial separation.
Unlike divorce, it is not required for the parties to live together for a period of one year. Judicial separation can be sought at any time during the marriage.

Grounds for judicial separation

The grounds for separation/divorce are mentioned under Section 13 of the HMA. The following are the grounds for separation which can be sought by any aggrieved party and can be brought in front of the court for suitable action.

Adultery – Any party to a marriage can seek judicial separation on the ground that their significant other has or had sexual intercourse with a person other than them. The burden of proof lies on the party seeking separation. [Section 13(1)(i)]

This can be inferred from the case of Subarama Reddiar v. Sakaswathi Ammal; (1966) 79 LW 382 (Mad) (DB), that if the spouse successfully proves the presence of an adulterous relationship of their partner then judicial separation to the party can be granted by the Court.

Cruelty – Any party causing mental or physical torture on the other resulting in harming one’s physical or mental health can be considered as a valid ground for judicial separation. [Section 13(1)(ia)]

It was held in the case of Manisha Tyagi v. Deepak Kumar; (10th Feb 2010), that the respondent (the wife) was accused of cruelty by the husband and to which divorce was granted by the District Court and the High Court. Challenging the same before the Supreme Court, the Court mentions that there was a lack of evidence against the respondent hence providing the parties judicial separation to contemplate their status of the marriage in the said time.

Conversion – if any party to marriage converts their religion from Hindu to any other religion, then in such cases the aggrieved party can file a petition for judicial separation in the court seeking relief. [Section 13(1)(Ii)]

It was explained in the case of Madanan Seetha Ramalu v. Madanan Vimla, that the wife had converted into Christianity to which the court granted judicial separation and then divorce on the application by the husband.

Unsoundness of mind – If any party to a marriage is suffering from unsoundness of mind or such intermittent ineffectiveness of the mind that it makes it impossible for the other party to reside together, then in such case the aggrieved party may seek judicial separation [Section 13(1)(iii)]. Further, this Section explains two kinds of disorder – Section 13(1)(iii -a) mental disorder includes mental illness which is either arrested or incomplete development of mind and on the other hand Section 13(1)(iii-b) includes psychopathic illness which includes disorders like schizophrenia that involves a persistent or a disability of the mind making it difficult for the other person to live under a common roof.

The case of Anima Roy v. Prabadh Mohan Ray; (AIR 1969) explained that if the unsoundness of mind is not traced around the time of marriage then the court cannot grant judicial separation to the parties.

Leprosy – Any party can seek judicial separation from the other party on the grounds of a type of leprosy that is incurable and very dangerous for the health of any person. Here leprosy is a chronic skin condition that is contagious and causes discolouration and lumps on the skin. [Section 13(1)(iv)]

It was further explained by the case of M. Jasmine Devapriya v. A. Stephen Dhanraj; 2017, that if the aggrieved party can prove beyond reasonable doubt that it is not possible to cohabit together due to communicable and incurable disease then judicial separation can be granted.

Venereal disease – if any party to a marriage has an incurable or a communicable disease about which the other party did not know at the time of marriage then the aggrieved party can seek judicial separation for the same ground.[Section 13(1)(v)]

Grounds for judicial separation exclusively available to the wife

Following are the grounds that are exclusively available to the wife for seeking judicial separation.

Bigamy – If it has come to the belief of the wife that her husband has married another woman in the existence of their married life then such aggrieved wife can file a petition under judicial separation proving to the court about the existence of another woman. [Section 13(2)(i)]
Other crimes- If the wife is to believe that certain charges like rape, sodomy and bestiality are committed by her husband then in such cases the petition for judicial separation can be filed in the court. [Section 13(2)(ii)]
Revoke marriage due to age- If the girl is made to marry any person before attaining the age of 15, then she can repudiate the marriage before attaining the age of 18 by filing for judicial separation. [Section 13 (2)(iv)].

Post-judicial separation

The status of parties is not fully dissolved during the course of separation, though the parties would not have any mutual rights; they are still legally married under the Hindu law, Narasimha Reddy v. M Boosamma; (AIR 1976 AP 77). The court after passing the decree of judicial separation gives a gap of one year to the parties to which they can contemplate their status of relationship and decide on whether to or not reconcile, and so if the parties do not wish to rehabilitate together then the decree of judicial separation can be moved for divorce. Therefore it shows that judicial separation does not mean a complete cessation of rights but on a temporary basis. During the separation, the party is in no sense moved out of the line from the inheritance of property as they are lawfully still spouses in the eyes of law which were held in the case of Krishna Bhattacharjee v. Sarathi Choudhary, (2016) 2 SCC 705.

If the court is of the view that the wife is unable to sustain herself during the time of judicial separation then maintenance to fulfil her basic needs shall be given to her which was also held in the case of Rohini Kumari v. Narendra Singh; (1972) 1 SCC 1 and Sohan Lal v. Kamlesh; (AIR 1984 P H 332).

The case of Gomathi v. Kumaragurrupaan, (AIR 1987 Mad 259) held that after passing the decree of judicial separation if the parties do not resume to cohabit together then the parties can move to the court for divorce and the date of one year of judicial separation can be calculated from the date of announcement of such decree.

Difference between judicial separation and divorce

After analysing the concept of separation we can observe that both the terms “judicial separation” and “divorce” are similar on some level but here the question arises what differences are present which makes these two terms used in different situations. Following are some differences between judicial separation and divorce –

Parameters	Judicial separation	Divorce
Meaning	Judicial separation is a gap of one year that is granted to the parties by the court after the petition is filed by either of them on certain grounds.	Divorce is the full separation of parties which takes after judicial separation ceasing every right arising out of a marriage.
Section	Mentioned under Section 10 of the HMA	Mentioned under SEction 13 of the HMA
Rights	Judicial separation is partial disablement of mutual rights but not all the rights. The couple is still lawfully married.	Divorce ceases all the rights arising out of a marriage.
Time	For judicial separation, there is no such time mentioned for filing the application under the same.	Divorce can only be filed after a gap of one year.
Opportunity to reconcile	Yes, the couple can reconcile by ending the separation and starting living together.	No, the party loses their privilege.

Conclusion

After analysing the whole concept of judicial separation we can infer that it gives the opportunity to the parties to give their marriage a second chance and helps them to contemplate their status of the relationship. I think the gap of one year is a suitable time period to make the couple realise their need for reconciliation. The cessation of mutual rights does not signify an overall end of the marriage. The couple is still lawfully married during the course of judicial separation hence not ending their major rights of inheritance, maintenance etc. Furthermore, maintenance can be awarded to the party who is unable to sustain and is not able to fulfil their basic needs. Judicial separation can be seen as an imperative approach by the courts to avoid marriages ending up in divorce.

References

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All about quasi-contracts and its types

By

Sneha Mahawar

-

March 12, 2022

0

This article has been written by Meera Patel, a B.A. L.L.B student from the Maharaja Sayajirao University, Faculty of Law, Vadodara. This is an exhaustive article that covers quasi-contracts, its types, and other important details in the light of relevant case laws.

This article has been published by Sneha Mahawar.

What is a contract

A contract is an agreement made between two or more parties that is enforceable by law. Section 2(h) of the Indian Contract Act, 1872 states that “An agreement enforceable by law is a contract”. This definition is based on the definition of contracts stated by Frederick Pollock who was an English jurist. His definition states that “Every agreement and promise enforceable by law is a contract”.

