CCI v. DPA : the impending conflict

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November 24, 2021

Competition law (1) — Image source- https://rb.gy/2ozay6

This article is authored by Akash Krishnan, a law student from ICFAI Law School, Hyderabad. It discusses in detail the relationship between data protection and competition laws and the conflict of opinions when it comes to the powers being exercised by the Competition Commission of India in the data privacy regime. It further discusses the need for a proper data protection regime and the impact of the role performed by the Competition Commission of India in the absence of such a regime.

Table of Contents

Introduction

Long gone are the days when competition in the market was restricted to the physical domain. Today, with millions of users preferring online transactions, a large quantity of personal data is available in the digital domain. The question that comes to our mind in such scenarios is whether data privacy is just a myth in this modern world or are there strict laws in place to protect individuals from personal data breaches? If yes, who is responsible to protect the data in the digital domain? This article will discuss the answers to all these questions and discuss in detail the possibility of harmonious construction of competition and data protection laws while critically analysing the jurisdictional conundrum in the Competition Commission of India’s (CCI) investigation against the privacy policy of WhatsApp.

Before we enter into the technicalities of the concepts, let us first understand the competition and data protection laws that are in place in India and the regulatory bodies associated with these laws.

Competition laws in India

The competition laws in India are governed by the Competition Act, 2002. The primary objective of this Act as stated in the Preamble is to prevent anti-competitive practices in the market, promote and sustain competition in markets, promote the interests of consumers and ensure freedom of trade. It provides regulations for prohibiting anti-competitive agreements, preventing abuse of dominant position, mergers and acquisitions and also prescribed penalties for any violations of the provisions.

The Competition Act created an autonomous body to act towards the enforcement and administration of the Act. This body is known as the Competition Commission of India (CCI). The relevant provisions relating to the CCI have been enumerated below:

Section No.	Provision
Section 7	Establishment of CCI: This provision provides for the establishment of CCI as a body corporate.
Section 8	Composition of CCI: The maximum number of members in the CCI is limited to 7. Out of these 7 members, one shall be the Chairman. There should be at least 2 members appointed along with the chairman at all given times. The number of members is limited to 6.
Section 10	Term of office: The Chairman and members shall hold the office for a period of 5 years from the date of appointment and are also eligible for re-appointment. The maximum age limit to hold the office is 65 years.
Section 18	Duties of the CCI: To eliminate practices having an adverse effect on competition in the Indian markets.To promote and sustain competition in the Indian markets.To promote the interests of the consumers.To ensure freedom of trade carried on by other participants in the Indian markets.
Section 19	The CCI has the power to inquire into anti-competitive agreements and the dominant position of an entity in the Indian markets.
Section 26	Procedure for inquiry: The CCI either on receipt of a reference made by the Central or State Governments or suo-moto action may look into a case and if it believes that there exists a prima facie case, it would direct the Director-General to cause an investigation into the matter and submit a report.
Section 27	The CCI has the power to pass orders and impose penalties in case of anti-competitive agreements or abuse of dominant position.

Data protection laws in India

The Personal Data Protection Bill, 2019 was introduced in Lok Sabha as a means for protecting the privacy of an individual and ensuring the free flow of the economy. It is applicable to personal data processed within the territory of India, by the government or any Indian company or any citizen of India or body of persons incorporated under Indian law. The Bill is not restricted to the territorial boundaries of India and thus also makes it applicable on data processed by data fiduciaries or data processors not present within the territory of India if the data processing is in connection with a business/activity carried out in India. This Bill provides for the establishment of a Data Protection Authority (DPA). The relevant provisions relating to DPA have been enumerated below:

Section No.	Provision
Section 41	Establishment of the DPA: This provision provides for the establishment of DPA as a body corporate.
Section 42	Composition of the DPA: The DPA shall consist of a Chairperson and not more than 6 whole-time members.
Section 49	Powers and functions of the DPA:To protect the interests of data principalsTo prevent misuse of personal dataTo promote awareness about data protectionTo ensure compliance with the provisions of the Act
Section 51	Power to issue directions: The DPA is empowered to issue directions from time to time and these directions shall have a binding effect on all data processors and data fiduciaries.
Section 53	Power to conduct inquiry: In case the DPA is of the opinion that there is a breach in the provisions of this Act or the actions of a data fiduciary or a data processor is detrimental to the interests of the data principal, the DPA can initiate an inquiry and for the purposes of inquiry it is vested with the same powers as that of a civil court.
Section 54	Power of the DPA to initiate action post inquiry: The DPA is empowered to issue warnings or reprimands, temporarily suspend licenses or cancel the registration of any data processor or data fiduciary if the actions of these bodies are in violation of the provisions of this Act.
Section 56	Coordination between the DPA and other regulatory authorities: If any authority has a concurrent jurisdiction to deal with the matter that lies before the DPA, the DPA should act in consultation with such authority and enter into an MOU with such authority for governing the coordination of such actions.

The tryst of CCI with data protection laws

One of the first cases wherein data protection laws were examined by the CCI was In re: Vinod Kumar Gupta and WhatsApp Inc. (2016). The matter, in this case, arose during the release of the 2016 updated privacy policy by WhatsApp. The relevant facts and observations, in this case, have been provided below.

Brief Facts: After the acquisition of WhatsApp by Facebook, WhatsApp had introduced multiple changes in its privacy policy whereby the users of WhatsApp were forced to share their account details and other information with Facebook for availing the services of WhatsApp. It was alleged that WhatsApp had a dominant position in the market and was installed in over 95% of smartphones in India and it was abusing its dominant position by forcing the users to share the data with Facebook. This data was in turn used by Facebook for targeted advertisements thereby violating Section 4 of the Competition Act 2002. Under the privacy policy, WhatsApp was authorised to download/extract vital information from the phone of the user and therefore a violation of the Information Technology Act, 2000 was alleged as well.

Issue: Whether CCI has the jurisdiction to deal with matters pertaining to violation of the Information Technology Act, 2000?

Held: The Commission cited the judgement of the Delhi High Court in the case of Karmanya Singh Sareen and Others v. Union of India and Others (2016) wherein the Court held that users could always opt for deleting their WhatsApp accounts if they do not want their information to be shared with Facebook. The Commission observed that when it comes to the Right to Privacy in a digital domain and the safety of private information, the Commission does not have the jurisdiction to examine and adjudicate upon the violations of the Information Technology Act, 2000.

What is to be noted in the aforesaid Order of the Commission is that the CCI had no jurisdiction to delve into matters falling under the Information Technology Act 2000. However, on 24^th January 2021, the CCI shifted its position in this regard and passed a suo moto Order directing the Director-General to initiate an investigation into WhatsApp for abuse of dominance under the Competition Act. Let us now discuss this suo-moto order in the matter of In Re: Updated Terms of Service and Privacy Policy for WhatsApp Users (2021).

Brief Facts: In February 2021, WhatsApp updated its privacy policy wherein the users were compelled to accept the new policy and agree with mandatory data sharing with Facebook.

Observations

Non-existing “opt-out” clause

WhatsApp is undoubtedly a dominant player in the over-the-top messaging apps through the smartphone market. This was also observed by the CCI in its order in the matter of Vinod Kumar Gupta and WhatsApp Inc. During the 2016 update, users had the option to opt-out of the data sharing policy within 30 days of acceptance to the updated terms of service and privacy policy. But in the present scenario, the 2021 policy does not provide for such an opt-out clause. Instead, it is a mandatory clause compelling all users to accept data sharing with Facebook in order to continue using the services of WhatsApp. This condition was deemed to be an unreasonable condition. In the absence of an opt-out clause and the take-it-or-leave-it nature of the 2021 policy clearly indicates abuse of dominant position by WhatsApp and therefore the violation of Section 4 of the Competition Act is evident.
To come to this conclusion, the CCI took into consideration the test of reasonableness laid down by the Supreme Court in Central Inland Water Transport Corporation Ltd. & Anr. v. Brojo Nath Ganguly & Anr (1986). Herein, the Supreme Court observed that if a weaker party has no meaningful choice but to give his assent to a contract even though such rules are unfair, unreasonable and unconscionable, the courts will strike down such unfair and unreasonable contracts. The Court further observed that when there is unequal bargaining power between the parties leading to the imposition of unfair terms, such terms would be deemed as unreasonable.

Jurisdiction of CCI

The German Cartel Office (GCO) had investigated Facebook regarding its data collection policies and the lack of choice given to the users to opt-in or opt-out of the policies. After the conclusion of the investigation, the GCO held Facebook liable. It noted that an absence of an opt-out clause in the policies violates the right of the user to voluntarily agree to a contract. In light of the same, GCO ordered Facebook to amend its policies and provide voluntary consent to its users and not subject them to a mandatory data sharing policy.
The actions of Facebook were held to be violative of the General Data Protection Regulations of Europe (GDPR) as the regulations prohibit such exploitative conduct and therefore the order of the GCO was made after proper coordination with the data protection agencies in Europe.
What is pertinent to note is that when it comes to India, there is neither an exclusive data protection law nor a data protection regulator. The Personal Data Protection Bill is pending since 2019. This huge lacuna in the legal system allows dominant companies like WhatsApp and Facebook to exploit users in India.
These factors led to the examination of the privacy policy and terms of service in light of the data protection expectations of Indian users by the CCI. By doing this, the CCI was actually acting outside its jurisdiction and based its observations on a fictional law. Although that was the need of the hour, such conduct by the CCI cannot be deemed as the correct interpretation of the law.

Held: The privacy policy was deemed to be unfair and it was held that WhatsApp had abused its dominant position in the market.

Conclusion

Since the necessary limits or standards for the protection and use of data have yet to be defined and are subject to appeal to higher courts, the CCI’s investigation into these matters may be premature. At present, clear and comprehensive data protection legislation still needs to be implemented as soon as possible. If such legislation specifies a threshold for data collection, then the CCI could assess market power in digital markets accordingly.

The Ministry of Electronics and Information Technology has already issued a notification defining a ‘significant social media intermediary’ as a social media intermediary with at least 5 million registered users in India. It has also issued a direction to WhatsApp to withdraw its new privacy policy. Therefore, it would make sense for the CCI to refrain from creating thresholds or standards in the data realm and instead strengthen its understanding of the underlying concerns through market research and preliminary conferences and focus on effects-based approaches.

The PDP Bill is a breakthrough to deal with the requirements of an evolving data protection regime of India. However, several aspects of knowledge protection (such as categorization of private data as sensitive personal data and important personal data, details on anonymized data, conditions from exemption from certain provisions of the PDP Bill, categories of Significant Data Fiduciaries (SDFs), conditions for registration as a consent manager and processing of private data and sensitive personal data of children), which can be key to an efficient and successful implementation of the new regime, are delegated to the DPA and/or the Central Government. With the inclusion of other aspects that will bridge the gap in the Bill, the Bill could be perceived as futuristic but the important impact of the PDP Bill is going to be visible once the relevant rules and regulations are in place.

The establishment of DPA and the provision regarding coordination between regulatory agencies provided under Section 56 of the PDP Bill will bring in the much needed legal mechanism in India to enforce data privacy laws and ensure that there is no abuse of position by dominant entities in the Indian digital markets.

References

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Implementation of robotic usage and regulation of artificial intelligence in healthcare in the United States

By

Abanti Bose

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November 24, 2021

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This article is written by Sankara Narayanan, pursuing Diploma in US Technology Law and Paralegal Studies: Structuring, Contracts, Compliance, Disputes and Policy Advocacy from LawSikho. The article has been edited by Zigishu Singh (Associate, LawSikho).

Table of Contents

Introduction

Robotics have been in use in the health industry to assist physicians for over four decades and have proven to be effective in undertaking repetitive tasks. The use of robotics in the medical field has many advantages including precision work, accuracy, patient care, and handling other services. The robot mainly carries out the work through the complex hardware for specific jobs. Some robots may resemble a human and we may call them humanoid. Robots act as a tool in the hands of a doctor. Therefore, any failure in the procedure is the responsibility of the doctor. Artificial Intelligence (AI) enabled systems are now used in many industries and can take autonomous decisions just like human beings. With AI being written in machine learning language, it becomes easy for the coders to develop AI to solve complex issues. AI has many applications in the health industry as it can carry out diagnostics, analytics, prescriptions, and even diagnose rare medical conditions that physicians may miss out on. AI systems can analyze the data, interpret, compare, and make predictive outcomes immediately, as opposed to human decisions. AI often works as an autonomous system without any human interference. When an AI system is used autonomously there arises a question of responsibility for any failure. The current regulations in many countries including the US are not sufficient to address such issues. Many countries including the European Union (EU) and the US are in the process of formulating a comprehensive regulatory framework for controlling the use of AI including the health industry.

Robotics in the health industry

Robotics is the use of machines using computers and other hardware that can be programmed to perform certain repetitive or routine functions and have been used widely in food processing, industrial manufacturing, remote operations, fire, and rescue operation, the health industry, etc. Robots are used in hospitals for cleanroom preparation, assisting paramedics and doctors to help them reduce their workload. Robots played an important role in the covid-19 pandemic to reduce direct contact with the patient to health care workers. Robots can also safely handle poisonous and hazardous materials that humans may not be capable of handling.

