This article is written by Gursimran Kaur Bakshi. This article deals with how the issue of tax terrorism emerged in India.
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What is tax terrorism
In legal parlance, tax terrorism can be referred to as an act of colourable legislation. It can also be considered as an exercise of arbitrary state powers where the changes in the tax administration are done indirectly through use of unreasonable powers. That is why the Prime Minister Narendra Modi referred to it as an adversarial approach of the tax administration.
Tax terrorism is a way to terrorise honest taxpayers to pay unreasonable taxes but through legal means. The discourse on tax terrorism in India is usually discussed in reference to the infamous move of the Government of India to levy taxes through retrospective amendment in Section 9 of the Finance Act, 2012 on foreign companies. Presently, the amendment has been redacted under the Taxation Laws (Amendment) Act, 2021 (2021 Amendment). However, the collateral damage has already been in terms of tarnishing India’s image before the foreign investors because it spooked investors and created an unfavourable environment for them to invest.
How has tax terrorism emerged in India
As mentioned above, the debate on tax terrorism in India is referred to in the context of the retrospective amendment made to the Finance Act, 2012. The background in which the government decided to levy retrospective taxes was to force the Vodafone company to pay taxes for a transaction that took place as a part of an offshore share transfer agreement. But there are other ways as well, such as depriving the foreign investors to seek protection against domestic authorities in the matter of taxation under the investor-state arbitration.
India’s BIT model excludes taxation measures outside the purview
Every country willing to open its economy for foreign investment has a Bilateral Investment Treaty (BIT) Model. India first published its draft BIT Model in 1993. However, in 2016 substantial changes were made to the BIT Model which excluded the right to seek domestic taxation measures out of the purview of the investment treaty as per Article 2.4 (ii). This is also the reason why in terms of investor-state arbitration, India is considered the most-sued country for either lacking standard protection of foreign investors or not complying with the same. Since details of the arbitration can be kept confidential, not all disputes filed against India at the Investor-State Dispute Settlement (ISDS) Tribunal are published in the public domain. Excluding the taxation measures outside the purview of the investment, the Treaty can lead to regulatory abuse since powers to determine whether a measure is taxable or not is given to the domestic authorities. This can turn out to be unfavourable to foreign investors.
Levying of retrospective taxes – Vodafone case
Facts of the Vodafone case:
Vodafone International Holdings B.V. is a Netherlands entity (VIHBV). In 2007, a Hong Kong entity, Hutchison Telecommunication International Limited (HTIL) sold its stakes in Cayman Islands-based investment firm CGP Investments (Holdings) to VIHBV. The CGP Investments indirectly held shares of the Indian company, Hutchison Essar Limited (HEL). The consideration involved in the transfer took place through an offshore share transfer agreement for USD 11.1 Billion whereby HTIL earned capital gains.
The Indian tax authorities under Section 195 of the Income Tax Act, 1961, considered the acquisition of stakes by VIHBV in HEL liable for tax deduction at source. It was based on the ground that there was an indirect transfer of assets located in India and thus the company will have to pay for the capital gains. However, VIHBV failed to pay taxes as against the consideration made to selling HEL. The Indian Tax authorities raised demands on VIHBV under Section 201(1A) and Section 220(2) of the Income Tax Act for the non-deduction of tax.
Chronology of orders
The tax notice was challenged by the VIHBV in the Bombay High Court. The Court in Vodafone International v. UOI (2010) ordered in favour of the tax authorities on the ground that the provisions have extra-territorial effect.
A judgment of the Supreme Court was passed in favour of the VIHBV where the government ordered to take back its claims and on top of it, the government was asked to pay compensation. The Court observed that the Act does not have a ‘see-through provision’ which can be stretched to include indirect transfers within its ambit.
The government of India brought a retrospective amendment in the Finance Act, 2012, to nullify the order of the Supreme Court by including ‘indirect transfer of assets’ taxable under Section 9 of the Income Tax Act.
VIHBV’s parent company invoked the Netherlands-India BIT and issued a notice of arbitration against the government of India for violating the BIT provision on fair and equitable treatment in 2014. A second notice of arbitration was issued under the UK-India BIT in 2017.
The second notice of arbitration was challenged in an injunction proceedings that were filed in the Delhi High Court. The Indian government argued that simultaneous proceedings by vertical corporate chains lead to the abuse of the process. However, the Court refused to grant permanent injunction. It ordered that the BIT proceedings before the ISDS Tribunal can be consolidated and the challenge to the abuse of process can be taken before the same.