Sir William Anson who was a British Jurist and a unionist stated that a contract is “a legally binding agreement between 2 or more persons by which rights are acquired by one or more to acts or forbearance (abstaining from doing something) on the part of others”

Salmond who was a Scottish politician stated, “A contract is an agreement creating and defining obligation between two or more persons by which rights are acquired by one or more to acts or forbearance on the part of others”

Two of the most basic requirements or elements that are needed to create a contract are:

Agreement: An agreement is a promise or a set of promises which is used to form consideration for all the parties involved as mentioned in Section 2(e) of the Indian Contract Act, 1872.
Enforceability by law: All types of agreements are required to be legally sound to be passed as contracts in the eyes of the Courts.

To form an agreement, there must be a proposal or an offer by one of the parties and its acceptance by the other and that is why it is necessary for an agreement in a contract for it to be accepted as a proposal. In simpler terms :

Agreement = Offer + Acceptance.

For example: In a hypothetical situation, Amrita who owns a cow makes an offer to sell the cow to Manish in exchange for 20,000 rupees. Manish gives his consent (acceptance) to buy the cow from Amrita and due to the fact that there exists an offer and an acceptance, an agreement is formulated which in return formulates a contract between the two parties.

Consensus ad idem

Consensus ad idem is an important element that constitutes an agreement and therefore it is an important element for the formulation of the contract. This is a Latin phrase that in literal terms states that all the parties involved in making a contract are on the same page about all the details of the contract and everyone has accepted the offered contractual obligations of each party.

In other words, the parties involved in the agreement must agree on all the subject matters of the agreement in the same sense and time. If there is no consensus ad idem, there is no agreement and therefore there is no contract. For example: In a hypothetical situation, Karan, is the owner of 2 horses one of which is a racehorse and the other one is a show breed horse. Karan intends on selling the show-breed horse. He made an offer to sell the show breed to Lata but Lata thinks that she is purchasing the racehorse from him due to a misunderstanding. There is no consensus ad idem and thus, no contract.

Essential elements of a valid contract

To understand and remember the elements of a valid contract, try to imagine a pizza. Try to visualize a pizza with all its toppings. In this context, just like how the ingredients of a pizza are important to make it edible, the elements that are listed below are required to make a contract legally sound and acceptable in the courts of law. Without the elements listed below, the agreement won’t be a contract. According to Section 10 of the Indian Contract Act, 1872, all agreements are contracts if they are made by the free consent of the parties involved who are competent to form a contract while keeping in mind that there is a lawful consideration and lawful objects involved in the contract. To become a contract, an agreement must have the following essential elements:

Offer and acceptance: There must be two or more parties to form an agreement. The terms of the offer need to be definite and the acceptance must be absolute.
Intention to create a legally valid offer: When the involved parties decide to enter into an agreement, their intention to create an agreement should have legal validity. If the legal validity factor is missing, then there will be no contract. Agreement of a social or domestic nature does not constitute a legal relationship as there are no such contracts.
Lawful consideration: Section 2(d) of the Indian Contract Act, 1872 states that “When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise”. In layman’s language, any agreement enforceable by law must be supported by consideration of both parties.
Competency of a party: Parties who are incompetent to enter into a valid and legally binding contract include minors, mentally unsound minds, and anyone who is not qualified to enter into a contract by law to which they are subject. A flaw incapacity to enter into a contract may arise from idiocy, drunkenness, lunacy, etc too. If a party experiences any such form of flaws, the agreement will not be enforceable.
Free consent: The term ‘free’ means ‘able to act or be done as one wishes and not under the control of another. It means that all the parties should have free consent to enter into an agreement. The absence of free consent due to coercion, undue influence, misrepresentation, etc results in forming a void contract.
Lawful object: Section 23 of the Indian Contract Act, 1872 states that the object of an agreement must be lawful. That means the object must not be illegal in nature which includes drugs, murder, etc, the contracts should not be immoral in nature which includes agreement to break a third party’s marriage, signing contracts to murder an individual, etc and lastly, it should not be opposed to public policy. If any agreement encounters such flaws, then that agreement would be considered unenforceable.

Types of contracts

As mentioned above, we are already familiar with terms such as valid contracts and void contracts, listed below are a few other types of contracts that are acceptable in the eyes of law:

Valid contracts

A valid contract is a legally binding and enforceable agreement. The main factor that qualifies an agreement to be a valid contract is the existence of all the above-mentioned elements.

Illustration: Aditya agrees to sell his car to Nayan for 5,00,000/-. Nayan sends a cheque to Aditya and in return, Aditya sends over the car to Nayan. This is an example of a valid contract.

Void contracts

A contract that ceases to be enforceable by law makes it void.

Illustration: Aditya agrees to pay 20,000/- to Nayan after 5 years for a loan of 18,000/- which is made out to Aditya by Nayan. During the 3rd year of this timeline, Aditya died in an accident and that is why this contract shall be considered void due to its non-enforceable nature under law as per the agreed terms of the contract.

Voidable contract

Voidable contracts are the type of contracts that are basically an agreement that is enforceable for a party/parties and which is not enforceable by law for the other party/parties.

Illustration: Aditya agrees to sell his laptop to Nayan, a 16-year-old teenager for 8,000/-. What makes this a voidable contract is that even though Aditya has made a valid deal, the fact that Nayan is a minor makes the entire agreement a voidable contract. Nayan is not bound to pay and is allowed to repudiate and/ or accept the terms of the contracts as if they choose to repudiate the contract, it will become a void contract but since Nayan decides not to, it becomes a voidable contract. Other than this, a voidable contract is a valid contract.

Illegal contract

As the word states, an agreement that leads to breaking the law or performing something that is deemed to be illegal in the eyes of law is known as an illegal contract. A Contract that opposes public policies is also counted as an illegal contract

Illustration: Aditya is a drug dealer and he agrees to sell weed to Nayan. Even though this contract has all the essential elements required to constitute a contract, the unlawful object still makes the entire contract illegal.

All illegal contracts are void but not all void contracts are illegal as illegal contracts are void ab initio which in literal terms means void from the beginning, unlike the latter one. One more factor to support this statement is the criminal aspect of illegal contracts is that these acts are punishable under law. All the involved parties are prosecuted under the law.

Unenforceable contract

Unenforceable contracts are simply rendered unenforceable by law due to some technicalities. This kind of contract cannot be enforced against any of the parties involved.

Illustrations: Aditya agrees to sing at a concert on the 21st July 2021 but he fractured his legs and broke his spinal cord in an accident, this contract is unenforceable and cannot be used against Aditya.

Contingent contract

Contingent contracts are a simple example of when a promisor needs to meet the contractual obligations only when a certain situation happens. For example: insurance contracts.

Illustrations: Aditya, the owner of an insurance firm is obligated to give a certain amount of money to Nayan, whose car was completely destroyed in an accident.

Quasi-contracts

One more contract that has not been mentioned above is quasi-contracts. Since the main agenda of this article is to understand what a quasi-contract is and to analyze the types of quasi-contracts, let us start by understanding what a quasi-contract means.