Advantages of robotics in the health industry

Robotics has wider applications in the healthcare industry. Robotic surgery has been in practice for over two decades and has assisted surgeons in carrying out precise surgery. A robot is a machine that can be programmed to follow the surgeon’s instructions and carry out medical procedures. The use of Robotic in the healthcare industry includes conducting surgeries that save human efforts. Robots can perform pre-operation procedures such as cleaning the operating room, sterilization of equipment and can perform keyhole surgeries with high precision with the instruction of a surgeon. The robot acts as an aid to the doctor and the doctor is liable for any fault in the procedure even when it is carried out by the robot. The main advantages of using robotics in the health industry are:

Accuracy and precision – Human error can be eliminated as the machines can work tirelessly for a long time.
Remote treatment – Robots can work in remote areas where human access is limited and can be controlled remotely.
Assisting and augmenting human capabilities – Robots can prepare the cleanroom, handle hazardous materials, help doctors to conduct surgery, and even conduct surgeries autonomously.
Patient support – Robots can be in the form to resemble a human being and help elderly and bedridden patients to interact with them.
Assisting other resources – Robots can also be used to carry out other works such as record keeping, retrieving data, and handling other routine works to help other staff.

The main disadvantage is a mechanical failure, lack of human compassion as well as the fact that technology is getting updated constantly. Despite all the disadvantages, the use of robotics is inevitable in the health industry. Generally, if there is a failure in the surgery where robotics assistance is sought by the doctor, he is liable for any claims by the patients.

Artificial Intelligence

AI mostly comprises software that uses algorithms and can work autonomously in carrying out its functions and decisions as AI has the power of near-human intelligence. An AI system is driven by software, coupled with necessary hardware designed by humans to accomplish a given complex goal, to act in physical or digital dimension by perceiving their environment through data acquisition, analysis, interpreting the collected structured or unstructured data, providing reasoning on the knowledge, or processing the information, derived from the set of data, and deciding the best action to obtain the desired goal without any human interference.

From the traditional ‘chatbot’ where AI can guide customers and answer their questions, AI can now carry out diagnostics and prescriptions and the latest AI is coded on ML algorithms with the AI trained on the vast databases that have been saved. Scanning through the records and comparing the data is very time-consuming, but AI can compare medical conditions with records and find solutions more efficiently. Such data with the help of advanced algorithms help the AI in taking decisions close to that of human minds without the need for any commands. Some of the latest AI machines resemble human beings and are called ‘humanoid’. This has many applications of AI in the health industry.

AI uses codes written in Python or other languages like R etc. but the latest AI utilizes Machine Learning (ML). There is no doubt that advanced technology has contributed to the expanded life span of human beings all over the world. AI has been widely used to improve patient care, but it also raises concerns on many issues such as personal data protection and privacy. Currently, there are no regulations to control AI in many countries including the US. The existing data privacy laws and industry-specific regulations cover the use of Robotics and AI but are inadequate in addressing AI-related issues. The European Union has devised a proposal in January 2021 for new AI products that are considered high risk and included the products that are to be used in the health industry. AI largely depends on data that was gathered over a period and uses data analytics to do the iteration through which the desired results are obtained.

Advantages of AI

Autonomous function – AI systems with the right program can carry out functions of a doctor in diagnosis, prescription, and advice to patients without any direct interference by the doctor.
Fast and precise – AI can search through expansive records and take precise decisions on any medical condition.
Remote application – AI can be used in remote locations where human access is limited.
Patient care – AI can decide on each patient’s cases and provide accurate patient care.
Human interaction – AI coupled with robotics can function as a human being and can communicate in different languages as per the need.

AI has many disadvantages like data protection and responsibility issues, lack of human compassion, mechanical failure, and technological updates that keep the system in need of constant updates. But these disadvantages can be rectified with the available technology and an appropriate legal framework.

Rapid technological innovations will certainly improve the healthcare system and AI will have many applications in the healthcare industry. But AI will also seriously challenge the robustness and appropriateness of the current healthcare regulatory frameworks. These regulatory frameworks are to primarily regulate medical persons using the “practice of medicine” and medical machines that meet the FDA definition of “device.” However, neither model seems particularly sufficient for regulating machines practising medicine or the complex system of AI where man-machine relationships will develop. Additionally, healthcare AI when combined with other technologies such as big data and mobile health apps may result in more complexities and add to the deficiencies in healthcare regulatory models, particularly in data protection and privacy issues.

Robotics and AI interface

(Source: pwc)

When AI and robotics are interfaced, the system can make healthcare more efficient and reduce human efforts in taking care of the wellness of people in the society, other benefits would include the early detection of ailments that reduces healthcare cost and complications of treatment, precise diagnosis of any medical conditions, comparing records and take appropriate decision for treatment, conducting further research, and providing training for healthcare professionals at various levels.

Regulations in the US

AI, data, data analytics, AI, ML, and robotics are interconnected but their interrelationship is much more complex. While using robotics in the medical industry, the technology is a tool in the hands of the doctor who handles it, so if there is any malpractice, the doctor is responsible for the same. When AI carries out the treatment or procedure through its autonomy there arises a question as to who is responsible for the failure or malpractice; is it the doctor who does not have much control over AI or is it the person who wrote the codes or is it the manufacture of the hardware. There must be precise regulations to deal with AI-related issues.

The foundations for the safety regulation of healthcare in the US are controlled by two entities, the state medical practice acts, and the federal laws which require the approval and surveillance of drugs and devices. As AI is getting prominence in every field and to mitigate the legal issues US authorities are starting to frame the regulatory framework. The US Food and Drug Administration (FDA) and the Department of Health and Human Services (HHS) have started to formulate guidelines on the use of AI in the healthcare industry. FDA has defined AI-based software as a medical device (AISAMD) as “intended to treat, diagnose, cure, mitigate or prevent disease”.

Conclusion

The use of robotics in the healthcare industry has many advantages and is within the purview of current regulations as robotics is a tool to assist health workers and doctors. AI can perform like a human and often makes autonomous decisions without any human interference. Currently, there are no regulations to control the use of AI as it is still a developing technology. When AI is used in healthcare where data is the heart of the system, it can be misused. Liability for any legal damages to patients related to privacy, operational failure, and another plethora of claims may arise soon as AI is poised to transform the healthcare industry into a different dimension. A comprehensive legal framework to regulate and control AI is imminent, particularly in the healthcare industry.

References

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Can a judge can be arrested and what is the procedure for the same

By

Diganth Raj Sehgal

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November 24, 2021

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This article is written by Yash Kapadia. This article answers the question of whether a judge can be arrested. With the help of statutory provisions and judicial precedents, we shall also ascertain the guidelines laid down.

Table of Contents

Introduction

This is an extremely thought-provoking question when asked if a powerful judicial officer like a judge can be arrested or not. Under what circumstances and for what reasons can a judge be arrested or does a judge have the power to be immune to any sort of prosecution.

It is pertinent to note that the Indian Penal Code, 1860, under Section 19, defines Judge in the following manner:

“Judge”.—“The word “Judge” denotes not only every person who is officially designated as a Judge, but also every person,— who is empowered by law to give, in any legal proceeding, civil or criminal, a definitive judgment, or a judgment which, if not appealed against, would be definitive, or a judgment which, if confirmed by some other authority, would be definitive, or who is one of a body of persons, which body of persons is empowered by law to give such a judgment.”

Therefore, through this article, we shall ascertain when a judge can be arrested. With the help of statutory provisions and judicial precedents laid down, we shall understand the procedure which needs to be followed for the same.

Can a Judge be arrested

The simple answer to this question is a yes, a judge can be arrested. India is a democratic country with every person having the fundamental right to be treated with equality. This is enshrined under Article 14 of the Constitution of India. India is a sovereign state and nobody is above the law in this country. Therefore, any person, regardless of his stature in society, is liable to be arrested if they are involved in any sort of activity not permitted by law.

We shall now enlist the statutory provisions relating to the power, protection and action against judges:

Section 77 of Indian Penal Code, 1860

Section 77 lays down that any activity done by a presiding judge in the exercise of the power he has been granted, which they believe to have done in good faith, given to them by the law, is not liable for any offence. This particular section protects and gives the judicial officers a taste of immunity for any act done in good faith.

Section 228 of Indian Penal Code, 1860

Section 228 states that if any insult or interruption is caused by a person towards another public servant who is a part of an ongoing legal proceeding, then the person causing such trouble will be liable to simple imprisonment extendable up to six months along with a fine. This Section, again, provides some sort of immunity to the public servants who are judges in this case.

Section 135 of the Civil Procedure Code, 1908

Section 135 states that no judge, magistrate or judicial officer is exempted from getting arrested while going to, presiding in and returning from his court.

Section 197 of the Criminal Procedure Code, 1975

Section 197 states that a judge, magistrate or a judicial officer who is or was not removable from office unless sanctioned by the government is accused of any offence which they committed while at official duty, then no court shall take cognizance of the offence except when the said officers were employed at that time in connection with the affairs of a state or country.

Section 345 of the Criminal Procedure Code, 1975

Section 345, too, provides a procedure in cases of contempt of court and provides powers to the judge to initiate relevant contempt proceedings against an offender as the judge may deem fit. This provision also provides some kind of power to a judge to take cognizance of an offence after giving the offender an opportunity to show the cause of their acts before punishing them with a fine or imprisonment.

Judges (Protection) Act, 1985

This Act has been formulated to provide additional protection to judges. Section 3 of this Act states that no court shall entertain or continue any sort of legal proceeding against a person who is or was a judge for any criminal or civil act, done or even spoken by them in the course of performing the official duties or functions.

However, subsection 2 of this Section has a non-obstante clause which states that the Central or State Government or the Supreme Court, High Court or any other authority under law shall have a right to take legal action in terms of civil, criminal or other necessary legal proceedings against any person who is or was a judge.

The Judges (Inquiry) Act, 1968

This Act is formed to regulate the procedure for investigations and proof of misbehaviour or incapacity of a Supreme Court or High Court judge.

Judicial precedents

It is evident from the aforementioned statutory provisions that judges in India are given a significant amount of protection from any legal proceedings being initiated against them but they are not bullet-proof to the same. Every citizen has to be treated with equality regardless of their stature and therefore acts like the Judges (Inquiry) Act of 1968 have been formulated.

Regardless of the statutes in force, the Supreme Court of India has also in various landmark cases given its views and further also provided guidelines to arrest a judge. The following are the major landmark cases one must rely on, to be well conversant with the process to arrest a judge:

Delhi Judicial Services Association v. the State of Gujarat & Ors., 1991

In this landmark case of the issue we deal with in this article, the Hon’ble Supreme Court of India held that the arrest of the Chief Judicial Magistrate is violative of Article 136 of the Constitution of India. In the given circumstances, the Hon’ble Apex Court laid down guidelines to arrest a judge. The Apex Court opined that a magistrate, judge or judicial officer is liable for any offence like any other citizen but in view of the paramount necessity of preserving the independence of judiciary and at the same time ensuring that infractions of law are properly investigated it laid down the following are the guidelines:

The arrest of a judicial officer for an offence must be made after prior intimation to the District Judge or the High Court as the case may be.
If the immediate arrest of a judicial officer from a subordinate court is necessitated, then a technical or formal arrest may be put into effect.
The arrest of such kind must be immediately communicated to the District and Session Court judge of the concerned District along with the Chief Justice of the High Court.
Without the prior orders of the District and Sessions Judge, if available, a judicial officer who is arrested cannot be taken to the police station.
The judicial officer arrested shall be provided with all facilities to intimate their family members, lawyers and the relevant District and Sessions Judge.
No statements whatsoever must be recorded from the arrested judicial officer’s end, neither any punchnamas must be drafted nor any medical tests can be conducted without the presence of their lawyers/ legal advisors or another equally or higher ranked judicial officer, if available.
The arrested judicial officer cannot be handcuffed. However, if the judicial officer uses force and violence to resist the arrest with imminent danger to life and limb then in those circumstances, the judicial officer must be over-powered and handcuffed. It is pertinent to note that an immediate report of such resistance and violence must be communicated to the relevant District or Session Judge and the Chief Justice of the High Court. However, the burden of proof lies on the police officer to prove that force was used by the arrested judicial officer. If, however, sufficient proof is not given, then the police officer will be guilty of misconduct and necessary legal proceedings and punishments shall be levied against them which shall be determined by the High Court.

It is pertinent to note that the above guidelines are not exhaustive in nature but showcase the minimum safeguards which must be observed when a judicial officer is to be arrested. An endeavour must be made by the State Government and the High Courts for the implementation of the aforesaid guidelines in a rightful manner. This in fact turns out to be a landmark case to rely on, in this domain.

Anowar Hussain v. Ajoy Kumar Mukherjee, 1965

In this appeal, a Sub-Divisional Officer, being the Appellant and holding the post of Sub-Divisional Magistrate. The respondent, in this case, was arrested by the police. However, no charges had been levied against him as the Judge did not find anything material binding the respondent to the riots in the case. A suit for false imprisonment was filed by the respondent against the Sub-Divisional Officer and the police and also claimed compensation for the same. It was submitted by the Respondent that the Sub-Divisional Officer acted in his capacity and was not entitled to be protected as a magistrate under the Judicial Officers Protection Act, 1850.

The Hon’ble Court, relying on Section 1 of the Judicial Officers Protection Act, 1850 held that there would be no inquiry against any act done by the judicial officer within its jurisdiction, even though it was erroneous, irregular or illegal or if he had the good faith in doing such an act. The Hon’ble Court further held that even if the act done by the judicial officer was outside the limits of his jurisdiction but in good faith or the officer believed to have the jurisdiction of the same, even then he would be protected by the Act mentioned above.