Lastly, the arbitral award, Vodafone International Holdings BV v. The Republic of India (2020), was passed in the arbitration proceedings. However, the award is not made public. The award was not based on the levying of retrospective taxes by the Indian government in general. It was based on India’s violation of the India-Netherlands BIT provisions wherein, the Tribunal held that levying such taxes amounts to unfair treatment to foreign investors.
Current update on the case
The Indian government refused to accept the foreign award and filed an appeal against the same. However, as per the 2021 amendment, the government did away with the provision of retrospective taxation and has decided to pay the compensation to the Vodafone company but only the principal amount. However, this is based on the condition that the Netherland-based company will withdraw all the cases against the government.
According to the 2021 amendment, the government has removed the provision for allowing retrospective taxes to be levied on Vodafone. At the same time, it added a provision for a refund of the amount that was deducted. The government has also clarified that it would be willing to pay the refund on the condition that the company withdraws all cases against India.
Levying of retrospective taxes – Cairn case
Facts of the Cairn case
Cairn Energy is another case based on retrospective taxation against India in investor-state arbitration. In 2020, the Permanent Court of Arbitration announced an arbitral award against India for breaching its obligation of fair and equitable treatment.
The dispute started in 2006 when Cairn UK transferred shares of Cairn India Holdings to Cairn India as a part of an internal rearrangement process. The Indian tax authorities issued a notice for the unpaid taxes of Rs. 10, 247 crores. Post this, the same was challenged in the Income Tax Appellate Tribunal and the Delhi High Court. But Cairn UK lost the case in the Tribunal. Due to this, the Indian Tax authorities issued a notice to Cairn UK to pay capital gains tax which was valued at Rs. 24, 500 crores for making capital gains which were inclusive of penalty. The Tax authorities also restricted Cairn UK to sell all its stakes of the Indian business, Cairn India, to Vedanta because of the pending payment of taxes. The payment of dividends from Cairn India to Cairn UK was also frozen.
Order
Cairn sued the government of India before an ISDS tribunal for imposing retrospective taxes being violative of the 1994 India- United Kingdom BIT. The tribunal ruled in favour of Cairn and held that the Indian government is responsible for violating the fair and equitable treatment obligation of the BIT. But the ruling was based on the obligation laid down in the treaty and not on the amendments made by the Indian government under the domestic legislation.
After the revised demand of the taxes, the Cairn UK could not seek remedy under the Indian law and they approached the Permanent Court of Arbitration at the Hague under the 1994 India- United Kingdom BIT. The tribunal ordered in favour of Cairn UK.
Current position of the case
The Indian government refused to honour the arbitration award and because of this, the foreign company moved domestic courts in different jurisdictions to seize the property of the Indian government.
Excessive use of powers by the tax authorities
Another issue that has emerged as a part of tax terrorism is the use of excessive powers by the tax authorities to reassess the income tax returns of the taxpayers. The officials of the Central Board of Direct Taxes (CBDT) are allowed to send scrutiny notices to the taxpayers under Section 148 of the Income Tax Act on a mere suspicion that one has underreported or miscalculated his taxes. Section 147 of the Income Tax Act allows the tax authorities to reassess the income tax returns.
In Gkn Driveshafts (India) Ltd v Income Tax Officer And Ors(2002), the Supreme Court observed that the powers given to the tax authorities under Section 148 should be cautiously used. The reopening of the income tax assessment is void if the assessing officer has not disclosed cogent reasons for the same. The assessing officer is bound to furnish the reasons within a reasonable period of time.
How to prevent tax terrorism
Avoiding complex taxation system
In India, even before the Good and Services Tax (GST) was introduced, there were different types of indirect taxes that were applicable. This is a larger part of a complex tax structure that often results in ambiguity on one hand and exploitation on the other. This was tackled with the help of GST which established an integrated form of indirect taxation.
Double Taxation Avoidance Agreement
Double Taxation Avoidance Agreement (DTAA) is an international bilateral agreement signed by the countries to prevent dual levying of taxes on the same income. DTAAs are an important element in foreign investment that not only protects the foreign investor against any unfair treatment in the host country of investment but also offers concessional rates on certain taxes to the investor. Lastly, offering better domestic protection to the investors in the BIT is indeed non-negotiable and that can definitely be done by offering better standards of fair and equitable treatment.