The word ‘quasi’ means pseudo or partly or almost and that is why it can also be called a pseudo contract. A quasi-contract is an agreement that is retroactive in nature. These kinds of agreements take place between parties who have no prior contractual commitments or intention of getting into a contract. The judge simply develops the concept of a quasi-contract to rectify situations where one side acquires something at the detriment of the other side. In layman’s language, this type of contract aims to prevent one party from benefiting financially in a situation while financially draining the other party. Such agreements may be enforced by the approval of the party which is responsible for providing the goods or services but it is not necessary to keep this factor in mind before enforcing a quasi-contract.

The only factor that constitutes a quasi-contract is that there lacks an understanding between parties beforehand. Quasi-contracts exaggerate one party’s duties to the other party where the second party is in control of the first party’s personal property. As a remedy, it is the judge’s duty to impose the agreement by the law. To support this statement, the author would like to give an example: in a hypothetical situation, Party A found a wallet on the road which belongs to Party B. By this example shows that Party A owes something to Party B as they now possess Party B’s property indirectly or by mistake. The contract becomes enforceable only if Party A decided to keep Party B’s wallet without trying to return it to the original owner.

A second word for quasi-contracts is implied contracts. A literal meaning is attached to the term implied contract as the defendants are ordered to pay for the damages and the quantum meruit or restitution is measured as per the intensity of the wrong done. Lastly, none of the parties involved are supposed to give consent as the agreement is being established in the court, therefore, making it legally enforceable without consent. The main aim of such contracts is to make a fair decision that will, later on, turn into an outcome that is acceptable to the party that has been wronged.

Elements of a quasi-contract

Listed below are the components required for a judge to issue a quasi-contract:

An individual or as the law recognizes, one claimant. There must also be a defendant who will be responsible and asked to pay the restitution.
The defendant must be willing to recognize or even acknowledge the value of the product/ service in question but has not made any efforts to return it/ pay for it or even made an effort to do something about it.
The complainant needs to prove that the defendant earned wrongful enrichment.

Principle on which quasi-contracts are based

The main principles on which these types of contracts work are justice, equity, and good conscience. This principle is based on a legal maxim ‘Nemo Debet Locupletari Ex Aliena Jactura’ which in literal terms means no man must grow rich out of another persons’ loss.

To support this statement, here is an illustration of this principle: In a situation, Pari and Isha enter into a contract where Pari agrees to pay 900 rupees for a bouquet of flowers when it would be delivered to her house by Isha herself. However, Pari mistakenly delivers the bouquet to Anisha’s house and she issues it as a birthday gift and she keeps it for herself. Even though there is no contract between Anisha and Pari, the court shall treat this situation as a quasi-contract and order Anisha to either pay for the flower bouquet or return it in the same condition. Law sees no contract between the parties, it is just that the law imposes contractual liabilities in order to not oversee certain peculiar situations.

There are 5 different types of situations where a quasi-contract can be formulated. All these situations are elaborately discussed under Section 68 to Section 72 of the Indian Contract Act, 1872.

Types of quasi-contracts

Listed below are the 5 types of quasi-contracts that are recognized by law :

Section 68

“Necessaries supplied to a person incapable of contracting”

Necessities supplied to the person who is incapable of contracting is the first example of the situation under which a quasi-contract can be formulated and this situation is explained under Section 68 of the Indian Contract Act, 1872.

To understand this easily, any person who is incapable of entering into a contract i.e. is a lunatic, minor, mentally incapable of understanding their surroundings, etc. If someone even supplies necessary supplies to such a person even is entitled to get a reimbursement from the property of the person who is incapable in this situation. This rule is applicable whether or not the person does help the incapable person because of an ulterior motive or purely out of humanity.

Illustration: Every month, Pari supplies necessary items to Lata as per her requirement as Lata is a lunatic and is not capable of helping herself out. Even though Lata is broke and does not have money to pay Pari, Pari is entitled to reimbursement from the property of Lata and this is termed as a quasi-contract. To make sure that Pari is reimbursed, she needs to prove that Lata is a lunatic and that the goods she supplied to Lata were necessary items only and that they were given to Lata on time as per her requirements.

Section 69

“Payment by an interested person”

Payment by an interested person is the second situation under which a quasi-contract can be formulated and this situation is explained under Section 69 of the Indian Contract Act, 1872. To understand this type of quasi-contract, the main thing to keep in mind is that if a person pays the money on someone else’s behalf, the other person is bound to pay back the money and reimburse the person by law.

Illustration: Pari is the owner of the land and has leased the land to Lata for a period of three years. Within two months of leasing the land, it was revealed that Pari couldn’t pay the tax revenue to the government and even after sending in notices, she wasn’t able to pay her dues. Thus, the government put out an ad to sell the land. As per the revenue laws, once the land is sold, Lata’s lease shall be annulled. Lata is not interested in letting go of the land therefore she decides to pay the amount due to the government for Pari. in this situation, Pari is obligated to reimburse Lata.

Section 70

“Obligation of the person enjoying the benefits of a non-gratuitous act”

When a person enjoys the benefits of a non-gratuitous act, that person is obligated to repay the person wronged. As per Section 70 of the Indian Contract Act, 1872 it is stated that if a person is legally giving out goods/ products/ services with no intentions behind it of performing a non-gratuitous act for anyone and the person in the wrong graciously uses the goods/ products or services is liable to pay the compensation to the former for the benefits they have been getting from the latter. They may be liable to give back monetary compensation or maybe simply asked to restore the goods used. To get reimbursed, the plaintiff must prove that the services/ goods they delivered were lawful, there was no intention to provide those products/ services graciously, and that the latter did enjoy the benefits of the products/ services.

Illustration: Pari is the owner of a fruit shop. She placed baskets of her fruits on a rack outside her store to keep them fresh. Lata, who was around the store, picked up an apple from the rack and bit into it. This is a situation where Lata is liable to pay monetary compensation to Pari as Pari did not put out her fruits as a gratuitous favor for people.

Section 71

“Responsibility of finder of goods”

As per Section 71 of the Indian Contract Act, 1872, if a person finds an item that belongs to someone else and decides to take them into their custody, the former person has to adhere to the responsibilities that include taking good care of the goods, not appropriating the goods and returning it back to the owner in the same condition they found it in.

Illustration: Pari is Lata’s neighbor. One day since Lata wasn’t home, she already paid and delivered the package lying on her doorsteps which was later on found by Pari. She knew that Lata was not going to be home for another 3 days so she picked it up and took it with her. In this situation, Pari is supposed to inform Lata why she picked her parcel and she is obligated as well as liable to return the parcel to Lata in the same condition and if she fails to do so, Pari is supposed to compensate late with either monetary compensation or a replacement of the goods/products that were in the parcel that belonged to Lata.

Section 72

“Money paid by mistake or under coercion”

As per Section 72 of the Indian Contract Act, 1872, if a person finds that they received money from someone by mistake or because of the fact that they were under coercion then the former is liable to repay or return the money they received in the due course.

Illustrations: Pari received a payment of 5,000/- in her bank account via her UPI ID through Gpay by Lata. In reality, Lata intended to pay that money to Paresh, her brother. After Pari realized that she received the money by mistake, she is liable for the money back to Lata. In similar terms, if money is paid via coercion, oppression, or extortion it is recoverable under this Section of the Indian Contract Act, 1872.