In this case, the appellant held two offices, an executive office and a judicial office. The appellant pleaded protection against the liability that arose on his action and on the ground that he acted so while discharging his duty and on the command of his superior officer, thereby relying primarily upon his executive office. The Court of First Instance and the High Court had held that the appellant “acted recklessly and maliciously” when he arrested the respondent. The Court held that, as a Judicial Officer, the appellant had no protection because he did not act in order to show that the respondent should be arrested in the discharge of the duties of his office as a Magistrate. The appeal was therefore dismissed

Rachapudi Subba Rao v. Advocate General of Andhra Pradesh, 1981

In this contempt case, the respondent’s suit was dismissed by the appellant who was an Additional Subordinate Judge. The respondent issued a notice that the Judge had acted maliciously and in bad faith before the decree could be executed. The Supreme Court gave its interpretation of the Judicial Officers Protection Act, 1850 and held that the jurisdiction is not limited but the same has to be applied in a general and wider sense of understanding. The Apex Court further held that in case if a judicial officer has a general authority to put an inquiry into action or petition and it is done well within the judicial capacity, an erroneous decree does let it go beyond its required jurisdiction. The Apex Court finally held that it acquired the difference between error in a jurisdiction and lack of jurisdiction by ascertaining the cause of proceedings and that both of these are completely different in nature.

K.Veera Raghava Reddy vs State Of Telangana, 2016

A case was registered against 2 Andhra High Court judges and the then Chief Justice of the Andhra High Court who heard the matter. This appeal raised the question of whether a police station is under the obligation to register a complaint under Section 154 CrPC against sitting Judges of a High Court in relation to the judicial orders passed by them in writ proceedings and whether their failure/refusal to do so would confer any right on the petitioner to invoke the extra-ordinary jurisdiction of the High Court under Article 226 of the Constitution of India?

It was held by the High Court that while no civil or criminal action can be instituted against a Judge of the High Court for his judicial acts, no compliant, under Section 154 CrPC, can also be registered against him even for matters unconnected with his judicial duties unless a sanction is given by the President of India who is required to consult the Chief Justice of India before according any such sanction.

Justice C.S. Karnan v. Hon’ble Supreme Court of India, 2017

This contempt case involved various unprecedented moves made by a judge that involved challenging a judge’s appointment based on fake academic qualifications, allegations of corruption against few judges and alleging the Chief Justice of Madras High Court of caste-based discrimination and worst of all, he accused certain judges having illicit relations with one another. Putting all these acts under one shell, the Supreme Court formed a 7- senior judge bench to adjudicate a case of contempt against Justice C.S. Karnan.

It was held in this case that all the allegations by Justice Karnan were false. By using the caste card and making public statements dishonoured the decorum of the court and therefore, he was held guilty of contempt and was sentenced to 6 months imprisonment. This case is highly controversial and to read more about Justice Karnan, one can refer to this article here.

Kamini Jaiswal vs Union of India, 2017

This case involved a petition filed by advocate Kamini Jaiswal wherein it was alleged that attempts were made to bribe certain Supreme Court Judges in matters relating to Medical admission scams.

The 3-judge bench of composed of Justice RK Agrawal, Arun Mishra and AM Khanwilkar held that there was no question of registering any FIR based on the allegations against a sitting Judge of the Supreme Court or High Court because it isn’t permissible as per the law laid down in K. Veeraswami v. Union of India (1991), wherein it was held that no FIR could be registered against a sitting Supreme Court judge without the approval of the competent authority. The Apex Court further stated that “there cannot be the registration of an FIR against a High Court Judge or Chief Justice of the High Court or the Supreme Court Judge without the consultation of the Hon’ble Chief Justice of India and, in case there is an allegation against Hon’ble Chief Justice of India, the decision has to be taken by the Hon’ble President, in accordance with the procedure prescribed in the said decision.”

Conclusion

Judiciary plays a very important role in our democratic country and giving the right to equality to all, further strengthens the supreme rule of law. We discussed different statutory provisions that exist to protect the Judicial Officers from offences. However, the Hon’ble Supreme Court along with subordinate courts have remarked multiple times that the protection of Judicial Officers is not unreasonable. Even more so, if any judicial officer is found guilty, then even the Judicial Officers can be arrested and punished. For the same, the Apex Court laid down guidelines while arresting a judicial officer.

While reiterating the fact that no one is above the law, judicial officers come under this umbrella. In fact, in a recent case in April 2021, a Judge from Pune was arrested by the Anti Corruption Bureau for taking bribes to give judgment in favour of a party. Therefore, such scenarios are ongoing showing us the part of the law when a judge is no more immuned of the provisions laid down. Ultimately, what it truly depicts is there is nobody above the law.

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Liability of directors for tortious acts committed by the company

By

Abanti Bose

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November 24, 2021

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This article is written by Vipul Kumar, pursuing Diploma in Law Firm Practice: Research, Drafting, Briefing and Client Management from LawSikho. The article has been edited by Tanmaya Sharma (Associate, LawSikho) and Zigishu Singh (Associate, LawSikho).

Table of Contents

Introduction

Directors are much like the officers of the company, they make the rules and run the company and are also in charge of the daily affairs. So they are a part s of the management of the company. The liability against the directors arises under the tort law and equitable principles when they act as agents or officers of the company has also for being in the position of trustees, or in a fiduciary relationship with shareholders. In tort law, any liability arises against a person for his wrongful acts. But no one is not responsible for acts committed by others. In some cases, a person may be vicariously liable for another’s act. For Example, A shall be liable for the act committed by B when they have certain relationships like Master and Servant or Principal and Agent. Tortious liability can arise if a person commits acts such as negligence, nuisance, trespass, and defamation. The concept of vicarious liability has been evolving with the evolution of the law of torts in the common law country. It has been applied in case of offences committed by the companies or their directors.

The principle of strict liability under the Law of Torts

The concept of strict liability was evolved in the leading case of Ryland v. Fletcher 1868, in this case, the Privy Council held, that a person can legally be held liable for the consequences of activity even in the absence of fault or criminal intent on his or her part, even if the person has no fault or criminal intent. In this case, although the defendant was not negligent or intentionally damaged the plaintiff, he had been held liable under the strict liability.

To determine strict liability three conditions need to be fulfilled which are the following.

Dangerous Substance: It is the sole responsibility of the defendant to control the dangerous substance that can cause harm on an escape like in the case of the Bhopal Gas leak.
Escape: To raise the strict liability it is necessary that the thing can escape from the control of the defendant and cause harm to the others.
Non-natural use of land: A piece of land is used for a special purpose that can potentially pose a danger to others. So it is also needed to determine whether the plaintiff uses the land in a natural way or not.

The scope of strict liability has a broader concept, now for example the directors of Companies are not only liable for actions committed under the Company Act 2013, but they will also be liable for a wrongful act committed under various other laws, such as the Indian Penal Code 1860, like Drugs and Cosmetics Act 1945, Income Tax Act 1961, the GST Act 2017, the Negotiable Instrument Act 1881, Consumer Protection Act 2019 and the various Labour Law Statutes.

In the case of Gurudas Hazra v. P.K.Chowdhury 1999, it was held that section 179 of the Income Tax Act 1961 has made a provision that if the private company is wound up then every person holding the post of director of the company will be jointly or severally liable for the payment of the tax to be payable to the Government. In that case, the recovery of income tax dues against the Company can be recovered from the personal account director’s.

The principle of absolute liability under Law of Torts

It was necessary to have the law in accordance with the changing needs of society. If new challenges arise, new laws need to be developed. The rule is that the new principles have to align with the needs of society and must address problems that arise in a highly industrialized and emerging economy like India. P. N. Bhagwati. J. therefore, stated that a venture to evolve a new rule of liability needs to be undertaken to meet the requirements of our society. He stated that the doctrine of liability under the 19th-century common law that was being followed is not sufficient and that to deal with unusual situations that have arisen and which are also very much likely to arise again in the future, we have to develop our laws with regards to the use of hazardous or inherently dangerous substances that the industries work with.

The Supreme Court of India first time applied this principle in the case of M.C. Mehta vs. Union of India which is popularly known as the Oleum Gas Leak Case. In this case, Justice P. N. Bhagwati observed that companies dealing with hazardous substances must take major action to prevent damages to the community. However, they cannot take a defence that they were doing reasonable care and attention, and no negligence on their part. A company and the Directors were held liable for the Union Carbide Corporation case for the payment of compensation to the victims and their families.

In some cases, the court has held a director liable for prosecution, if there was credible evidence against him for his active participation with criminal intention in case of statutory provision related to vicarious liability. The Supreme Court has laid down that, “When the company is the offender, vicarious liability of the directors cannot be imputed automatically, in the absence of any statutory provision to that effect.” Therefore, we can say that it is a cardinal principle of criminal jurisprudence that vicarious liability can only arise when the statute specifically provides a mechanism for the same.

Special statutory protection against liability

The Director must be liable for a company liquidation realizing the assets of the company and distributing them among the creditors and contributors of the company. If they fail to do so they will be liable for non-compliance.

The Bombay High Court in the case of Gautam Kanoria v. Asstt ROC 1999 had granted relief to the Directors where the AGMs were not be held and annual returns were not be filed by the company due to the takeover of the company by the Government and that circumstance was beyond their control. The circumstances have to be examined to consider whether relief is to be allowed or not. The same was also observed by the court in Om Prakash Khaitan v. Shree Keshariya Investment Ltd 1977 Court granted relief to directors for the consequences of defaults and the breaches when they were not directly involved in the acts or omission or have otherwise not acted honestly or reasonably or had financial involvement in the company.

Why and when tortious liability arises against the Director?

The question arises here that who will be liable for the tort committed by the company? When a tort is committed by the director to an agency with the company then the principle of joint tortfeasors arise. Due to company law doctrines of limited liability and separate entities the director can only be liable as joint tortfeasors. In recent decisions in England, in the case of Standard Chartered Bank v Pakistan International Shipping Corp, the English court held that the liability of directors arises as joint tortfeasors in relation to the tort law when there are sufficient grounds available that prove his involvement in the wrong committed by the company.

In the Maksud Saiyed Vs. The state of Gujarat and Ors 2007, The Supreme court held that if there are provisions in any of the statutes that would hold the Directors vicariously liable when they have violated provisions of any of the statutes. It is most important in the current scenario for the Directors to understand their duties and liabilities then they act honestly and diligently with the right applicant in mind. Being a director, they have to know the standard due diligence and care required to perform their duties. However, in the Companies Act 2013, the liability of the directors is not limited but is unlimited.

Directors should be liable for any act and omission that may cause a tortious act. In the following circumstance, the director may be liable for the tort committed by the company.

When they act as Agents of the company: In the case of an agency when directors act or omit any action that they are expected to do, in this circumstance they would decidedly be liable for such an act.
When they become a trustee of the assets and profits of the company: When directors work as trustees of the company they shall exercise their power honestly in the interest of the company. Directors as trustees may be held liable for the misuse of their power, and in the case of their death, even their legal representatives may be held liable for it.
When they act like employees of the company: When Directors work as employees of the company they shall be liable for acts like the breach of fiduciary duty, Ultra Vires Acts and negligence, and Mala fide Acts.

There is a conflict between company law and tort law in defining the tortious liability of directors acting as agents. A person is only responsible for his tortious act under the torts, except in certain circumstances. If anyone could be held liable in such circumstances, the doctrine of the separate personalities of a company would be violated. It is difficult to prove tortious liability against directors.

A director’s tortious liability can be fixed if, as a trustee, they are in control of company assets. Therefore, it is expected from them to exercise the powers honestly and they should not take it as an advantage and misuse them in their benevolence. And, if they will do this as trustees, then not only they but also their legal representatives are liable after their death.

The Competition Commission of India has made the following observations on the issue of applying Section 48 of the Competition Act, 2002 to prosecute directors and the company simultaneously. Following are conditions precedent for conviction against the company and directors.

In India, numerous statutes impose vicarious liability on directors and other officers of the company.
Most provisions of this kind provide that directors are not held vicariously liable for the acts of the company if they can establish that the alleged act was committed without their knowledge and negligence and that they exercised all due diligence to prevent the commission of the offence.
Vicarious liability attaches to the officer-in-charge, who is responsible for the conduct of the company even if he or she was not directly responsible for the commission of the offence.
A person vicariously liable for the actions of the company may be prosecuted simultaneously with the company.
The Competition Commission of India does not have to record a conviction against the company before proceeding against the directors.

In the case of Contex Drouzhba v Wiseman 2007, the English court held that in the Insolvency Law a claim can be raised against a director for false representations and unlawful trade practices so they shall be liable to pay the damages.

Why and when tortious liability does not arise against the Director?

Are the directors personally liable for the torts committed by the company? As the company is also a separate legal entity, directors cannot be held liable for torts committed by the company. Directors being a separate legal entity cannot be held responsible for any tortious act committed by the company so long as they abide by the law for performing their duties. Directors are not responsible for the acts of third parties. Directors are, however, not responsible for contracts they sign while working.

In the case of State of Madras v. CV Parekh 1979, the Supreme Court observed that if a company violates the Essential Commodities Act, 1955, the individual in charge cannot be held responsible if the company is not prosecuted for the same act.

In Sheoratan Agarwal v. State of Madhya Pradesh 1984, the Hon’ble Supreme Court ruled that “the company or the person-in-charge of the company can be held responsible for the actions of the company without prosecution of the company.” In the absence of statutory requirements, such a person is not prohibited from being prosecuted unless the company is also arraigned as an accused alongside them.”. This ruling was contrary to the earlier decision of the Supreme Court in CV Parekh.

Conclusion

Currently, the Indian judiciary does not limit itself to pronouncing judgments based on common law alone. It is working on the principle that enables their laws to be updated and able to fulfil the current requirements of the progressive society. The transition from the doctrine of strict liability to the doctrine of absolute liability is an example of positive results.

Accountability is a critical and effective component of the organization. Therefore, there must be some mechanism for evaluating the performance and responsibility of the directors. However, the extent of liability of a director would depend on the nature and role of their directorship.

In a recent case of Shiv Kumar Jatia v. NCT 2019, The Supreme court reaffirmed its views that were observed in the Sunil Mittal case and held that any individual like a director or a managing director or a chairman of the company could be prosecuted, along with the company, when there is sufficient evidence available against them to prove their active participation with criminal intention.