Conclusion
The changes brought by the government are welcoming and it would now offer stability in terms of better protection to the foreign investors. Nevertheless, tax terrorism is something that is not supposed to be fought but prevented since it should not have been introduced in the first place. The government has now offered transparency to the investors but it would not be easy to revive its lost reputation in the eyes of the foreign investors since it has consistently refused to honour its international obligations under the BIT including challenges made to the foreign arbitral awards. The impact of the same is huge in the investor community.
Apart from this, the recent amendment can still be considered partially hostile against Vodafone and Cairn since the government has only agreed to pay the principal amount and not the interests that have also been incurred. It would be interesting to see whether these companies back down against the offer of the government or refuse to accept the conditions of the Indian government. If the latter happens, it is going to be difficult for the Indian government to dodge the issue since it has already adopted all the tactics against these companies to refuse to pay any amount. In case the government does that again, it is going to be disappointing for the investor community.
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This article is written by Aditya Bhatnagar from the School of Law, Raffles University. The article has been edited by Khushi Sharma (Trainee Associate, Blog iPleaders).
Table of Contents
Introduction
Since the early 70s, computers have been creating crucial pieces of literature, music and art. But today, we are in the midst of technological evolution. Machines are not merely a tool anymore but are the whole creative course behind creating art. Today, via Artificial Intelligence (A.I.), machines can learn, evolve, and make their decisions self-sufficiently. Machines can generate work independently based on the data and parameters provided by the programmers. This raises the obvious policy question; how does copyright law will deal with the works with minimum or no human involvement?
Research objective
To address the gap between the technological advancement and the slow movement and gradual evolution of a policy response
To identify the capability and capacity of Artificial Intelligence in generating creative and artistic original works
To analyse how copyright law may deal with the works generated by machines with minimum or no human intervention
To identify who will be the author in computer-generated works, the AI creator or the AI user
Research methodology
The author has taken the doctrinal or the black-letter law approach in pursuance of the completion of the following article. The author has relied upon the primary sources of law like statutes, precedents, or the common law and the secondary sources like law reviews journals articles and books, and volumes. The author has used these sources to form a viable solution to the existing dilemma of the non-human authorship
The creative process of a computer program
Recently, in the U.K., the first-ever entirely the machine invented molecule went into a human clinical trial, making it quite clear that machine creation and machine invention are with us.
Conventionally, the copyrightability of works produced by a computer was never debated because machines were merely tools to create art, just like some paintbrush and a canvas. This belief is also apparent through some existing legal structures like that of the U.S., which states that “Copyright law only protects ‘the fruits of intellectual labour that are founded in the Creative Process’ and original works of authorship that are founded on the creative powers of the mind and not the works produced by a machine or mere mechanical process that operates randomly or automatically without any creative input or intervention from a human author.”
But today, with the advancement in machine learning, which is a subset of A.I., computers can learn, evolve, make future decisions and create art without being particularly programmed for the same. They have an algorithm that allows them to grow from the data provided by the programmers into creating a new work of art, literature or music independently without or minimal human interference. Programmers provide initial data and set parameters, but it is the A.I. that produces the art with its own creative process. This is called a neural network, a process similar to the thought process of humans.
The authorship race
‘The Day a Computer Writes a Novel’, a short novel written by a Japanese computer program in 2016, took part in the National Literary Competition in Japan. It didn’t win the competition, but it showed the world that A.I. takeover of human jobs is imminent. And we are still ambiguous on how to legally protect these works created by A.I. This shows the unpreparedness of the current legal structures while dealing with the A.I. created works. Millions are already using A.I. to make photographs, literary works, musical works, art, and games. As humans do not produce these works of art directly, the work can be used by anyone freely as there is no concept of non-human authorship in maximum legislations. Only works that humans create can be protected under copyright law in many national legal systems like Spain and Germany. In the landmark case of Naruto v. Slater (The Monkey Selfie case), words like “necessarily human” or “natural persons” were quoted by the U.S. Court of Appeals for the Ninth Circuit in their discussion of authorship. This was very demoralising for the organisations selling A.I. works—spending millions and investing hours in a program, only to find out that the work is not protected and can be used freely by anyone in the world.
The way ahead
There are two foreseeable ways in which this ambiguity may be dealt with under copyright law. It can either completely deny protection for non-human authors, which can be seen in the Naruto case and in different judgments of the Court of Justice of the European Union (CJEU) like in the Infopaq case where the Corum held that work should be original and must reflect author’s personality to qualify for copyright protection. This indicates that a human element is required for a work to be protected under copyright law.