Case laws

In the case of Hari Ram Sheth Khandsari v. Commissioner of Sales Tax (1958), the applicant of this case deposited the tax as a major turnover of Khandsari and it was initially taxable at the rate of 2 percent. Because of a mistake, in the fourth quarter, the applicant deposited the tax at the rate of 4 percent which means a total of Rs. 10,198.22 of excess money was deposited. The concept of quasi-contract has been discussed even though the definite term was not used in this case law.

For the very first time, the concept of quasi-contracts was introduced and discussed in the case of Moses v. MacFarlane (2004). This was an English case and in this case, the ruler of Mansfield stated that the commitment of such sorts or in simpler words the obligation underlying quasi contracts was based on the law as well as the justice with anticipation of not giving out undue advantage to one person that might cost another person.

In the case of Spolka Anonyme v. Fairbairn Lawson Combe Barbour Ltd. (1942), The courts stated that the obligations which arose in this case and which shall arise in the future where an individual receives the benefits at the cost of another person, then that type of commitment cannot be categorized underneath the law of torts or contracts. They should be categorized under the concept of restitution or quasi-contracts which are also called pseudo contracts.

In the case of the State of Madhya Pradesh v. Bhailal bhai(1964), as per Section 74 of the Indian Contract Act, 1872 which covers sales tax under mistake, the Supreme Court held that, “the government to whom the payment has been made by mistake must in law repay it” as the respondent paid the tax under a mistake of law.

Similarities and differences

Similarities between contracts and quasi-contracts

Differences between contracts and quasi-contracts

All the results of contracts and quasi-contracts are similar in nature.In the context of claiming the compensation of the damages caused to the wronged party, the quasi-contracts are very similar to the contracts. To support this statement, we can look at Section 73 of the Indian Contract Act, 1872 which states the remedies if any type of quasi-contract is breached in different areas of the Indian Contract Act, 1872.

A quasi-contract is a fictitious contract that has been pointed out by law. It is considered a valuable suggestion by law as it is a cure for the distress of the wronged party which isn’t the case in express contracts.While talking about quasi-contracts, the purpose of the parties is not taken under consideration but it is totally opposite when we talk about express contracts as discussing the purpose here is a vital process. Without understanding the intention of the parties, there would be no contract at all.In the case of a quasi-contract, the entire concept of the contract revolves around the obligation of the parties as they are used to identify and shape the terms and conditions of the contract. On the other hand, the obligations formed are characterized because of the formation of the contract.

Conclusion

To wrap everything up, we can say that, even though there are various types of contracts and some may say that quasi-contract is a type of contract, it is not as there are various differences highlighted in the article above.

A quasi-contract is not a contract in its natural context and therefore it is also named an inverted contract. This is the reason why the term quasi-contract is not stated out there expressively. The most simple principle it follows is that a quasi-contract is a simple and basic contract that will not and cannot supersede the requirement of justice.

References

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

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

https://t.me/lawyerscommunity

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

Nomination and Remuneration Committee under SEBI (LODR) Regulations, 2015 v. Companies Act, 2013

By

Sneha Mahawar

-

March 12, 2022

0

This article is written by Mansi Dixit and pursuing a Diploma in General Corporate Practice: Transactions, Governance, and Disputes. This article has been edited by Prashant Baviskar (Associate, Lawsikho).

This article has been published by Sneha Mahawar.

Table of Contents

Introduction

The nature of corporate governance in India is obligatory and not voluntary. It provides for companies to be the ‘gateways of good behaviour’. It is accountable, regressive and even finger-pointing. The Committees of the Board of the company is one of the pillars of this corporate governance mechanism which not only enables the Board in its tasks but also keeps a check and balance on the workings of the company. The Nomination and Remuneration Committee (“NRC”) is one of the four committees. The NRC helps the Board in handling matters within its scope of responsibility that relate to the appointment, conditions of employment, remuneration, and incentive schemes of senior management. The responsibilities of the NRC are defined in the Nomination and Remuneration Policy or terms of reference of the Nomination and Remuneration document.

This article discusses the NRC under the Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”) versus Companies Act, 2013 (“Act”).

Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015

Under the LODR Regulations, every listed entity shall constitute an NRC in compliance with the provisions under Regulation 19. As per Regulation 19(1), the NRC shall comprise of at least three directors; with all the directors on the committee being non-executive directors; and at least two-thirds of the directors on the committee shall be independent directors. Further, as per Regulation 19(2), the chairperson of the NRC shall be an independent director, provided that the chairperson of the listed entity, whether executive or non-executive, may be appointed as a member of the NRC and shall not chair such committee.

The quorum for a meeting of the NRC shall be either two members or one-third of the members of the committee, whichever is greater, including at least one independent director in attendance and the NRC shall meet at least once a year.

As per Regulation 19(3), the chairperson of the NRC may be present at the annual general meeting, to answer the shareholders’ queries; however, it shall be up to the chairperson to decide who shall answer the queries.

Role of NRC under the LODR Regulations

As per Regulation 19(4), the role of the NRC shall be as specified as in Part D of Schedule II. The following points cover the role of the NRC under the LODR Regulations:

Formulation of the criteria for determining qualifications, positive attributes and independence of a director and recommend to the board of directors a policy relating to, the remuneration of the directors, key managerial personnel and other employees;
For every appointment of an independent director, the NRC shall evaluate the balance of skills, knowledge and experience on the Board and on the basis of such evaluation, prepare a description of the role and capabilities required of an independent director. The person recommended to the Board for appointment as an independent director shall have the capabilities identified in such description. To identify suitable candidates, the Committee may:

Use the services of external agencies, if required;
Consider candidates from a wide range of backgrounds, having due regard to diversity; and
Consider the time commitments of the candidates.

Formulation of criteria for evaluation of the performance of independent directors and the board of directors;
Devising a policy on diversity of the Board;
Identifying persons who are qualified to become directors and who may be appointed in senior management following the criteria laid down, and recommend to the board of directors their appointment and removal;
Whether to extend or continue the term of appointment of the independent director, based on the report of performance evaluation of independent directors; and
Recommend to the board, all remuneration, in whatever form, be payable to senior management.

Companies Act, 2013

Section 178 of the Act read with Rule 6 of Companies (Meetings of Board and its power) Rules, 2014, provides for the constitution of the NRC by the following classes of companies:

Every listed Public Company; or
All public companies with a paid-up capital of ten crore rupees or more; or
All Public companies having turnover of one hundred crore rupees or more; or
All public companies, having in aggregate, outstanding loans, debentures and deposits exceeding fifty crore rupees.

Although as per Notification dated 5^th June 2015, the provisions of Section 178 shall not apply to section 8 companies. In the case of a Government company, sub-sections (2), (3) and (4) of Section 178 of the Act, shall not apply except concerning the appointment of senior management and other employees as per Notification dated 5^th June 2015.

Additionally, in the case of Specified IFSC Public Company, Section 178 of the Act shall not apply as per Notification dated 4^th January 2017.

As per Section 178(1) of the Act, the NRC shall consist of three or more non-executive directors out of which not less than one-half shall be independent directors, provided that the chairperson of the company (whether executive or non-executive) may be appointed as a member of the NRC but shall not chair such committee.

Section 178(2) enlists the role of the NRC under the scope of the Act. The NRC shall identify persons who are qualified to become directors and who may be appointed in senior management following the criteria laid down, recommend to the Board their appointment and removal and shall specify the manner for effective evaluation of the performance of Board, its committees and individual directors to be carried out either by the Board, by the NRC or by an independent external agency and review its implementation and compliance.