References

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Can an arbitrator grant pendente lite interest if the contract expressly bars payment of interest : an insight

By

Oishika Banerji

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November 23, 2021

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This article has been written by Vaishnavi Nair pursuing the Certificate Course in Arbitration: Strategy, Procedure and Drafting from LawSikho. This article has been edited by Zigishu Singh (Associate, Lawsikho) and Prashant Baviskar (Associate, Lawsikho).

Table of Contents

Introduction

A person has a right to receive compensation when he is deprived of the use of money to which he is lawfully entitled to. Interest is a monetary charge or compensation paid by the borrower to the lender over the principal amount. In a suit for recovery of money, interest can be paid in three stages: prior to the suit, i.e. from the date when the cause of action arises, to the date of filing of the suit; from the date of filing of the suit to the date of decree; and from the date of the decree to the date of payment of the interest. That is to say, interest can be awarded during the pre-reference period, pendente lite and future period respectively. The term pendente lite means “during the pendency of the suit” and the term pendente lite interest would refer to the interest owed to the borrower over the principal amount during the pendency of the suit. This article would solely focus on the power of the Arbitrator to grant pendente lite interest.

Relevant statutes

Section 31(7)(a) of the Arbitration and Conciliation Act, 1996: The arbitral tribunal has the power to award pendente lite interest unless otherwise agreed by the parties.

Section 3(3)(a)(ii) of the Interest Act, 1978: The court cannot award interest where such payment is expressly barred by the contract.

Section 28 of the Indian Contracts Act, 1872: A contract which bars a party absolutely from enforcing his right by usual legal proceedings in the ordinary tribunals, or which limits the time within which he may enforce his right is void.

Arbitration Act of 1940: Contains no provision that bars the power of an Arbitrator to award payment of interest when the contract prohibits the same explicitly.

Judicial trends

Secretary Irrigation Department Gov of Orissa v. G.C Roy (1992): The present case relates to an agreement for construction of head works entered between the respondent (G.C. Roy) and plaintiff. The contract contained a provision for resolution of dispute by way of arbitration. Further, the contract was silent on the award of interest. The Arbitrator awarded the respondent pendente lite interest @9% on the awarded amount. The Supreme Court of India considered the question of Arbitrator’s jurisdiction to award pendente lite interest. The court noted that as opposed to the Arbitration Act of 1940, Section 34 of the Code of Civil Procedure, 1908 (hereinafter referred to as CPC) expressly bestows power upon the court to award pendente lite interest. However, as per Section 3 of the Interest Act, 1978, arbitration tribunal comes within the term ‘court’ and is authorised to award interest. The court referred to English law judgments of Chandris (1951 (1) K.B. 240), Edwards {(1851) 138 E R 603} and Podar Trading (1949 (2) All EL R 62) and concluded that where a contract contains implied terms, the Arbitrator must resolve the dispute in accordance with the law. Accordingly, the court held that the Arbitrator had the jurisdiction to award pendente lite interest in cases where the contract is silent on such interest in accordance with Section 34 of the CPC.

The Board of Trustees for the Port of Calcutta v. Engineers-De-Space Age (1995): In this case, the contract contained a prohibition against payment of interest with respect to any money owed. The prohibition clause reads as follows:

“No claim for interest will be entertained by the Commissioners with respect to any money or balance which may be in their hands owing to any dispute between themselves and the Contractor or with respect to any delay on the part of the Commissioners in making interim or final payment or otherwise.”

The court strictly interpreted the above clause and held that the intention of the clause was to bar the Commissioner and not the Arbitrator. Further, the prohibition applied only to the pre-reference period, and the Arbitrator had the power to award pendente lite interest notwithstanding the prohibition clause.

Sayeed Ahmed & Co v State of UP & Ors. (2009): In this case a construction contract has a prohibition clause which reads as follows:

“No claim for interest or damage will be entertained by the Government with respect to any money or balance which may be lying with the Government or any become due owing to any dispute….”

The court noted that unlike the Arbitration Act of 1940, the Arbitration Act of 1996 (hereinafter “new provision”) had a specific provision that deals with award of interest by the Arbitrator. Further, The difference between pre-reference interest and pendente lite interest had been done away with within Section 31(7) of the new provision. The court held that prior judgements such as Engineer-De-Space Age[1996 (1) SCC 516] and G.C. Roy,(supra) wherein it was held that the Arbitrator had the power to award pendente lite interest despite the prohibition clause, can no longer apply under the new provision as Section 31(7)(a) expressly limits the scope of the Arbitrator’s power.

UOI v. Ambica Construction (2016): The court held that the clause that prohibits award interest is not enough to restrict Arbitrator’s discretion to award pendente lite interest. This judgement relied on the old provision i.e. Arbitration Act of 1940.

Sri. Chittaranjan Maity v Union of India (2017): In this case various disputes arose between the parties to the contract which were decided under the parties to the contract. One of the questions which came for consideration before the Supreme Court in the present case was whether the arbitral tribunal was right in awarding interest on delayed payments in favor of the applicant despite a clause in the contract that disallowed a claim of interest. The contract between the parties contained a clause which read as:

Clause 16(2) – No interest will be payable upon the earnest money or the security deposit or amounts payable to the contractor under the contract, but government securities deposit in terms of sub-clause (1) of this clause will be repayable (with) interest accrued thereon.

The court relying on Sayeed Ahmed(supra) and Sree Kamatchi Amman Constructions vs. Divisional Railway Manager (Works), Palghat and Others (2010) 8 SCC 767, amongst other decisions, held that the when parties to a contract agree upon, ‘no interest to be paid to one party’ then the parties are bound by such clauses and claims related to interest cannot be prayed for in any forum. The court opined that the awarded amount is categorized as the losses determined in the course of arbitration and not as a payment due under the terms of a contract. The party is entitled to claim the amount not as compensation for damages but for the money which was rightfully owed to him.

Raveechee and Co. v Union of India (2018): The Appellant and Union of India entered into an agreement for quarrying, stacking and loading stone ballast etc. Subsequently, a dispute arose between them and an Arbitrator was appointed to resolve the dispute. The Arbitrator awarded appellant pendente lite interest @12% of the award for damages. Union of India, aggrieved by the decision of the Arbitrator, approached the High Court and the pendente lite interest awarded by the Arbitrator was set aside. The appellant then approached the Supreme court and contested that Clause 16(3) of the contract allowed for award of pendente lite interest. The clause reads as follows:

“No interest will be payable upon the earnest money and security deposit or amount payable to the contractor under the contract, but government securities deposited in terms of sub-clause (1) of this clause shall be payable.”

The appellant contended that the above-mentioned clause barred interest on earnest money, security deposit and the amount payable to the contract, not the pendente lite interest. While the respondent contended that the clause barred award of pendente lite interest. The court sided with the appellant and held that earnest money, security deposit or amount payable to the contractor doesn’t belong to the respondent. It was deposited by the appellant in his own accord. The amount was supposed to be refunded or forfeited as per the performance of the contract and did as such not deprive the respondent of the use of money. Therefore, no interest could be granted. The court concluded that the interest granted to the appellant by the Arbitrator did not fall under any of the three heads mentioned above. Thus pendente lite interest could be granted despite the presence of clause 16(3).

Garg Builders v. Bharat Heavy Electricals Ltd. (2021): In the present case, the contract between the parties contained a clause prohibiting award of interest. It reads as follows:

“Clause 17: No interest shall be payable by BHEL on Earnest money Deposit, Security Deposit or on any amount due to the contractor.”

The question before the Supreme Court was whether the Arbitrator had the power to award pendente lite interest where the contract expressly barred payment of interest. The appellant relied on Raveechee and Ambika Constructions case and contended that Clause 17 of the contract did not bar payment of pendente lite interest. The court rejected the contention of the appellant and held that both Raveechee and Ambika Constructions were not applicable to the present case as they pertained to the old provision. Further, Section 31(7)(a) of the new provision is clear and bars payment of pre-award interest when such restriction is clearly embodied in the contract. Furthermore, the appellant contended that Clause 17 was ultra vires as per Section 28 of the Indian Contracts Act, 1872. In this regard, the court held that Clause 17 was not imposing an absolute bar on the parties’ right to approach, but merely imposed a mandatory reference to arbitration which falls within Exception-I to Section 28 of the Indian Contracts Act, 1872.

Vedanta Limited v. Shenzhen Shandong Nuclear Power Construction Company Ltd (2018): This was a case of international commercial arbitration having a seat in India. The question before the court was whether the Arbitrator had the power to award pendente lite interest in case of International Commercial Arbitration seated in India. The court held that Arbitrator can award pendente lite interest as per Section 31(7)(a) of the new provision as long as the contract does not explicitly bar such action.

Identical clause but different conclusion

In the Raveechee judgement, the Supreme concluded that a restrictive clause was not enough to bar the Arbitrator from awarding pendente lite interest. This position was arrived at by the court after the assessment of damages faced by the parties. Where the damage to the party is uncertain, the question of interest can only rise after ascertainment of the damage. The court held that the liability to pay pendente lite interest could only arise during the course of the arbitration proceedings and not during the terms of the contract or due to any specific term of the contract. It is interesting to note that despite having identical clauses, the conclusion arrived by the court in Chittaranjan Maity was widely different from Raveechee’s judgement. In Chittaranjan Maity judgement the court tested the restrictive clause against Section 31(7) of the Arbitration Act, 1996 rather than going into the entire ‘ascertainment of damage’ issue. Since the restrictive clause expressly barred payment of interest, it was held that pendente lite interest was not payable. While in the Raveechee judgement, the award was granted based on the principles of natural justice.

Conclusion

An Arbitrator is a creature of the terms of the contract and therefore he cannot go beyond the scope of the terms agreed upon by the parties to the arbitration. Section 31(7) of the Arbitration Act of 1996 upholds this view. The recurring judicial trend showcases that Indian courts largely accept the position that the Arbitrator cannot award pendente lite interest where the contract bars the payment of interest. There is an imperative need to clear the position taken by the Supreme Court in Raveechee judgment. This article is in agreement with the position taken by the Supreme Court in Raveechee judgement in the interest to do justice in cases where an intentional act of the party causes damage to the aggrieved party.

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Arbitrability of derivative claims : a complete analysis

By

Rachit Garg

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November 23, 2021

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This article is written by Nishtha Garhwal, from Alliance School of Law, Bangalore. The article talks about whether the derivative claims can be arbitrated and many cases are being referred in order to understand the stand of the Court in this matter.

Table of Contents

Introduction

In case of a breach of duty by a director, the company’s interests and benefits are harmed. In such a scenario, a derivative claim comes into the picture that allows a shareholder to bring an action on the company’s behalf as the director owes duties to the company.

The claims whose nature is such that the shareholder gets the Right to Sue on behalf of the company not for protecting his personal or individual interests but the interests of the company are said to be derivative claims. In India, there exists no statutory provision that covers the derivative claims by shareholders. However, under the Companies Act, 2013, a chapter on the Prevention of Oppression and Mismanagement is some sort of provision that is available in this context.

In the case of Rakesh Malhotra v. Rajinder Malhotra (2014), the Court took a stance against the arbitrability of oppression and mismanagement. A similar stance was taken by the Court in the case of Sporting Pastime India Ltd. v. Kasturi and Sons Ltd (2006) also. However, the stance of Courts remains unclear as far as the derivative action suits are concerned.

In the Indian context, at the outset, the oppression, mismanagement as well as class action claims are considered to vary from the typical derivative action suits. This is primarily because of two reasons. Firstly, the personal rights of the shareholders and not the corporate or economic rights are implicated by the derivative suits. And, secondly, because of this, in the lawsuits relating to oppression, mismanagement, and class actions, the applications on behalf of members are filed by the shareholder. However, this application is filed to seek personal reliefs in order to protect themselves whereas, in the case of derivative claims, the action remedies are sought on behalf of the company. Thus, if we consider the above point, the reasoning that is given in order to provide justification for the non-arbitrability of matters relating to oppression and mismanagement cannot always be applied to suits relating to a derivative action.

In the case of Rashmi Mehra v. Eac Trading Ltd. (2006), for the first time, it was held by the Bombay High Court that derivative action claims are arbitrable. In addition to this, the Court also said that this is what distinguishes the derivative claims from that of cases relating to oppression and mismanagement.

Review of judgments

In the case of Onyx Musicabsolute.Com Pvt. Ltd. v. Yash Raj Films Pvt. Ltd. & Ors. (2008), the judgment that was delivered by the Bombay High Court changed the status quo. The Court dealt with an application relating to the Companies Act, 2013 in this case and the application was in the nature of derivative action.

Section 9 of the Arbitration and Conciliation Act,1996 talks about interim relief measures that a court can grant before or during the process of arbitration, or at any time after the making of any arbitral award but before its enforcement.

In the case of Onyx Musicabsolute.Com Pvt. Ltd. v. Yash Raj Films Pvt. Ltd. & Ors. (2008), the second defendant was formed as a joint venture by the plaintiff and defendant number 1. Both of them held 50% of the shares. After some time, a licensing agreement was entered into by the first and second defendants. Under the terms of the agreement, the mobile rights of the film that was produced by the first defendant would be licensed by the second defendant. Later, the first defendant licensed certain films to a third party in place of the second defendant. Consequently, due to the breach of the terms of the contract by the first defendant, disputes arose between the parties to the contract.

Consequently, the proceedings of arbitration were initiated. While the proceedings were pending, the plaintiff requested an injunction under Section 9 in order to put a bar on the first defendant so that rights are not licensed to the third party. The Court gave two reasons to not enjoin the first defendant under Section 9. First, the licensing agreement was not between the first defendant and plaintiff, rather it was between the first and second defendant. This entitled the plaintiff from invoking the said clause. Second, the petition under Section 9 was in a derivative action form and thus, a private mode of dispute resolution is better suited than a public forum, for instance, arbitration. However, one interesting fact, in this case, is that the Court did not refer to the earlier judgment delivered by the same court on a similar matter in the case of Rashmi Mehra v. Eac Trading Ltd. (2000).