Or
It can grant copyright protection to the programmers who provided the initial data input to the A.I. algorithms or undertook the arrangements necessary for the A.I. to create that work as even A.I. cannot create a piece of art without the programmer’s initial and original data input arranged for that A.I. to create that work. Many countries like Hong Kong, India and the United Kingdom provide authorship to the programmers. Like in the U.K., Section 9(3) of the Copyright, Designs and Patents Act states:
“In the case of a literary, dramatic, musical or artistic work which is computer-generated, the author shall be taken to be the person by whom the arrangements necessary for the creation of the work are undertaken.”
Enigma of the mystical
This still leaves one big question open to interpretation. Who in particular will be the author? The creator or the user of the program. The analogy of Microsoft Word can help us understand this dilemma. Microsoft developed a computer program, ‘Word’, but it does not own the copyright over every work produced through it. Not even this piece of work. In this case, the user of the computer program will be the author. But when it comes to A.I., all the creativity is of the creator. The user’s work may simply be to press a button, and the machine may automatically generate work. This is an enigma that still needs to be demystified. But there are precedents like Nova Productions v. Mazooma Games,where the court decided on the authorship of a computer game. The Court of Appeal held that the player had provided no creation or skill of any artistic kind. Thus, this debate seems to be ending favouring the creator of a program. However, this enigma may still be resolved on a case-to-case basis, which appears to be one viable solution to the problem—trusting the judicial minds of the world.
Conclusion
Suppose we don’t address this ambiguity of copyrightability of non-human authors. In that case, it may not only demoralise the investment in the A.I. industry but may also bring havoc to the concept of originality in the future. Henceforth, the most sensible approach to address this ambiguity would be to grant copyright protection to the programmer(s) who provide initial data input or arrangements to the A.I. algorithm. Other legislations can look up to U.K.’s model that appears to be the most efficient. This will end the debate, incentivise the programmers to invest more in the world of A.I. and make the economy more creative. The second debate between the creator and the user also seems to be ending favouring the creator because users may only follow the instructions while all the originality and creativity may be of the creator of the A.I.
Thus, with the technological advancements, copyright laws will also have to move away from the original standards of rewarding mere skill, labour and efforts and make an exception for the sophistication of artificial intelligence.
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This article intends to briefly delve into the fundamentals aspect of subordination and subordinated mortgage contracts. The article shall focus on the concepts of the subordination and factors that need to be focused on while drafting a subordinated contract.
Individuals and legal entities turn to lending institutions when they are in need of funds. It is known that the lending institutions keep their business afloat through the interest that they accrue on the loaned amount, unless the borrower defaults on the payment. The process of taking loans is universal; however with regard to the lending institutions of the US, they have separate legal arrangements of ‘Subordination’ for protecting their interests. The US banking institutions for safeguarding its interest, tends to execute a contract wherein it places additional liens against the secured property if the lender is to take on an additional loan. A contract of subordination is a legal document which prioritises the precedence of one debt over the other. The priority of debt becomes essential when the debtor defaults on making payment or when the debtor declares bankruptcy. A subordination contract fundamentally makes the creditor with a higher claim or lien to that of another creditor in the event the borrower’s assets are to be liquidated for the repayment of debts. Thus, in essence, by virtue of the subordination agreement, it is established that one party’s claim is prioritised over that of another party in the event the borrower’s assets are to be liquidated. The subordination provisions are most commonly seen in the domains of mortgage contracts, mortgage refinancing contracts, real estate and bond issue Agreements.
Purpose of subordination contract
The Purpose of the Subordination Contract is as follows,
Subordinate Contract within the realm of mortgage is for setting the lender’s priority in exercising its rights and recourse over the security asset/collateral.
By executing a Subordinate Contract, the lender renders other claims as subordinate.
Essentially Subordinate Contracts are legal protection afforded to the lender.
UCC and Subordination
Article 9, of The Uniform Commercial Code Secured Transactions, provides for provisions for governing rules for any transactions that combine a debt with a creditor’s interest in debtor’s personal property. Basically, Article 9 of the UCC enumerates steps to legally protect a debt by staking a claim in the debtor’s property. That is, a creditor with a perfected security interest has recourse to collateral and in the event two or more secured creditors are there, then the general rule under UCC is to perfect the priority whether competing security interests are consensual or not. This is not applicable in most scenarios as the possession is trumped by earlier filing.