Also, the NRC shall formulate the criteria for determining qualifications, positive attributes and independence of a director and recommend to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees.

Section 178(4) of the Act sets the ambiance for the NRC while undertaking the role specified under Section 178(3) of the Act –

The level and composition of remuneration is reasonable and sufficient to attract, retain and motivate Directors of the quality required to run the company successfully;
The relationship of remuneration to performance is clear and meets appropriate performance benchmarks; and
Remuneration to directors, key managerial personnel and senior management involves a balance between fixed and incentive pay reflecting short and long-term performance objectives appropriate to the working of the company and its goals.

Such policy shall be placed on the website of the company if any, and the salient features of the policy and changes therein, if any, along with the web address of the policy, if any, shall be disclosed in the Board’s report.

Section 178(8) provides that in case of any contravention of the provisions of Section 178, the company shall be liable to a penalty of five lakh rupees and every officer of the company who is in default shall be liable to a penalty of one lakh rupees.

Observatory remarks

The LODR Regulations apply to all listed entities while the Act applies to certain classes of public companies. Coming to the composition of the NRC, both, the LODR Regulations and the Act put the onus on the shoulders of the independent directors.

Earlier, like the Act, the LODR Regulations also provided for there to be at least fifty per cent of independent directors in the composition of the NRC, but with effect from 1^st January 2022, the LODR Regulations provide that there should be at least two-thirds of independent directors in the NRC. Also, the LODR Regulations take it a step further and provide that all the directors in the NRC shall be non-executive.

The LODR Regulations also provide for the quorum for the meeting of the NRC and also prescribe the number of times the meeting of the NRC needs to be conducted, whereas the Act does not provide anything regarding the quorum or the number of occurrences of the meeting of the NRC.

The LODR Regulations provide that the chairperson of the NRC may be present at the annual general meeting, to answer the shareholders’ queries; however, it shall be up to the chairperson to decide who shall answer the queries. Additionally, the role of the NRC is more comprehensively given under the LODR Regulations making its scope much wider than the Act.

To sum up the discussion in the article it can be said that the LODR Regulations not only have a wider scope than the Act but also that the LODR Regulations pave the further path for the Act, hence, making the regime of corporate governance in India even more circumspect.

Conclusion

Both the LODR Regulations and the Act lay down provisions that are to be complied with by the companies to become a bonafide example of corporate governance and there is a penalty for every unlawful action and inaction to maintain a check and balance.

The Act applies to all companies although the LODR Regulations apply only to a certain class of companies which makes it a conditional provision that is only applicable to companies that fulfil those conditions. The Act on the other hand is a mandatory provision, applicable to the companies on the condition of just being a company and is a more stellar initiative to maintain good corporate governance even though the Regulations are more in-depth.

References

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Personal Data Protection Bill, 2019 and the right to be forgotten

By

Rachit Garg

-

March 11, 2022

0

This article is written by Adhila Muhammed Arif, a student of Government Law College Thiruvananthapuram. This article seeks to explore the right to be forgotten and the provisions in the Personal Data Protection Bill related to it.

This article has been published by Rachit Garg.

Table of Contents

Introduction

Since we live in a digital economy, our personal data has become a highly valuable entity. It is used by several businesses and organisations to target advertising. The storing of internet users’ data has raised concerns regarding privacy, potential misuse, unauthorised processing of data, etc. This has led to many jurisdictions proposing and implementing legislation with the intent to protect the privacy of individuals. From the inception of social media networks, many individuals have found their personal details being made openly available without their consent, and once something is made available on the internet, it is very difficult to take it down. This has led to many jurisdictions recognizing the ‘right to be forgotten’, allowing individuals to have control over the availability of their data and their existence online.

Personal Data Protection Bill, 2019 – scope and importance

In 2017, in the case of Justice K.S. Puttaswamy v. the Union of India (2017), a nine-judge bench of the Supreme Court affirmed that the right to privacy is a fundamental right and that it is an intrinsic part of Article 21 of the Indian Constitution. After the passing of this judgement, the Ministry of Electronics and Information Technology formed a committee led by retired Supreme Court judge B.N. Srikrishna, submitted a report titled “A Free and Fair Digital Economy: Protecting Privacy, Empowering Indians” along with the draft bill on personal data protection. After that, the revised Personal Data Protection Bill, 2019, was proposed by Mr. Ravi Shankar Prasad, Minister for Electronics and Information Technology, in the Lok Sabha in 2019. Following that, the Bill was later referred to a joint parliamentary committee and several amendments were proposed by it in 2020, which may or may not be accepted. Firstly, the committee proposed to include non-personal data as well and title the legislation as Data Protection Bill. It also recommended that the interests of the state and the economy must be put on the same footing as data protection.

It contains terms such as data principal, data fiduciaries, and data processor. Data principal is the person to whom the data is connected. Data fiduciary refers to an entity, which could be the state or a company, that determines the purpose and means of the processing of personal data. And lastly, a data processor refers to the entity that processes personal data on behalf of the fiduciary.

It classifies data into three types which are personal data, sensitive personal data, and critical personal data.

Personal data refers to general personal information like name and address.
Sensitive personal data refers to things like sexual orientation, religious beliefs, etc.
Critical personal data refers to intelligence and defence services data and data related to foreign bank services.

It prohibits sharing and processing of critical personal data outside the territory of India. It places limitations on sharing and processing of sensitive data, which can only be done with the consent of the use. The Bill also proposes for a Data Protection Authority to be established in Clause 41(1), which would ensure that the provisions in the Bill are enforced and complied with. The Bill also allows data principals or the persons to whom the data is related to, to change or erase their personal data. It also creates exceptions for the consent requirements. That is, in the times of medical emergencies, for taking legal action, and for delivering state services.

The right to be forgotten

The right to be forgotten is a part of an individual’s right to privacy. The right to be forgotten, is the right of the data principal to restrict or prevent the continuing disclosure of his personal data by a data fiduciary. It is the right to remove publicly available information from the internet search, databases, and websites when it is no longer needed. This protects people who have been victimised by revenge porn, those involved in criminal cases, or anything that could affect a person’s career and reputation. Though it falls under the purview of the right to privacy, it is not explicitly recognized in any legislation in India. However, in the case of Zulfiqar Ahman Khan v. Quintillion Businessman Media Pvt. Ltd & Ors. (2019), the Delhi High Court recognized the right to be forgotten and the right to be left alone as inherent aspects of the right to privacy.

The origin of the right to be forgotten lies in the famous case of Google Spain SL, Google Inc. v. Agencia Española de Protección de Datos, Mario Costeja González (2014). This was regarding an article published in a newspaper regarding a property being forced to sell by Mario Costeja Gonzalez for the settlement of a social security debt. On searching his name, one could find the article. Hence, in 2009, he contacted the newspaper and requested that details of the forced property sale be removed from the public domain. On the denial of the request, he requested Google Spain SL to take the information down. The Court of Justice of the European Union held that Google will have to remove the information from the search results whereas the website can retain the information. This judgement became a precedent for the right of individuals to request organisations to remove any information regarding them that is irrelevant from the public domain.