In the case of Rajiv Vyas v. Johnwin Manavalan Groge Mandavalan and Ors. (2010) and Welspun Enterprises Ltd. v. ARSS Infrastructure Projects Ltd. (2015), the Onyx case was distinguished. In the Rajiv Vyas case, the respondents entered into a shareholder’s agreement with the plaintiff in order to form an entity for their business. Approximately 33.3% of the shares were held by the petitioner.

Arbitration proceedings were initiated by the petitioner when the respondent made an attempt to alienate certain of the company’s rights. Subsequently, in order to restrain the actions of the respondent against the company’s interests, the petitioner filed an application under Section 9 of the Act. Finally, the Court allowed the Section 9 application due to the fact that an arbitration clause was present in the shareholder’s agreement, and not just the company but also the petitioner was affected by the respondent’s conduct.

While giving the judgment for the Welspun Case, the Court referred to the Rajiv Vyas Case and not the Onyx Case, and thus, despite the fact that the petitioner requested partly to protect the personal rights of the shareholders and partly to protect the rights of the company, the Court allowed the application under Section 9. The justification that the Court gave was that in case, the shareholders enter into a shareholder’s agreement and if one shareholder commits any breach of the contract, the other shareholder who seeks to protect his personal, as well as the company’s rights, would be entitled to go for arbitration. However, the only condition here is that an arbitration clause must be contained in the shareholder’s agreement.

What could make a derivative claim arbitrable

There exist some elements that could lead to the arbitrability of a derivative claim. However, those elements come with certain challenges. An agreement to arbitrate must be entered in between the shareholders, or the shareholders and the third party against whom the claims of relief are made on the company’s behalf. The case of Onyx made it a sort of rigid rule in order to make derivative claims arbitrable, however, this does not seem to be that rigid a rule. If we consider the case of Rashmi Mehra, no arbitration clause was contained in the contract.

There existed some interconnected contracts and only one among them provided for an arbitration agreement. However, it was held by the Court that the backbone of the entire transaction is the arbitration clause that is contained in the contract, and under an ancillary agreement, arbitration could be initiated by a shareholder thereby bringing the derivative action claims before the tribunal.

It must be noted here that a similar kind of argument could be made in the Onyx case. As it is evident that the plaintiff was not a party to the licensing agreement between the first and second defendants. But it was mentioned under the licensing agreement that its validity would continue to exist till the joint venture agreement between the plaintiff, second and first defendants remained in full force as well as effect.

The interconnectedness test that was laid in the Rashmi Mehra case if applied to the Onyx case, then through the joint venture agreement, even though the plaintiff who was not actually a party to the licensing agreement could have been held entitled to arbitrate on behalf of the company because the validity of the licensing agreement was completely dependent on the validity of the joint venture agreement. Thus, the joint venture agreement formed the backbone of the entire transaction.

The nature of a derivative claim is such that a shareholder acts on behalf of the company in order to secure its interests. Now, due to the fact that the derivative claim is brought on the company’s behalf, it binds the shareholder to the interests of the company to arbitrate.

Perspective of United States of America on derivative claims

In the United States of America, this principle was relied upon in the case of In re: Salmon Inc. Shareholders’ Derivative Litigation (1995) so as to allow the arbitrability of the derivative claims. The Court gave the reasoning for the same that in a derivative claim, the actual plaintiff is the company, and therefore, if there exists a pre-dispute arbitration agreement between the company and a third party, it would be inevitably binding the shareholders also to the arbitration.

As per the Onyx case, the Court has the power of refusing to refer the dispute to the tribunal even if an arbitration clause exists in the agreement by stating that it is better suited to get adjugated by the public forum, by implying that if it goes for arbitration, it would affect the public policy. It is seen as a regressive rationale keeping in mind that it had been already established in America that a close and private company’s shareholders can also arbitrate derivative claims.

This contention that the arbitrability of derivative claims would affect the public policy was dismissed by a Court in New York in the case of Lane v. Abel-Bey (1980). The Court asserted that this should not be a case in a privately owned and closed corporation. This is a similar situation to that of the Onyx case as even there the plaintiff approached the Court on behalf of a privately owned and closed company. Thus, if a Court holds that derivative claims are not arbitrable on the pretext that it affects public policy, it would go against the consent of the parties to the contract.

The judgment delivered by the Court in the Rajiv Vyas case, as well as the Welspun case, seems to be problematic. In both cases, it was held that the rights of the shareholder and the company are affected by the applications that were made under Section 9. The derivative claim was considered by the Court only in part and this was ample to allow its arbitration.

If we consider the Rajiv Vyas case as well as the Onyx case, in both cases an injunction was sought by the shareholder. In the Rajiv Vyas case, the Court distinguished itself from the Onyx case and held that if an injunction is not granted, it would cause irreparable injury to the company’s interests as well as the plaintiff’s interests as a shareholder. Thus, it is evident that in both cases, despite the fact that similar reliefs were claimed, however, two different conclusions were reached by the Court.

The approach that was taken by the Court in the Rajiv Vyas case that the claimed reliefs were partly personal and partly derivative which makes them arbitrable, stood against the stand of the Court in the case of Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya (2003). In this case, the Court said that the bifurcation of a cause of action cannot take place while the dispute is being referred to arbitration. In case, the Rajiv Vyas case is considered to be an exception to the Sukanya Holdings case, then even if there is a fully derivative claim, there exists no reason for the Court to not permit arbitration. There is no proper criterion to determine which of the reliefs claimed in the company’s name are derivative and which of them are personal. Thus, whenever the question of arbitrability of derivation claims arises before the judiciary, it must derive a test to determine this.

Conclusion

Although the judgment that was delivered by the Court in the Onyx case seems to be flawed and problematic, it had been referred to by the courts in order to refuse arbitration of derivative claims. The courts in India have begun to adopt a general policy when it comes to arbitration and particularly, in favour of it. Thus, there exist no reasons for refusing the arbitrability of the derivative claims.

The derivative claims rely completely on judicial determinations as there exists no provision for the same under the Companies Act, 2013. Thus, at different times, the courts have used different approaches and interpretations to determine the arbitrability of the derivative claims. However, now it’s high time that a uniform approach is adopted by the Indian judiciary as far as the arbitrability of the derivative claims is concerned that is also consistent with the international standards.

References

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Analysis of Mexican cannabis reforms

By

Rachit Garg

-

November 23, 2021

0

This article is written by Nishtha Garhwal, from Alliance School of Law, Bangalore. This article talks about the recent reforms that have been made to the cannabis legislation in Mexico and analyze the economic and other effects created by this.

Table of Contents

Introduction

As soon as President Andres Manuel Lopez Obrador entered the office, a strategy known as ‘Abrazos, no balazos’, that is, ‘Hugs, not bullets’ was implemented by him. The strategy seeks to address and tackle the issues of social inequality and poverty as a way to decrease the instances of drug-related violence. On 10 March 2021, the lower house of Mexico, that is the House of Deputies passed a bill in order to legalize the use of Cannabis for recreational purposes. The Bill that was passed with 316 votes in favor and 129 votes against, in its current version, legalizes cannabis utilization but in a partial way and it seeks to undertake the responsibility of regulating the production, distribution, and possession of Cannabis. The Bill seeks to make Mexico the largest national recreational market of cannabis in terms of population. However, the legislation has come into the picture after several years of the Supreme Court ruling to make cannabis use legal in the country and this would make Mexico the third country to legally regulate cannabis after Uruguay and Canada.

The Bill was sent to the senate in order to get the final approval. The debate on the Bill was postponed by the Senate majority leader Ricardo Monreal until September 2021, particularly after the mid-term elections so that some unspecified changes can be made to the Bill.

The drug cartels that exist in the country are one of the main reasons why the Cannabis Bill was passed and the same was also cited by President Andres Manuel Lopez Obrador.

History of Mexico’s cannabis reforms

Following many countries, in the 1920s, the production and sale of Cannabis, also called Marijuana was banned in Mexico. The drug war of Mexico began in around 2006 after which 6500 Mexican army troops were dispatched by the then President Felipe Calderon to Michoacan. This was done in order to dismantle all the criminal cartels in the state. After over 14 years, the drug war still continues in Mexico and there is no end to it.

In around 2015, the path towards legalizing Cannabis utilization began in Mexico. This happened when the members of the Mexican Society of Responsible and Tolerant Personal Use (SMART) successfully made the Supreme Court of Mexico declare that the restriction that is imposed on the growth and recreational utilization of Cannabis is unconstitutional on the ground that it infringes the constitutional right to the free development of personality. With this initial ruling in November 2015, broad discussions were held not on whether cannabis should be regulated but on how to do so.

This was the initial ruling with regard to legalizing cannabis utilization and in the beginning, it was only applicable to the claimants. However, with this ruling, the doors were opened for many similar kinds of rulings. A precedent was set by these rulings which succeeded in bringing reform in the domestic law of Mexico.

If we look at the 2019 statistics, more than 24,000 people were behind the bars for drug crimes in Mexico which constitutes about 12% of the population in the prison as per the National Institute for Statistics and Geography (INEGI). Among them, 40% were charged or convicted of simple possession of the drugs.

In Mexico, if Jurisprudence has to be achieved, then five consecutive rulings on five different cases based on a single criterion must be delivered by the Supreme Court. The initial ruling regarding the unconstitutionality of the existing cannabis regulation was delivered in November 2015 and the fifth and final ruling was delivered in October 2018. After this, a notification was sent to the Senate and House of Deputies by the Supreme Court in order to modify the unconstitutional articles of the General Health Law of Mexico.

In 2018, it was ordered by the Supreme Court of Mexico that Congress must reform the law within 90 days by keeping the precedents in mind. The original schedule of the reforms was in 2019, however, as a result of the delay caused by the COVID-19 pandemic and several other reasons, the reform could not happen as per the schedule and thus, the deadline for its order was extended by the Supreme Court to April 2021.

After the legislation Bill was approved and signed by Congress, approval from the senate was still required in order to make it a law. Although the Bill had previously been passed by the Senate in November 2020, again the Bill was required to be voted on because of some changes being made by the lower house to the Bill. Although the members of the right-wing Institutional Revolutionary Party and Conservative National Action Party stood in opposition to the Bill, the Bill passed the senate so as to become law since MORENA, the party of President Obrador holds a majority in the senate.

The drug war in Mexico

In December 2006, the drug war started in Mexico under the leadership of the newly elected right-wing President, Felipe Calderon. About 20,000 troops had been deployed by him across the country in order to fight and tackle the issue of drug cartels in Mexico. Dozens of the leaders of various drug cartels were captured or killed under the term of then President Felipe Calderon from 2006 to 2012. After the completion of his tenure, the drug war was further continued by the successor of President Felipe Calderon, that is, Enrique Pena Nieto who shifted the focus of the government authorities from capturing the leaders of the drug cartels to a more holistic approach of decreasing drug-related violence. With more than 300,000 homicides since its beginning in 2006, the drug war has left a huge death toll. Even the military of Mexico had to face accusations of abusing human rights while fighting against the drug cartels.

The drug war in Mexico has created an opportunity for the growth of organized violent crime by increasing the profitability that can be obtained from the illicit cannabis market.

This has led to widespread instances of corruption that interferes with the rule of law and it also leads to human rights abuse on a large scale. The American director at Human Rights Watch, Vivanco asserted that the cannabis legislation would not be able to respond to these problems on its own, however, it symbolizes a vital step ahead towards the adoption of alternative approaches to the drug policies.

Although the end of the drug war in Mexico was declared by President Andres Manuel Lopez Obrador, there have been many instances of cartel violence in the country in the recent few years. The current Bill has the potential to broadly serve as a crucial step in the re-evaluation of the Mexican approach towards drug policy. It will also address the issue of countless human rights abuses along with the widespread corruption that has been happening in the country.

It has been argued by President Obrador that the legislation has the capacity to combat drug-related violence in the country and can also improve security in Mexico. Even the backers of President Obrador believe that the influence of the powerful and influential drug cartels that control the lucrative drug trade of the country will wane.

Cannabis reform legislation

Initially, when the Supreme Court ruled that the criminalization of the cultivation and utilization of cannabis is unconstitutional, it kept a deadline for the lawmakers to reform the laws related to cannabis regulation in Mexico and the initial deadline could not be met. Later, at the lawmakers’ request, the deadline was extended to April 2020, subsequently to December 2020, and finally to 30 April 2021. However, the authorities were unable to meet even this deadline though progress in drafting and advancing the cannabis legalization legislation had been made.

The recent reform to cannabis regulation in Mexico has been viewed as a broad reform so as to create Mexico as the largest legal market of cannabis in the world. Finally, President Andres Manuel Obrador signed the new cannabis legislation.

Primary objectives of the legislation

The main focus of the new legislation is on the cultivation of cannabis for either research or for the manufacturing of pharmaceutical or pharmacological products. The permission to conduct public and private research has been granted by the legislation and in addition to it, provisions for quality control measures including good manufacturing practices have also been laid by it.

Since Mexico is the world’s second-largest illegal producer of cannabis and has been one of the most harmed countries by the prohibition of cannabis utilization and cultivation, the new legislation seeks to have some specific objectives. One among them is to free the resources of the state that had to be badly utilized for the purpose of implementing the prohibitions and to enhance social justice.