Operation of subordinated mortgage contract
When a person takes out a mortgage loan, the lending institution will most likely make him execute a contract of subordination with it and wherein the wordings of the contract would accentuate the lending institution’s lien and its precedence over other liens placed on the security property. If a default of repayment of loan were to happen, the lending institution would have the legal standing to repossess the security property and cover its outstanding balance. In a scenario wherein there are other subordinate mortgages present, the secondary liens would only be recouped after the costs of the primary lender has been seen through. There are instances wherein the value of the security property might not be enough to cover all liens, in those situations subordinate lenders would be in a riskier position than the primary mortgage.
Identifying and drafting subordination clauses
Recital Clause: The Recital Clause of the Subordination Agreement should contain mention of the indenture/mortgage executed to secure the loan amount and also should provide a description of the property. A model recital clause is drafted hereunder:
The Owner has executed a Mortgage, date 16.11.2021 to secure a loan in the sum of $125,000 in favour of AAA Bank as collateral/security. The Property recorded on in the record of ______ County, California as Deed No. 919/1985 recorded in Book No.1, Pages 425-430 is provided herewith as Security and is described as hereunder.
Terms and Conditions: The Terms and Conditions of the Subordinate Agreement should contain the following particulars. That the Lender has primary lien over the collateral property over other debts, that anything contained in the agreement should not be construed as the right to alter the priority of the lender with regard to the interest in the property. That all proceeds should satisfy the primary debt in case of liquidation of assets. A model terms and conditions are drafted hereunder,
The Bank shall have primary lien over the security/collateral property in the instance of other debts and liquidation of assets.
Nothing in the Agreement is to be construed as the right/claim/interest of the Borrower/Owner to alter the set the primary priority of the bank with respect to the equitable interest in the collateral property.
In the event of liquidation of assets on non-repayment, the Bank shall have lien over the sale proceeds to balance of repayment.
Collection and Liquidation: The collection and liquidation clause is pertinent to ascertain sale proceeds in case the loan is declared default. The Bank very well may liquidate or sell the collateral property and the Bank shall accept sale proceeds in any possible means to quench its balance repayment. A model collection and liquidation clause is drafted hereunder,
In the event that the loan is declared in default; the AAA Bank shall liquidate or sell the Collateral Property for securing and satisfying the outstanding balance payment. The AAA Bank shall collect the sale proceeds of such sale and it shall accept cash, certified funds or US treasury cheques in connection with any purchase of the foreclosed or liquidated property.
No Implied 3rd Party Beneficiary: The Subordinate Agreement should not leave room for any interpretation wherein 3rd party could alter, modify or limit the powers of the Lender or the collateral. A model clause is drafted hereunder.
Nothing stated in the Agreement allows any Third Party to modify or affect the rights of the AAA bank. This Agreement does not confer any right, priority, benefit, interest to anyone or any third party with respect to the Collateral Property as well. Any arrangement in the aforementioned regard shall only be made at the option and interest of the AAA bank and any contravening acts shall stand null and void.
Successors and Assigns: The Subordinate Agreement should bind the parties and respective heirs, assigns and successors. A model clause successors and assigns is drafted hereunder,
The Bank hereby inure to the benefit of and bind the respective parties to the Agreement, that is the Owner’s heirs, Successors and Assigns including but not limited to party acquiring the AAA Bank’s loan or through the means of sale, assignment or through any other transfer.
Jurisdiction and Applicable Law: The Subordinate Agreement should clearly specify the jurisdiction and the applicable law so that there arises no room for ambiguity. A model clause Jurisdiction and Applicable law has been drafted hereunder,
The enforceability or interpretation of this Agreement shall be governed by the statutory laws of California State, and the courts of California shall have original jurisdiction in respect of any action to contest the validity, interpretation, enforceability of this Agreement. Notwithstanding the foregoing, the parties agree that prior to initiation of any proceeding, action, law or any such legal remedy in connection with the disputes arising out of this Agreement; the Parties shall first negotiate in good faith with each other regarding such dispute.
Special considerations
In a subordinated Contract for mortgage, the mortgagor is in effect, paying off the first loan when the borrower is taking a refinance or a second loan. It is trite to note that the second loan or the refinance shall move up to be the first loan as the lender would insist on the requirement of entering into a Subordination Contract for the purpose of repositioning the subsequent loan as the apex priority for debt repayment. The priority interests of creditors are thus changed by the contract. From the standpoint of a lender, they would only prefer to issue a loan if their loan is in the primary position and any contravention to that would potentially block any chance of qualifying for a new mortgage. Further, the signed Contract must be notarised and be recorded in the official record of the county to be enforceable.