The Organisation for Economic Cooperation and Development (OECD), of which India is a member of, formulated the Guidelines on the Protection of Privacy and Transborder Flows of Personal Data in 1980. There are some privacy principles coined by the OECD, which are a part of the guidelines, one of which being individual participation in being able to know about one’s personal data possessed by an organisation, so that one can delete or rectify such information. Though it is not explicitly mentioned as the right to be forgotten, the OECD promotes an individual’s right to remove his or her personal data from being possessed by an organisation.

Existing laws

In Section 43A of the Information Technology Act, 2000, organisations that possess sensitive personal data, and are negligent in maintaining reasonable security to protect such data, which causes wrongful loss or wrongful gain to anyone, such organisations will be liable to pay damages to the affected person. In the Government of India’s notification of the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, the right to be forgotten is not explicitly mentioned. However, it has provisions for submitting complaints to the designated Grievance Officer to remove content that reveals something about the complainant without his or her consent on the internet.

The ‘right to be forgotten’ in Personal Data Protection Bill, 2019

The following are the provisions in the Personal Data Protection Bill, 2019 that concern the right to be forgotten:

Chapter V of the Personal Data Protection Bill mentions the right to be forgotten as a right of a data principal under Clause 20. According to Clause 20(1), the following are the grounds for claiming the right to restrict disclosure of any personal data:

once the purpose has been achieved, or
when the data principal’s consent has been withdrawn, or
when the disclosure was made in an unlawful manner, the data principal can restrict the disclosure of the concerned personal data.

The Bill also provides for the appointment of an Adjudicating Officer by the Union Government. In order to avail the right under Clause 20, it is necessary for the data principal to show that his claim meets one of the three aforementioned conditions to the Adjudicating Officer and demonstrate how his right to be forgotten overrides the right to information and freedom of speech and expression of other citizens, as per Clause 20(2).
Clause 20(3) lays down the factors that must be considered by the Adjudicating Officer before issuing an order on the claim of right to be forgotten of a data principal, and they are the following:

Sensitivity of the personal data;
The extent of disclosure and accessibility that the data principal seeks to restrict;
Importance of the data principal’s role in public;
Relevance of the personal data to the public;
The nature of the disclosure and activities of the data fiduciary, especially whether the data fiduciary systematically facilitates access to personal data and whether the restriction of the disclosure would significantly affect them.

As per Clause 20(4), if any other person finds the order unreasonable and uncalled for, can apply for a review of the order to the Adjudicating Officer.
Data principals can also appeal against the decision of the Adjudicating Officer to the appellate board, as per Clause 20(5).
As per Clause 21, the right to be forgotten, unlike the other rights of the data principal, does not require the data principal to request the data fiduciary to restrict or prevent the disclosure of any personal data. The data principal is only required to make an application to the Adjudication Officer to enforce this right.

The Personal Data Protection Bill, 2019 restricts the right to be forgotten to only the disclosure of personal data. The Draft Data Protection Bill, 2021 suggests including the processing of personal data as well to the scope of the right to be forgotten. This suggestion may or may not be taken into consideration.

Provisions of Personal Data Protection Bill, 2019 that supplement the ‘right to be forgotten’

There are also some provisions in the Bill that essentially supplements the right to be forgotten, which are the following:

Clause 18 deals with the ‘right to correction and erasure’, which tends to slightly overlap with the right to be forgotten. This includes correction of inaccurate or misleading personal data and erasure of personal data that is no longer necessary for the purpose for which it was processed. Wherever the data fiduciary makes such a correction or erasure, the individuals and entities to whom such data was disclosed must be notified by the data fiduciary.
As per Clause 9, a data fiduciary cannot retain any personal data beyond the particular period for which it was required, unless it is explicitly consented to by the data principal or there is compulsion by law. Data fiduciaries are also obligated to undertake a periodic review to determine whether it is necessary to retain the personal data or not.
Clause 36(b) states an exception to the right to restrict disclosure of personal data, wherever the personal data is required for enforcing a legal right or claim, to defend charges, for receiving legal advice, etc.

Comparison with provisions in GDPR

The European Union’s General Data Protection Regulation (GDPR) was one of the first statutes to recognize the ‘right to be forgotten’ under Article 17. In the GDPR, the right to be forgotten is termed as the ‘right to erasure’. As per this Article, the data subject has the right to have his personal data erased by the data controller without undue delay. Here, undue delay refers to a month.

One of the following conditions must be satisfied for the application of the right as per Article 17:

The personal data is no longer needed by the concerned organisation for the purpose for which it was obtained and processed.
The organisation depends on the data subject’s consent for processing the data, and the individual withdraws the consent.
The organisation relies on certain legitimate grounds for processing the data, which is objected to by the data subject and the organisation’s justifications do not override the interests of the data subject.
The organisation processes information for direct marketing and the data subject, objects to it.
The data processing by the organisation is unlawful.
When erasing personal data is required to comply with a ruling.
The organisation had processed the personal data of a child to provide information society services.

The regulation also prescribed the grounds on which the organisation’s right to process information overrides the data subject’s right to be forgotten. The following are the grounds prescribed:

Right to freedom of expression and information.
The data processed is used for public interest.
Data is used to comply with a legal rule or obligation.
Data is used for establishing legal defence or legal claims.
Data represents information that achieves something for public, historical, or scientific purposes.
Data is used in the health sector for public interest.

As per Article 19, once the data controller has made any rectification or erasure of personal data, the communication of such correction or erasure has to be made to all the entities or recipients to whom the data has been disclosed. The data controller also has an obligation to disclose the information about such recipients if the data subject requests.

It is pretty evident that the GDPR provides a wider scope for the right to be forgotten compared to the Personal Data Protection Bill. It is notable that the GDPR provides the right to be forgotten to the processing of personal data as well. The PDP Bill does not guarantee speedy remedy, unlike the GDPR. The GDPR is far more elaborate on the grounds to be considered by the controller in comparison with the PDP Bill.

Critical analysis of the Personal Data Protection Bill, 2019

The Personal Data Protection Bill, 2019 would be the first legislation in India to recognize the right to be forgotten, once it is enacted. However, it is notable that the bill does not substantiate the remedies for restricting or preventing the disclosure. It could be complete deletion or simply making access to the data difficult by delinking or deindexing. Deindexing is essentially removing the link of the data from the search results of the search engine, but it does not delete the data from the website which published it. There are no grounds prescribed for the Adjudication Officer to decide what remedy is appropriate. It is all left to the discretion of the Adjudication Officer. Another concern posed by the Bill is its censorship aspect. Since the Adjudication Officers are appointed by the Union Government and have the power to censor data on the internet, this is seen as a threat to the principle of separation of powers and judicial independence. While Chapter II of the Bill contains provisions for restriction of processing of personal data, the right to be forgotten has to be widened to include the right to object processing as well, and not just disclosure.

Conclusion

Though it is possible for individuals to remove their personal data from public platforms through means such as the IT Rules, defamation, obscenity, etc. the Personal Data Protection Bill would be the first law in India that explicitly recognizes the ‘right to be forgotten’. While there is a conflict between the censorship aspects of the right with the rights to information, speech and expression, it is an essential component of the right to privacy, as affirmed in the decision in the case of Zulfiqar Ahman Khan v. Quintillion Businessman Media Pvt. Ltd & Ors. (2019). In the digital age, where data security and privacy are always compromised, it is crucial for us to protect the privacy of individuals and their personal data from being misused.