Provisions under the legislation

Anyone who is over 18 years of age can possess and consume cannabis up to 28 kg as per the current Bill of cannabis regulation. In addition to this, such a person can also make an application for a license in order to grow up to six plants of cannabis at home for its personal utilization.
And also, if they wish to form a ‘Cannabis Association’, a license can be obtained for that. In one cannabis association, there can be up to 20 members who are allowed to grow and share cannabis for their personal utilization.
Companies or individuals who are interested in growing cannabis for commercial purposes can also apply for the license. The legislation also permits any pharmaceutical companies that wish to initiate any medical research on cannabis-containing products can do so.
The new medical rules state companies who wish to conduct any research need to obtain permission from the Mexican health regulator, that is, Federal Commission for the Protection of Sanitary Risk (COFEPRIS). Such research needs to be conducted in laboratories that are strictly controlled and are independent.
Even the doctors that are interested to practice cannabis-containing medicines can do so provided they have registered themselves with COFEPRIS. Through pharmacies, these cannabis-containing medicines will be distributed.
The new legislation has also set rules regarding the sowing, cultivation, and harvesting of cannabis for medical purposes and this would permit the businesses to legally grow cannabis in Mexico.
The legislation also created rules for cannabis containing products that can be exported or imported. The legislation has set the limit for the cultivation of cannabis for the purpose of commercial utilization at one hectare outdoors and 1000 square meters indoors.

Some notable features of the legislation

The legislation Bill also proposed to establish the Institute for the Regulation and Control of Cannabis which is a body having positive potential and if the proper utilization of this body happens, it will act as a wheel to drive responsible regulation in an emerging legal framework. This body has also been granted discretionary powers by the Bill. However, the extent of the impact that this body can create depends greatly on the nominating leadership that is prepared for understanding the plant in itself as well as the regulated markets and prioritizing the mechanisms of social justice.
The citizens of Mexico, as well as the foreigners, are allowed to travel in Mexico along with their products, thus, thereby opening the door for legal medical cannabis tourism which is also one of the deliberate objectives of the legislation. Similar kinds of opportunities for medical cannabis legislation were created by Thailand the previous year after they issued a medical cannabis regulation.
The proponents of the Bill believe that the legislation will prove to be helpful in reducing the influence of the powerful and influential drug cartels in Mexico. One of the deputies who have voted for the Bill in the House of Deputies, and who is also a member of the left-wing Morena party of President Andres Lopez Obrador, Sandra Simey Olvera Bautista has said that with the passing of this new legislation, the false belief that cannabis forms a part of the serious health issues in Mexico is left behind.

Frequent instances of violence, overcrowding, lack of medical care, and lack of access to basic facilities have been faced by the detainees in the prisons of Mexico. In addition to this, they have been exposed to abuses by the staff of the prison.

The new bill of cannabis regulation would permit the state and federal prison officials to release any person who has been charged with or convicted of any offense that has been decriminalized by the new reform Bill. Thus, the Human Rights Watch contended that as soon as the Bill became effective, identification of all such eligible people must be made by the authorities and their release should happen immediately and automatically without the requirement of the detainees or their families to formally apply for their release.

Human Rights Watch’s stand on the legislation

The director of America at Human Rights Watch, Jose Miguel Vivanco, asserted that the cannabis regulation that has been existing in Mexico has led thousands of people to be behind the bars for simply possessing marijuana. The restriction that was imposed on cannabis has had disastrous costs for human rights in Mexico. A lot of people were exposed to serious abuses at the hands of the police.

As far as human rights are concerned, a huge step would be taken ahead if cannabis is legalized and the American director at Human Rights Watch also contended that there shall be no postponement of the reform.

Necessity of the Bill

It must be noted that the bill contains some provisions which are unnecessary and the people are exposed to abuses even under the new legislation because of such provisions. As said by Human Rights Watch, it would still remain a criminal offense if an individual possesses more than 28 kg of cannabis for personal utilization and not for distribution. Depending upon the amount of cannabis such a person is holding, they will have to face imprisonment of 3 years or a fine of $22,000. If it is suspected by the police that an individual possesses more than 28 kg of cannabis, such a person can be detained for up to 48 hours by the police, and later they can be turned over to the public prosecutors. In addition to this, if a person obtains a license for growing cannabis either at home or by forming a cannabis association, they must allow the officials of the government to inspect their homes so as to verify and ensure that all the terms of the license are being complied with.

There are frequent instances of people being tortured, abused, and extorted by the Mexican police. Many people are detained irrespective of whether a crime has been committed by them or not. Recently, a survey was conducted by Mexico’s Statistical Agency, that is, the National Institute for Statistics and Geography (INEGI). It was conducted on the detained people and it showed that nearly two-thirds of the detainees have been beaten or hit by the police authorities during the period of arrest. About more than a third were choked or waterboarded and about a fifth, electric shocks were given.

The Human Rights Watch asserted that if the possession of drugs for personal utilization is criminalized, then it would infringe the principles of autonomy that underlie all rights. Thus, the Human Rights Watch contended that the Cannabis Bill must be amended in such a way that it completely eliminates the treatment of the simple possession of cannabis as a crime from the Mexican law. This would be helpful and effective in reducing the risk faced by the users of abuse at the hands of the police.

The Human Rights Watch also gave a stand that it must be ensured by the Mexican President Andres Manuel Lopez Obrador that the provisions of inspection are enforced in such a way that no one is exposed to unnecessary or disproportionate punishments in order to ensure that human rights of the people are not violated.

The system of licensing that has been proposed for producing, processing, distributing, and selling cannabis legally has the potential of creating new opportunities economically. It must be ensured by President Lopez Obrador that the provisions that have been laid by the bill are carried out in a manner that is inclusive in nature. It should allow the economically marginalized population as well as the rural communities which are present in the areas where cannabis cultivation has been traditionally taking place to participate fully and get benefit from the new regulated system.

A few years back, governments around the world have been called by the Human Rights Watch in order to reassess the policies with respect to drugs in their respective countries because of the high human rights costs incurred in the global war on drugs.

Economic effects

The foreign cannabis companies, especially those from Canada and America have been looking at Mexico with interest. Many of the people who planned investment decisions in Mexico had delayed doing so as there was policy uncertainty and they were waiting for the publication of the final regulation. The reforms that were brought by the legislation would lead to Mexico becoming the world’s largest market of Cannabis by the size of the population with at least $3.2 billion worth of an annual demand. It would be ahead of Canada and Uruguay. The legislation has the capacity to bring hundreds of millions of people under the tax slab and if we look at it theoretically, it would generate a significant amount of jobs in Mexico.

As far as the economy is concerned, there is one hindrance. If we look at the statistics from 2016, only 2.1% of 12 to 65 years old people had made use of Cannabis in the last year, that is, 2015. Due to the low demand for drugs in Mexico, the potential that the cannabis legislation has is likely to get tempered. Therefore, if we consider the short to medium term, the potential which is implied by the 127.6 million population of Mexico, the legal cannabis market is not likely to live up to that potential. However, if we consider the long term, the rise in consumption and value of the market can be expected.

The people who have criticized the Cannabis legislation Bill have argued that due to a lot of barriers to entry into the market, the Bill is more likely to favor the large agri-business firms over the small producers of Cannabis like the impoverished farmers and the indigenous groups. For instance, it is a requirement by the Bill that the commercial producers of cannabis must strictly adhere to the strict regulations on the packaging of cannabis-containing products. In addition to this, the Bill also makes it mandatory to obtain a separate and annually renewed license for producing and selling cannabis.

The utilization of approved seeds is required by the Bill and it also limits the amount of Tetrahydrocannabinol (THC) that the cannabis plants, as well as the products, can contain. Thus, as had happened in countries like Colombia, such regulations are likely going to lead to the sidelining of the small domestic producers by the large firms.

Could the legislation combat drug related violence and crime

Since we now know that a lot of barriers are imposed on the small producers of cannabis by the legislation, the Bill is less likely to prove effective in reducing the rate of crime or ending the war of Mexico on drugs. As a result of being left out from the legal market of cannabis, it is more likely possible that the small producers indulge in growing cannabis for the illegal markets, and because the competition is enhanced after the legislation, they may start growing more opium poppies and also indulge in other illicit activities in order to make both the ends meet.

It is required by the legislation that the individuals and groups should register themselves and they are exposed to face the possibility of inspection at any time. If the inspection is refused, then it will be a ground for a fine and their license could also be suspended. Thus, the terms of the legislation are so that it may discourage the legal growth and production of cannabis.

Effect of the Cannabis legislation

As these inspections infringe privacy, it is probable that some people will prefer not to register in order to avoid these inspections and grow cannabis illegally. The people who have criticized the Bill have also warned that as the Bill gives the potentially corrupt authorities power to inspect over private citizens, the Bill could put the people at the risk of extortion and other abuses.

The effect that the cannabis legislation aims to have on the criminal drug cartels is likely to get affected as the cartels have turned away from growing cannabis at an increasing rate. Because of the legal growth and trade of Cannabis in Canada and parts of America, more and more drug cartels are moving towards growing methamphetamine and opioids such as fentanyl for revenue.

The activities of the cartel are more likely to get enhanced as a result of the legislation and there may be instances where the cartels may seek an opportunity to engage in money laundering or investment in the legal market. This may also lead to these cartels threatening dispensaries, especially in those cities which are affected by gang violence and thus, acting as an inhibitor in the growth of the legal cannabis market.

A positive impact on crimes would be created by the legislation. The reforms would help in reducing the number of arrests and charges imposed for the possession of drugs as now the amount of legal cannabis that a person can hold has been increased by the legislation.

The legislation is likely to be beneficial for the young population as the 2018 statistics show that about 80% of the Mexican adolescents were arrested for the possession of drugs and particularly, possessing cannabis. The legislation would enable the police to divert its focus on more serious crimes and keep the youth of Mexico out of the prison bars.

Conclusion

The legislation is less likely to have a substantial impact on the rate of crime in Mexico, however, it is likely to bring an economic boom. After decades of violence that had been happening between the drug cartels and the authorities, the new legislation would finally permit the legal cultivation of cannabis on the soil of Mexico.

Despite the fact that the cannabis legislation would not be able to put an end to the drug cartels in the country, it will help in decreasing the number of unnecessary criminal charges that are put on people for possessing drugs. The Mexican legislation that legalizes the utilization of cannabis by the adult population has opened the gate to create Mexico as the largest legal cannabis market across the globe. It would also give a boost to the employment generation in Mexico and would lead to the country’s economic growth over the medium to long term. The regional level is likely to have the biggest impact on cannabis legislation and it will leave the USA being sandwiched between two neighboring countries to the north and the south that have legalized the use of cannabis by enacting the forms of federal cannabis legislation. In addition to this, these neighboring countries have also created provisions for the regulation of cannabis commerce. This is likely to enhance the debates on the federal cannabis legislation in the United States of America.

Thus, the legislation is less likely to be helpful in reducing the instances of crime or drug-related violence, rampant corruption, or cartel violence in Mexico. However, it could lead to less strict regulation with respect to cannabis in the United States of America.

References

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Orphanage laws in India : protection of orphan children

By

Rachit Garg

-

November 23, 2021

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child-adoption-india (1) — Image Source: https://rb.gy/qtrvml

This article is written by Adhila Muhammed Arif, from Government Law College Thiruvananthapuram. This article explains the various laws in the Indian legal system that seek to protect orphans and govern the functioning of orphanages.

Introduction

India, being the second-most populous country in the world, is home to a large number of orphaned children. As India struggles with poverty, hunger and corruption, many children either lose their parents or are abandoned by their families. According to UNICEF, there were around 25 million orphaned children in India in 2007. With the onset of the Covid-19 pandemic in 2020, the number of orphans in India has rapidly increased. Hence, it is important to explore the existing legal framework in India that seeks to protect orphans.

According to Article 39(f) of the Indian Constitution, the state can make policies to ensure that children are provided with adequate opportunities and resources, which are essential to their growth and to protect them from exploitation and abandonment. In most circumstances, only an orphanage can provide orphaned children with basic necessities such as food, shelter, clothing and education till the age of 14. Therefore, the state is empowered to make laws to ensure that orphanages in the country are well-maintained and receive adequate funding in order to protect the rights of orphaned children.

Existing legal rights of orphans

Right to life

Article 21 of the Indian constitution guarantees the protection of the life and liberty of every person. This would protect orphans as they are extremely vulnerable. Article 21 upholds their right to live and exercise liberty just like everyone else.

Right to health

The interpretation of Article 21 is inclusive of the right to health. Every orphan child has the right to good physical and mental health.

Right to citizenship

Part II of the Indian Constitution elaborates on the right to citizenship. Every orphan has the right to have a name that is legally recorded and citizenship to any country. This ensures that any state would protect their welfare.

Protection from exploitation

Articles 23 and 24 of the Indian Constitution guarantee to protect the orphans from trafficking, forced labour and employment in hazardous places if they are below the age of fourteen.

Right to education

Article 21-A promises all children between the age of six to fourteen that they shall receive free education. This puts the responsibility on the state to ensure that orphans receive basic education just like other children.

The Orphanages and Other Charitable Homes (Supervision and Control) Act, 1960

The most important legislation in India that governs the functioning of orphanages is the Orphanages and Other Charitable Homes (Supervision and Control) Act, 1960. This Act empowers the state governments to monitor and supervise orphanages or child care institutions and create a Board of Control for this purpose.

Powers and functions of Board of Control

The following are the powers and functions of the Board of Control:

According to Section 5 of the Act, the Board shall consist of three members of the state legislature, five members of the managing committees in the state, the officer in charge of social welfare work in that state and lastly six other members nominated by the state government, where half of the officers have to be women.
According to Section 7, the Board has the power and duty to issue directions regarding their functioning and management of these institutions.
The board also possesses the power to impact these institutions to ensure that they comply with the directions, as mentioned in Section 9 of the Act.
They also have the power to issue certificates to these institutions without which it is illegal to run them, as per Sections 13 and 14.
It may even revoke the certificate due to lack of compliance with the rules or due to unsatisfactory management. When such institutions are shut down, the orphans will be either relocated to other orphanages or sent to their distant legal guardians, as per Section 17.