References

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

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

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All you need to know about stages of crime

By

Rachit Garg

-

March 11, 2022

0

This article is written by Arya Mittal from Hidayatullah National Law University. The article seeks to analyse the various elements or stages involved in the commission of a crime through various legal provisions and judicial pronouncements.

This article has been published by Rachit Garg.

Introduction

A crime is defined as the commission of an act that is prohibited by law, or an omission of an act that is obligated by the law. In other words, crime may be defined as the disobedience of law. Another important aspect of a crime is that it affects the public interest, rather than the rights of a single individual, which shall be a part of civil law.

In India, criminal law is operated through substantive as well as procedural law. The substantive law includes the Indian Penal Code, 1860 (the Code), and the procedural law includes the Code of Criminal Procedure, 1973 (Cr.P.C.). These laws implicitly and also various cases have enunciated that in the commission of a crime, there exist four stages. The same forms the scope of the present article and has been discussed hereafter.

Stages of crime

The stages of crime or elements of a crime include intention, preparation, attempt and accomplishment. The constitution of a crime includes all the elements. Some of these elements are even punishable before the accomplishment of the crime. All the stages can be explained further as follows:

Intention

The fundamental elements of a crime are ‘mens rea’ and ‘actus reus’, the former being the intention to commit a crime and the latter being the act done in furtherance of the intention. The criminal liability of a person shall be decided only when he or she has a mala fide intention. It is the direction of conduct towards the objects chosen upon considering the motive which suggests the choice. Mere intention shall not constitute a crime, as it is almost impossible to know the intentions of a person. As the famous saying goes “the devil himself knoweth not the intention of a man”. Since it is hard to know the intentions of a man, a criminal liability at this stage cannot be drawn.

Mens rea

Mens rea literally means guilty mind. This basically implies that a person committing the crime is mindful of his/her actions and knows that accomplishment of that act would result in a crime. To simplify, the intention of the person committing a crime should be mala fide. Further, mens rea can be further divided into four levels depending upon the degree of intent of committing the crime. These four levels are:

Negligence: This is the least and in fact the mildest form of mens rea where the person is negligent of his/her actions and does not ensure reasonable care in his/her act/omission.
Recklessness: This is of a slightly higher amplitude than negligence where the person can anticipate the crime which may arise out of the act/omission but did not expect or intended the same and acts negligently.
Knowledge: The third level is knowledge where the person is associated with the risks that may occur on his act/omission and still continues with such act/omission. Here, he/she is not negligent.
Intent: This is of the highest amplitude where the person intentionally carries out an act or omits something in order to commit the crime.

Actus reus

Actus reus is the act or omission on part of the person which causes a crime and involves some physical activity. It is imperative to note that not just an act but an omission can also be a crime. For example, non-payment of taxes or maintenance is a crime.

To know more about these two elements, check out this article.

Preparation

The next stage of a crime is preparation. It can be understood as an act in furtherance of the mala fide intention of a person. It is an act that shall be a means to the attempt and accomplishment of the crime. In the previous illustration, if A purchases a weapon legally and carries it with himself, it shall amount to the preparation of the crime.

Reasons why preparation is not punishable

The general rule under the law is that the preparation of a crime shall not be punishable. The reason behind the general rule is that it is nearly impossible to prove that the accused made the preparation to execute the crime. Apart from this, the test of locus poenitentiae is applied in cases where the culpability of preparation is in question. The test provides that a person has an opportunity to withdraw from his act before he actually commits the intended crime. The test has been further explained in the subsequent sections.

Exceptions in which criminal liability may be imposed

Exceptions to the general rule that a person cannot be held criminally liable for the preparation of an act have been provided under the Code. These exceptions include:

Preparation to wage a war against the Government of India – Section 122 of the Code provides that collection of arms, ammunition, or associating with people with an intention to wage a war against the State shall be a punishable offence with imprisonment for a term that may not exceed ten years, and such the offender shall also be liable for fine.
Counterfeiting coins – Section 233, Section 234, and Section 235 of the Code provide the punishment for counterfeiting any coin, including an Indian coin and the possession of any counterfeit coin. These provisions also provide punishment for the preparation of producing or using a counterfeit coin.
Manipulation of the weight of the coins – Section 244, Section 246 and Section 247 of the Code provide the punishment for altering or diminishing the weight of any coin. In these circumstances, even the preparation to commit such crimes is punishable.
Counterfeiting Government stamps – Section 255 of the Code provides that “Whoever counterfeits, or knowingly performs any part of the process of counterfeiting, any stamp issued by Government for the purpose of revenue shall be punished with imprisonment for life or with imprisonment of either description for a term which may extend to ten years, and shall also be liable to fine.” In addition to this, the provision also criminalises the possession (Section 256) and selling (Section 257) of counterfeiting Government stamps.
Preparation to commit a dacoity – Section 399 of the Code provides that “Whoever makes any preparation for committing dacoity, shall be punished with rigorous imprisonment for a term which may extend to ten years, and shall also be liable to fine.”
Possession of forged documents – Section 474 of the Code provides the punishment for the possession of forged documents. The intention behind the provision is to prevent any type of fraud that may occur by using such forged documents.

These offences are punishable at the stage of preparation due to the gravity of the outcome of the crime, if committed.

Attempt

There exists a very thin line of distinction between the preparation of a crime and an attempt to commit the same. It may be defined as an action in furtherance of the intention and preparation of a person to commit a crime. Thus, an attempt to commit a crime is often termed “preliminary crime”. An attempt to commit a crime is punishable under the Code. It has been provided under various provisions for specific crimes. However, in case of the absence of punishment for an attempt to commit a particular crime, Section 511 of the Code comes into the picture. Some of the specific provisions of the Code under which an attempt to commit a crime have been enumerated hereunder:

Section 121 – Attempt to wage a war;
Section 131 – Attempt to seduce a soldier, sailor or airman from his duty;
Section 307 – Attempt to murder;
Section 308 – Attempt to culpable homicide;
Section 309 – Attempt to suicide;
Section 326B – Attempt to throw suicide;
Section 356 – Attempt to commit theft;
Section 357 – Attempt to wrongfully confine a person;
Section 393 – Attempt to commit robbery;
Section 3 97 – Robbery or dacoity with an attempt to cause death or grievous hurt;

Circumstances under which attempt becomes impossible

In the 19th century, English law established that an attempt to commit an impossible act shall not be punishable. Cases of the early 19th century were decided on the notion that an attempt cannot be made on a crime that cannot be committed. Thus, where a pickpocket thrusts his hand in an empty pocket of a person, he shall still not be held liable.

However, the courts found the notion to be illogical and unreasonable in the later part of the 19th century, and hence, overruled the judgements. This was the first time an attempt to commit an impossible act was made punishable.

Section 511 of the Code particularly provides that any attempt to commit an impossible act is punishable. The illustrations provided under the provision are indicative of the same. Thus, under the Indian Penal Code, an attempt to commit an impossible act is punishable.

Difference between preparation and attempt

The difference between the preparation and attempt to commit a crime is a crucial one. It can determine the criminal liability of a person. The prime difference between the two is the fact that whether the act that has already been finished during the stages of crime, has an impact on the victim. If it has an impact, it is considered to be an attempt, otherwise, it is considered to be mere preparation. The Courts in various cases have attempted to differentiate between the two through various tests, which shall be discussed hereunder.