Though the Board has many powers regarding the validity and management of orphanages, Section 18 provides that these institutions have the recourse to the courts of law and the state government if the Board acts unjustly.

Other relevant laws and statutes

Various other statutes that are relevant to the protection of orphans are the Juvenile Justice (Care and Protection of Children) Act, 2015, the Immoral Traffic (Prevention) Act, 1956, the Right of Children to Free and Compulsory Education Act, 2009, the Child Labour (Prohibition and Regulation) Act, 1986 and the POCSO Act, 2012.

The Juvenile Justice (Care and Protection of Children) Act, 2015

This Act is concerned with children in conflict with law and children in need of care and protection. It prescribes institutional care for children through shelter homes, children’s homes etc. and non-institutional care through foster care, adoption, sponsorships and after-care organizations. In 2021, the Parliament of India amended the Act, bringing changes to the provisions concerning adoption. Prior to the amendment, civil courts were entrusted with the power to issue adoption orders. With the amendment, only District Magistrates can issue such orders.

The Immoral Traffic (Prevention) Act, 1956

This Act criminalizes prostitution and trafficking, particularly the keeping of certain premises as brothels and living on the income earned through prostitution, though it doesn’t criminalize prostitution done independently and voluntarily. This Act is relevant as it protects orphans from trafficking and prostitution.

The Right of Children to Free and Compulsory Education Act, 2009

According to Article 21-A of the Indian Constitution, it is a fundamental right of every child from the age of six to fourteen, to receive free education. This Act guarantees the protection of that right and allocates responsibilities to the governments at different levels. This Act ensures that orphans are not deprived of their fundamental right to free and compulsory education. As it is a requisite for orphanages to provide education, the Board of Control can inspect whether these institutions keep up with it and is empowered to revoke their certificate if they don’t.

The Child Labour (Prohibition and Regulation) Act, 1986

This Act was enacted to give effect to the Constitutional provision enshrined in Article 24. According to Article 24 of the Indian Constitution, every child below the age of fourteen has the right to be protected from any sort of hazardous employment. It was enacted on the basis of Article 39(e), which empowers the state to make policies that protect children from forced employment that is not suitable for their age and skills. If any orphanage subjects orphans to any form of labour, a strict penalty will be imposed.

The POCSO Act, 2012

The Protection of Children from Sexual Offences (POCSO) Act, 2012 was enacted to protect children from all forms of sexual abuse, regardless of their gender. The Act prescribes strict punishments for those who subject children to any kind of sexual harassment. This Act protects orphans who are extremely vulnerable to sexual exploitation.

The Orphan Child (Provision for Social Security) Bill

The Orphan Child ( Provision for Social Security ) Bill was introduced in Lok Sabha in 2016. However, the bill has not been passed yet. It contains many provisions that were formulated with the intention of securing the welfare of orphan children. The following are the provisions formulated in the Bill :

According to Section 3, the central government has to conduct surveys on orphan children every ten years.
Section 4 provides for a national policy for the welfare of orphans to be formulated.
Section 6 states that the central government shall constitute a fund for the purpose.
Section 8 provides for the establishment of foster care homes.

Position in other countries

United States of America

In the United States of America, traditional institutions like orphanages have ceased to exist in modern times. Instead, they have a government-funded foster care system and adoption carried out by both public and private agencies. This facilitates a more personalized form of attention and care for orphans. The USA is known for having Child Protective Services (CPS) which rescues children from abusive environments and provides them with foster care. Thus, children placed under foster care are not always orphans. Often, they wait to return back to their parents and if that becomes impossible, they are put up for adoption. Orphaned children are protected under foster care until they get adopted. The US legal system harshly punishes those who abuse children and provides effective adoption policies to safeguard the interests of orphaned children.

United Kingdom

Orphanages have become a thing of the past even in the United Kingdom and many countries in the EU. Most countries now follow the modern system of foster care. Many people claim that institutionalisation affects the well-being of children and hampers their personal growth whereas foster care can provide a more supportive environment for children. The statute that deals with the welfare of orphans in the UK is the Child Care Act, 1980.

Impact of Covid-19

The pandemic had devastating effects on children, leading many of them to be orphaned. Around 3621 children were orphaned and around 274 children were abandoned between April 1, 2020, and June 5, 2021, according to the National Commission for Protection of Child Rights (NCPCR) in an affidavit to the Supreme Court. A suo motu petition on protecting children in child care homes from Covid-19 was heard in the Supreme Court and the affidavit was filed in response to a query that arose in the hearing. NCPCR informed that a web portal named ‘Bal Swaraj’ has been set up to upload data on children who lost both their parents, those who lost one parent and those who were abandoned during the pandemic from each district. NCPCR also keeps track of whether these children receive financial assistance. The central government and state governments have set up various welfare schemes for the protection of these children.

It is crucial to ensure that orphaned children receive either institutional or kinship care as they are highly vulnerable to exploitation and abuse during these trying times. Sometimes extended relatives of the orphan belong to low-income groups, making them ineligible to care for the child unless they are provided with financial assistance. It is necessary that children orphaned due to the pandemic receive professional help to help them cope with parental loss.

The Boards of Control have to ensure that the orphanages follow the necessary steps to protect orphans from Covid-19 and have an adequate supply of essentials like sanitisers. They should also ensure that Isolation wards are set up within orphanages to protect the children.

Suggestions

Though foster care is an option and is legally recognized under Section 42 of the Juvenile Justice Act, it is still a relatively new concept in India. Many believe that for temporary sheltering of orphans, foster care is more suitable than orphanages as it will provide a more friendly environment to children. A personalized and friendly environment is a requisite for a child’s holistic growth.
Adoption laws in India are known for being cumbersome, though many argue that it is to protect children from exploitation. Due to the overwhelming number of children orphaned due to the pandemic, it is more ideal to relax the adoption procedure with stringent regulatory checks after adoption, to ensure that orphaned children are not exploited or abused.
Even though consensual homosexual acts have been decriminalized in India, laws pertaining to matters like marriage and adoption remain hetero-normative, making it impossible for same-sex couples to adopt. Hence, it is high time that we revise our discriminatory adoption policies.
Children who grow up in institutions like orphanages rather than a family or community environment are much more likely to suffer from mental health issues. Orphanages and other child care institutions must be equipped with counsellors, psychologists and psychiatrists to check up on their mental health. Orphanages must be capable of providing them with a healthy environment, helping them grow just like other children.
Not having legislation that is exclusively meant for orphans is another hindrance. We need separate comprehensive legislation to protect the rights of the orphans.

Conclusion

Orphaned children are one of the most vulnerable groups in India. Like every other child, they too have rights and interests which need protection. As they are more likely to be exploited and abused, they require extra attention and care. It is not enough to provide them with just food, shelter, clothing and education. They are also required to be loved and cared for as they are assets of our nation. It is essential to provide them with a healthy environment so that they can grow and develop like other children.

Though orphans in India can be protected by their distant relatives or foster care, institutional care provided by orphanages is the most preferred mode as India is a developing and low-income country. It is obvious that despite having regulatory bodies and guidelines for regulation, these institutions are not regularly inspected. The physical and mental health of orphaned children often goes unchecked. Many institutions suffer from a dearth of skilled and trained staff. The poor infrastructure at orphanages makes it even more crucial for us to promote foster care and facilitate an easier adoption process.

References

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Bail provisions under the Code of Criminal Procedure

By

Shoronya Banerjee

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November 23, 2021

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This article is written by Santosh Bhagwan Waghmare, pursuing Certificate Course in Introduction to Legal Drafting: Contracts, Petitions, Opinions & Articles from LawSikho. The article has been edited by Prashant Baviskar (Associate, LawSikho) and Zigishu Singh (Associate, LawSikho).

Table of Contents

Introduction

Article 21 of the Constitution of India guarantees the protection of life and personal liberty to all persons. It guarantees the fundamental right to live with human dignity and personal liberty, which in turn gives us the right to ask for bail when arrested by any law enforcement authority.

The provision of anticipatory bail under Section 438 was introduced in the Code of Criminal Procedure in 1973 (hereinafter referred to as CrPC or Criminal Procedure Code). It is based on the recommendation of the Law Commission of India, which in its 41st report, recommended the incorporation of a provision of anticipatory bail. The report stated that “The necessity for granting anticipatory bail arises mainly because sometimes influential persons try to implicate their rivals in false cases for the purpose of disgracing them or for other purposes by getting them detained in jail. Apart from false cases, where there are reasonable grounds for holding that a person accused of an offence is not likely to abscond, or otherwise misuse his liberty while on bail, there seems no justification to require him to first to submit to custody, remain in prison for some days and then apply for bail.”

The ‘Bail’ provision, especially anticipatory bail, is based on the legal principle of “presumption of innocence” i.e. every person accused of any crime is considered innocent until proven guilty. This is a fundamental principle mentioned in the Universal Declaration of Human Rights under Article 11.

Meaning of bail

‘Bail’ connotes the process of procuring the release of an accused charged with certain offences by ensuring his future attendance in the court for trial and compelling him to remain within the jurisdiction of the court.

Definition of bail, as per the Black’s Law Dictionary is that bail is – “the security required by a court for the release of a prisoner who must appear at a future time.” The objective of arrest is to deliver justice by presenting the accused before the Court. However, if the same objective can be achieved without making any arrest then there is no need to violate his liberty. That’s why bail can be granted to the accused person for conditional release.

Legal position of bail

The term ‘Bail’ has not been defined under the Criminal Procedure Code, 1973. Only the term ‘Bailable Offence’ and ‘Non-Bailable Offence’ has been defined under Section 2(a) of Cr. PC. The provisions relating to bail and bail bonds are mentioned under Section 436-450 of the Criminal Procedure Code.

Categories of bail

For the purpose of bail, offences are classified into bailable and non-bailable offences which are discussed below :

Bailable offences

According to Section 2(a) of CrPC bailable offence means an offence that is classified as bailable in the First Schedule of the Code, or which is classified as bailable under any other law. An accused can claim bail as a matter of right if he is accused of committing a bailable offence. The police officer or any other authority has no right to reject the bail if the accused is ready to furnish bail. Under Section 436 of CrPC 1973, a person accused of a bailable offence at any time while under arrest without a warrant and at any stage of the proceedings has the right to be released on bail.

Non-bailable offences

A non-bailable offence is defined as any offence which is not a bailable offence. A person accused of a non-bailable offence cannot claim bail as a right. A person accused of non-bailable offences can be granted bail provided the accused does not qualify the following conditions:

There are reasonable grounds to believe that he has committed an offence punishable with death penalty or life imprisonment.
That the accused has committed a cognizable offence and he had been previously convicted of an offence punishable with death, imprisonment for life or imprisonment of seven years or more or if the accused been convicted on two or more instances of a cognizable and non-bailable offence.

There are exceptional cases in which law gives special consideration in favour of cases where the accused is a minor, a woman, a sick person etc. [Section 437(1) CrPC].

Different types of bail

Regular bail

Via this, the court orders the release of a person who is under arrest, from police custody after paying the amount as bail money. An accused can apply for regular bail under Section 437 and 439 of CrPC.

Interim bail

This is a direct order by the court to provide temporary and short term bail to the accused until his regular or anticipatory bail application is pending before the court. The Supreme Court noticed the misuse of interim bail by the accused in Rukmani Mahato vs. the State of Jharkhand.

Anticipatory bail

This is a direct order of Sessions or High Court to provide pre-arrest bail to an accused of a crime. When the person has an apprehension of being arrested, the person can apply for anticipatory bail. Sometimes, an application for anticipatory bail may go against the person, as it might alert an investigation agency regarding the involvement of that person in a crime.

Important factors to be considered while granting anticipatory bail in India

Based on Section 438(1) of CrPC, the Supreme Court has enumerated a detailed and exhaustive list of considerations while deciding anticipatory bail. They are as follows:-

Gravity of crime and role of accused must be understood before the arrest.
Previous record of accused, any imprisonment on conviction in respect of non bailable offence, should be checked.
Possibility that applicant will flee from justice.
Chances of repetition of similar or other offences.
Intention behind accusation is whether to injure or humiliate the applicant by arresting him or her.
Consider the exact role of the accused.
Reasonable apprehension of tampering with evidence, witnesses and threatening the complainant.

Standard conditions while granting anticipatory bail

Accused should present himself / herself for interrogation by the investigation office as and when asked to appear.
Accused should not directly or indirectly try to induce, threaten, or promise to any person related to the case who knows the facts of the case, so that he can be dissuaded from disclosing the fact to the court or investigation officer.
Accused should not leave the country with prior permission of the court.
Any other condition which the honourable court deems fit.

Cancellation of bail

Under Section 437(5) of CrPC, the court which has granted bail can cancel it, if found necessary under certain conditions. Per Section 439(2), the Sessions Court, High Court, or Supreme Court can, suo moto, cancel the bail granted to the accused and transfer the accused to custody. Per Section 389(2), an appellate court can also cancel the bail of the accused and order the accused to be arrested and sent to custody.

Latest case laws

1. Re: Digendra Sarkar – Under Section 438 of the CrPC, the application for anticipatory bail applied even before the First Information Report is registered. So, First Information Report cannot be a condition precedent to applying for anticipatory bail.

2. Suresh Vasudeva vs. State – Section 438(1) applies only to non-bailable offences.

3. Sushila Agarwal vs. State – Supreme Court held that anticipatory bail should not be for a fixed period, but it is open to the court to limit the tenure of anticipatory bail if any special condition necessitates the same.