Tests for determining an attempt to commit a crime

Proximity rule – The proximity rule provides that in cases where the accused accomplishes a series of acts in furtherance of his intention to commit a crime, the liability shall be decided upon the proximity with the completion of the Act.
Locus Poenitentiae – The doctrine of locus poenitentiae provides that where a person withholds himself from the actual commission of the crime, it would amount to mere preparation. The doctrine was propounded after analysing that a person has a reasonable opportunity to withdraw himself from committing the crime.
Equivocality Test – The equivocality test states that when an act of a person can prove beyond reasonable doubt the likeliness of committing the crime, it shall constitute as an attempt to commit the crime rather than mere preparation.

Accomplishment

The accomplishment of a crime is when an attempt to commit a crime is successfully executed. Every person shall be liable for the act, offence or crime that he commits or accomplishes. The provisions of the Code provide for specific punishments for various crimes in the country.

Stage at which liability commences

The above discussion reveals how these four stages of crime decide the criminal liability of an accused. Undisputedly, at the level of accomplishment, the criminal liability of a person shall arise. Nevertheless, the above discussion reveals how the liability can commence even at the stage of the attempt and in some cases, even at the stage of preparation. Usually, in such instances, the crime committed is very serious and poses a threat to society. Hence, the main object of ascertaining liability at such stages is to create a deterrent effect in the minds of people and prevent them from committing such heinous crimes.

Judicial Pronouncements

Asgarali Pradhania v. Emperor (1933)

In this case, the Calcutta High Court, while distinguishing between an attempt to commit an offence and its preparation, was of the opinion that not every act done by the accused can constitute an attempt to commit the said offence. The facts of the case included the accusation of an attempt to cause a miscarriage of his ex-wife. The Court held that if the accused, with an intention to administer a drug which shall cause a miscarriage, administers any harmless substance instead, he shall not be liable for the attempt to cause miscarriage. However, if the failure of the accused is caused by someone else, it shall result in the contrary.

Madan Lal v. State of Rajasthan (1986)

In this case, the convict was sentenced to rigorous imprisonment for two years when found guilty of attempting to commit rape of the victim under Section 376 read with Section 511 of the Code. The facts of the case included three prime witnesses, who found the convict laid down naked on the victim, who was also found naked, and the mouth of the victim was covered by the convict’s hand. It was established the convict himself removed his clothes and that of the victim and had an intention to rape the victim.

The Court, while analysing the stage of attempt, held that “It is the stage beyond preparation and it precedes the actual commission of the offence. An attempt to commit an offence is not meant to cover only the penultimate act towards the completion of an offence but it also covers all those acts or series of acts which travel beyond the scope of preparation and exhibit a definite intention and determination to commit a particular offence. It need not be an act which just precedes the last act on the happening of which the offence itself is committed but it covers all those acts or series of acts which may precede the penultimate act towards the commission of that offence.”

State of Madhya Pradesh v. Narayan Singh (1989)

In this case, the Hon’ble Supreme Court held that the commission of an offence involves four stages; i.e. intention, preparation, attempt and commission. The first two stages of these offences would not attract culpability, however, the last two stages would attract it. In this case, the respondents were trying to export fertilisers without a permit from Madhya Pradesh to Maharashtra. Hence, the act was considered to be an attempt of the offence rather than just preparation.

Nasim v. Senior Superintendent of Police (2002)

This case is related to cow slaughter which attracts criminal liability as per UP Prevention of Cow Slaughter Act, 1955. The petitioner, in this case, was found to be holding a knife, 38cm in length, and to be sitting on the top of a cow with all of its legs tied. The instant petition was filed for quashing an FIR registered under Section 3 and Section 8 of the impugned Act. Relying upon the Narayan Singh case (1989) as discussed above, the Hon’ble Allahabad High Court held that preparation had been done by the petitioner and he would have moved to the third stage i.e. attempt had he not been stopped. Resultantly, he had criminal liability as attempt and accomplishment of crime would have attracted liability under the said Act.

Mathivanan v. the State of Tamil Nadu (2021)

In this case, the Madras High Court reiterated that the first and the second stage (intention and preparation) are generally not culpable, whereas the third and the fourth stage (attempt and accomplishment) are culpable. However, exceptions to this general notion are the offences under Section 122 and Section 399 of the Code.

Commenting on Section 122 of the Code, the Court opined that “To wage war would require several steps and crossing of stages. There has to be mobilisation of men as well as accumulation of arms and ammunition. That would require a concerted effort. Each individual who is a party to the conspiracy to wage war may be allotted a particular task. One may be tasked with collecting men, another with arms and the third with ammunition. The expression “otherwise prepares” in this context should not be construed on the application of the principle of ‘ejusdem generis’. A person may be engaged in fund-raising. Another may be responsible for providing reinforcements. Some may be engaged in making logistical arrangements. Some may be engaged in the intellectual front. There could be several dimensions. All of them would fall within the scope of “otherwise prepares”. But as already held, when it comes to application of the provision to concrete facts, courts will apply a higher threshold.”

Satvir Singh v. State of Punjab (2001)

In this case, the appellants were accused of abetting an attempt to commit suicide, which was done by the wife of the primary appellant. The issue before the court was whether it was whether, in an episode of an attempt to suicide made by a person due to harassment by another, the person harassing such person shall be liable for an attempt to abet the commission of suicide. The Court answered in negative, stating that an attempt to abet shall only be punishable if the said offence has been committed, hence providing successful abetment. In case the said offence has not been committed, the abettor shall not be held liable.

Abhayanand Mishra v. State of Bihar (1961)

In this case, the appellant was a candidate appearing in an entrance examination of the Patna University for the course of M.A. in English. In his application form, the appellant had provided that he was a graduate and was also teaching in certain schools after his graduation. However, the University, only after dispatching his admit card for the examination, found the information to be forged. He was convicted by the lower court and the High Court under Section 420 read with Section 511 of the Code. Under the appeal before the Hon’ble Supreme Court, the contention of the appellant was that it was mere preparation to commit fraud and not an attempt. The Court rejected the argument and held that when the appellant submitted the forged information, it constituted preparation to commit fraud, and when the said forged documents were dispatched, it amounted to an attempt. The court reiterated that an attempt may not be seen as only the penultimate act, rather, it means any act in furtherance of the preparation.

Conclusion

The four stages of a crime have been defined and adopted by the judiciary for a long time now. The classification of these stages is necessary in order to decide the culpability of a crime at each stage. Generally, the liability arises during an attempt and the actual commission of the crime, as the courts cannot overlook the legal maxim of locus poenitentiae. The problem before the courts that arises more than often is the differentiation between the preparation and the attempt to commit a crime.

Various cases have been adjudicated by the courts wherein an attempt has been made to distinguish the thin line between an attempt and preparation of a crime. The courts have been of the view that an attempt shall not be considered only as the penultimate act of the crime. Rather, a series of acts shall constitute an attempt to commit the crime and the differentiation between preparation and attempt shall depend on the facts and circumstances of each case.

References

C.K. Takwani, Indian Penal Code (EBC Reader 2014).
K.A. Pandey, Indian Penal Code (EBC Reader 2017).
K.D. Gaur, Commentary on the Indian Penal Code, 3rd ed. (Central Law Publications 2019).
Ratanlal & Dhirajlal the Indian Penal Code (LexisNexis 2020).

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