4. Gurbaksha Singh Sibbia and others vs.the State of Punjab – the Supreme Court opined :

There are no provisions in the CrPC regarding time boundness of granting pre – arrest anticipatory bail.
The concerned court has the discretion to impose conditions for grant of anticipatory bail including a limited period of protection etc., subject to considering any special circumstances required.

Anticipatory bail as a fundamental right

Under the Constitution of India, every person has a fundamental right to life and personal liberty. Article 21 is enshrined in our Constitution. The objective of this article is not to deprive any person of his life or personal liberty except as per the procedure established by law. As a person can not prepare their case for trial from behind the bars, so the provision of bail in law is provided, to give a fair chance to fight their case with all possible measures. Apart from that since an accused is considered innocent until proven guilty, incarceration in any form brings disrepute to the person and restricts him from going about his daily affairs. Hence to avoid such hardships, a person is provided with the remedy to apply for anticipatory bail.

Clause 4 was added to Section 438, through the Criminal Amendment Bill, 2018. The legislature inserted four clauses under Section 438. According to the amendment, anticipatory bail cannot be granted to a person accused of the offence of committing rape on a woman aged under 16years, under 12 years, gang rape on a woman aged under 16 years of age and gang rape of a woman under 12 years of age, punishable under Section 376(3), 376 AB, 376 DA and 376 DB respectively under the Indian Penal Code (Punishment of rape) 1860.

Rape is a heinous crime and there should be strict provisions under law to punish the convict. However, there is a difference between an accused and being proclaimed a convict. There are high chances of an accused being acquitted after a trial and hence denying the right of bail entirely goes against the spirit of justice. Rape is a serious crime but nowadays people go to any level to defame a person to take revenge on them, therefore the instances of filing false cases of rape are also increasing. Hence, this amendment unjustly restricts the right to get anticipatory bail.

Conclusion

The objective behind enacting Section 438 is to safeguard the liberty of a person. The need for anticipatory bail arises mainly when any person has reason to believe that he may be arrested on an accusation of having committed a non-bailable offence. Anticipatory bail is concerned with the liberty of a person and presumes their innocence. It was held in the case of Gurbaksh Singh Sibbia vs. the State of Punjab by a five-judge Supreme Court bench led by then Chief Justice Y V Chandrachud that Section 438 (1) is to be interpreted in the light of Article 21 of the Constitution. While Courts have time and again emphasised the need to uphold the liberty of individuals and protect them from arbitrary arrests, one needs to remember that anticipatory bails are not a matter of right like other types of bail.

References

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Legal compliance checklist for establishment and running of a large scale industry

By

Diva Rai

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November 23, 2021

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This article is authored by Akash Krishnan, a student from ICFAI Law School, Hyderabad. It discusses in detail the mandatory requirements that an industry has to follow post-registration for effectively continuing its operations in India.

Table of Contents

Introduction

Every industry that wants to commence its operations in India has to register itself under the Companies Act, 2013 and has to follow various compliances mentioned thereunder. Also, once the industry commences its operations post its registration, it has to comply with several laws under the labour law regime. A company can be incorporated in India through the government portal by filling up the necessary forms and submitting the necessary documents. This article discusses in detail the provisions that an industry has to comply with post-registration.

The Companies Act, 2013

Registered Office of the establishment

According to Section 12 read with Rule 25 of the Companies (Incorporation) Rules, 2014, the establishment must paint or affix the name and address of its registered office, outside every office or place in which its business is carried on, in legible letters in the language or one of the languages in general use of the locality.

Further, the establishment must get its name, address of its registered office, Corporate Identity Number, telephone number, fax number (if any) e-mail and website addresses (if any), printed on all its business letters, billheads, letter papers and other official publications. The establishment must also have its name printed on promissory notes and bills of exchange, issued by the establishment.

The establishment must publish its name, the address of its registered office, the Corporate Identity Number, telephone number, fax number (if any), email address and the name of the person who may be contacted in case of any queries or grievances on the home page of its website.

Maintenance of registers

According to Sections 85 and 86 read with Rule 10 of the Companies (Registration of Charges) Rules, 2014, the establishment must maintain, at its registered office, a register of charges which shall record all charges and floating charges affecting any property or asset of the Company or any of its undertakings and must include all particulars if any property acquired subject to a charge, details of a modification of a charge and satisfaction of a charge.

Section 88 read with Rules 3, 4 and 5 of the Companies (Management and Administration) Rules, 2014, The establishment must maintain the following registers in the format and containing all such particulars as are prescribed under the Companies Act:

Register of Members.
Register of Debenture Holders.
Register of any other Security Holders.
Annual returns.

According to Sections 92 and 94 read with Rule 11 of the Companies (Management and Administration) Rules, 2014, the establishment must prepare an annual return at the end of every financial year. The annual returns must be signed by a director and the company secretary (if any) or a practising company secretary. The extract of the annual return must be filed with the RoC along with the Board’s report.

Maintenance of records

According to Section 128, the establishment must prepare and maintain at its registered office or such other place in India as decided by the Board, all books of account, financial statements and other relevant information for each financial year, providing a true and fair view of the state of affairs of the establishment, including that of its branch offices and explain the transaction effected both at the registered office and its branches.

Financial statements

According to Section 129, the financial statements maintained by the establishment must provide a true and fair view of the state of affairs of the establishment complying with the accounting standards notified by the Central Government under Section 133 of the Act. The board of directors must, at every AGM, lay before such meeting, the financial statements for the financial year.

CSR Committee

According to Section 135, In the event, the establishment has a net worth of Rs. 500,00,00,000 (Rupees Five Hundred Crore) or more, turnover of Rs. 1000,00,00,000 (Rupees One Thousand Crore) or more, or a net profit of Rs. 5,00,00,000 (Rupees Five Crore) or more during any financial year, it must constitute a corporate social responsibility committee. The Board shall approve and monitor the corporate social responsibility policy and ensure that at least 2% of the average net profits of the 3 immediately preceding financial years is spent on corporate social responsibility activities. The establishment shall disclose the contents of the Corporate Social Responsibility Policy in the Board’s report and on the company’s website.

Appointment of auditor

According to Section 138, every private establishment having a turnover of Rs. 200,00,00,000/- (Rupees Two Hundred Crores) in the preceding financial year or outstanding loans from banks or public financial institutions more than Rs. 100,00,00,000/- (One Hundred Crores) in the preceding financial year is required to appoint an internal auditor.

Directors

According to Sections 149 and 172 read with Rule 8 of the Companies (Appointment and Qualification of Directors) Rules, 2014, the establishment must have at least 2 directors on its Board at all times, subject to a maximum of 15 directors.

Vigil mechanism

According to Section 177, every establishment which accepts deposits from the public or which has borrowed money from banks and public financial institutions in excess of Rs. 50,00,00,000/- (Rupees Fifty Crores), shall establish a vigil mechanism for their directors and employees for reporting genuine concerns or grievances.

Applicable provisions under the Labour Code

Payment of Wages Act, 1936 (Wages Act)

Payment of wages

According to Section 5 of the Payment of Wages Act, the employer must ensure that every person employed by him must be paid his/her wage before the 7th day of the wage period (which may be fixed by the employer) and which period shall not exceed 1 month. The day on which wages are to be paid must be a working day.

Maintenance of Registers

According to Secti o n 13(A) of the Wages Act, the employer must maintain a combined register in relation to the following:

Register of fines
Register of deductions for damage or loss (incurred by him for any damage or loss of goods expressly entrusted with the employed person for custody, or for loss of money for which he/she is required to account, where such damage or loss is directly attributable to his/her neglect or default)
Register of wages

Employees’ State Insurance Act 1948, (ESI Act) and the Employees’ State Insurance Regulations, 1950 (ESI Regulations)

Employer Code Number

According to Regulation 10B of the ESI Regulations, every employer must register the establishment and must obtain an ‘Employer’s Code Number’ by making an application to the appropriate Regional Office.

Payment of contributions

According to Sections 39, 40 of the ESI Act and Regulation 31A of the ESI Regulations, every employer, being either a principal employer (i.e., employing employees through an immediate employer) or an immediate employer, as the case may be, must pay the contribution being the employee’s contribution (to be deducted from the employee’s wages) and the employer’s contribution, to the Employees’ State Insurance Corporation (ESIC) in respect of every employee earning up to Rs. 21,000/- at the applicable rates.

Duties of the employer

According to Section 44 of the ESI Act, every principal and immediate employer must submit returns to the Corporation containing particulars of the persons employed by him at the establishment and must maintain a register in respect of his/ her establishment.
According to Regulation 11 of the ESI Regulations, the employer must for the purpose of a declaration form in relation to the employees, acquire the signature /thumb impression and all other particulars/information of the employee including a temporary identification certificate as required.
According to Regulation 26 of the ESI Regulations, the employer must file a return of the contributions with copies of the challans for amounts deposited in the bank to the appropriate office by registered post or messenger, in respect of all employees for whom contributions are paid.
According to Regulation 66 of the ESI Regulations, the employer of every establishment must maintain a book for accidents caused/occurred and should record the particulars of any accident that is causing personal injury to an insured person.

The Payment of Bonus Act, 1965 (Bonus Act) and The Payment of Bonus Rules, 1975 (Bonus Rules)

Duties of the employer

According to Sections 10 and 19 of the Bonus Act, every employer must pay every employee a minimum bonus at the applicable rates in terms of their salary/ wages earned by the employee during an accounting year.

According to Section 26 of the Bonus Act read with Rule 4 of the Bonus Rules, the employer must maintain a register showing the computation of allocable surplus, the set on and set off of the allocable surplus, the amount of bonus due to each of the employee’s, the deductions made and the amount actually disbursed.

Maternity Benefit Act, 1961 (Maternity Benefit Act)

Payment of maternity benefit

According to Section 5 of the Maternity Benefit Act, the maximum period for which any woman shall be entitled to maternity benefit shall be twenty-six weeks of which not more than eight weeks shall precede the date of her expected delivery. The maximum period for maternity benefit that can be availed by a woman having two or more than two surviving children shall be twelve weeks of which not more than six weeks shall precede the date of her expected delivery. Where the nature of work assigned to a woman is of such nature that she may work from home, the employer may allow her to do so after availing of the maternity benefit for such period and on such conditions as the employer and the woman may mutually agree.

Creche facility

According to Section 11A of the Maternity Benefit Act, the employer of every industry having fifty or more employees should ensure that they have the facility of crèche. The employer shall allow four visits a day to the creche by the woman, which shall also include the interval for rest allowed to her.

Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act), Employees’ Provident Fund Scheme, 1952 (EPF Scheme), Employees’ Deposit Linked Insurance Scheme, 1976 (DLI Scheme)

Payment of contribution

According to Section 6 of the EPF Act read with Paragraphs 30 and 31 of the EPF Scheme, the contribution must be paid by the employer to the Employee’s Provident Fund (‘EP Fund’) at the applicable rates. The principal employer must pay both the contribution payable by himself and on behalf of the employee, employed by him directly or by or through a contractor, the contribution payable by such employee.

According to Section 6C of the EPF Act read with Paragraph 7, 8 and 9 of the DLI Scheme, The contribution by the employer must be remitted by him to the Deposit-Linked Insurance Fund (DLI Fund) at the applicable rates together with administrative charges at such rate as the Central Government may fix from time to time in a separate bank draft or cheque or by remittance in cash in such manner as may be specified by the Commissioner. The employer must not deduct the employees’ contribution payable by him from the wages of the employees or recover it from them in any other manner. The cost of remittance must be borne by the employer. It must be the responsibility of the employer to pay the contribution payable by himself in respect of the employees directly employed by him and also in respect of the employees employed by or through a contractor.

Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act, 2013 (POSH Act)

Complaints committee

According to Section 4 of the POSH Act, Every employer of a workplace must, by an order in writing, constitute a Committee to be known as the “Internal Complaints Committee” at each of its administrative units/ offices. The Internal Complaints Committee must consist of the following members to be nominated by the employer, namely:

One presiding officer who must be a woman employed at a senior level at the workplace from amongst the employees;
Two members from amongst the employees preferably committed to the cause of women or who have had experience in social work or have legal knowledge; and
One member from amongst non-governmental organizations or associations committed to the cause of women or a person familiar with the issues relating to sexual harassment.

According to Section 21 of the POSH Act, The Internal Complaints Committee must submit an annual report to the employer and the District Officer in relation to the following:

The number of complaints of sexual harassment received in the year.
The number of complaints disposed of during the year.
The number of cases pending for more than ninety days.
The number of workshops or awareness programmes against sexual harassment carried out.
The nature of action taken by the employer or District Officer.

Contract Labour (Regulation and Abolition) Act 1970 (Contract Labour Act)

Employment of contract labourers

According to Section 7 of the Contract Labour Act, every principal employer, in whose establishment, contract labourers are appointed, must apply for registration of the establishment to the Registering Officer.

Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959 (Employment Exchanges Act) and the Employment Exchanges (Compulsory Notification of Vacancies) Rules, 1960 (Employment Exchanges Rules)

Reporting of vacancies

According to Section 4 of the Employment Exchanges Act read with Rule 2 of the Employment Exchanges Rules, every establishment must, before filling up any vacancy in an establishment, notify the vacancy to the concerned Employment Exchange.

According to Section 5 of the Employment Exchanges Act and Rule 2 of the Employment Exchanges Rules, the employer must furnish information about the total number of persons employed in the establishment, the vacancies created and filled and such other related information, by filing regular returns to the concerned Employment Exchange.

Conclusion

Thus, by following these provisions, a large-scale industry can ensure smooth functioning in India and continue its operations for a long time. However, it is to be noted that this is only an indicative list and there are several other provisions that an industry has to comply with in order to continue its operations in India.

References

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