Conclusion
Thus, it is established that a subordination contract is seen when multiple mortgages exist against one property and the contract prioritizes repayment of debt of one party/creditor over that of others in the event of default of repayment, foreclosure or bankruptcy. The Debt of the second in line creditor shall only be satisfied if the primary or the prioritized debt of the primary creditor has been paid in full. While drafting a subordination contract special consideration with respect to law has to be made. A drafter must be mindful of the past and present laws applicable to the contract.
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This article is authored by Akash Krishnan, a student of ICFAI Law School, Hyderabad. It discusses in detail the Trial Court’s decision in Uthra Murder case and the principles the Court followed in arriving at its conclusion.
Table of Contents
Introduction
The pre-planned murder of Uthra by her husband was termed as a diabolic, cruel, heinous and dastardly act. This is because of the fact that a differently-abled woman was sedated and was subjected to snake bites by the accused just for the sake of property and financial assistance that he would receive from the family of Uthra.
The Court, in this case, debated on whether the case falls under the ambit of rarest of rare cases and whether the nature of the crime is such that the collective conscience of the people is shaken. While analysing these questions in the light of mitigating circumstances in the favour of the accused, the Court concluded that the crime of the accused does not warrant the death penalty.
Now that we have understood the background of the case, let us try and understand the case in detail.
State of Kerala v. Suraj S. Kumar (2021)
Brief facts
The version of the prosecution
The accused married the deceased, “Uthra” who was a differently-abled lady with the intention of obtaining financial gains, i.e., financial assistance that he would receive from her family post-marriage. After the birth of their first child, he sought to get rid of the deceased and in furtherance of it, he planned and committed an act of murder.
The accused plan to kill the deceased by subjecting her to a venomous snake bite to avoid suspicion of foul play. In furtherance of the same, he contacted an individual over the internet for purchasing a venomous snake from him, i.e., a Viper for ₹10,000.
In his first attempt, he placed the snake on the stairs and waited for the victim to pass through and get bit. However, the deceased saw the snake and raised an alarm. The accused thereafter captured the snake but instead of getting rid of it, he kept it in his possession.
A few days later, the accused mixed some sedative tablets in the deceased’s food and when she was asleep, he released the snake on her body as a result of which she was bit by the snake.
The deceased woke up and cried for help but the accused did not take her to the hospital, thereby deliberately delaying medical aid to her.
She was taken to the hospital by one Mr. Sujith and after a continuous treatment of 52 days, her life was saved and she recovered completely.
After having failed twice with the Viper, this time, the accused purchased a cobra from the same individual for ₹7,000. He deliberately kept the cobra hungry before he took it to the house of the deceased. He once again mixed sedatives in the juice of the deceased and once she was asleep, he released the cobra onto her as a result of which she was bitten twice. He then deleted all call records with the individual from whom he purchased the snake and also removed traces of the sedative from the juice glass by washing it thoroughly.
She was found dead in the morning by her parents. Thereafter, she was taken to the hospital by her parents and the doctors declared it as a medico-legal case. On post-mortem, it was found that the cause of death was cobra envenomation, i.e., death by poison of a cobra.
At the time of the death, the brother of the deceased had filed an FIR for unnatural death under Section 174 of CrPC and a preliminary examination of the scene of occurrence was conducted by the police. After the deceased’s body was cremated, her parents suspecting foul play lodged a complaint regarding the same before the Rural District Police Chief, Kollam and during the investigation, the plastic jar used to keep the cobra was recovered.
Based on the evidence and the investigation report, the Sessions Court charged the accused under Sections 302, 307, 326 and 201 of the Indian Penal Code. However, the accused pleaded not guilty and denied all the incriminating circumstances/evidence that was filed against him.
The version of the accused
The accused stated that the individual from whom the prosecution had claimed snakes were brought from had actually visited him for the purpose of vehicle sales. He further stated that snakes were seen regularly in the vicinity of his neighbourhood and the individual, who had a certain expertise in this area, was asked to check for snakes in the house but he found no snakes.
On the day of the first incident of snakebite, he claimed to have been outside with his friends. When he came back home, the deceased complained regarding pain in her leg and stated that she was bit by something while she was washing clothes outside the house. He gave the deceased some medication for pain and she slept. Later in the night, when she complained of unbearable pain, he informed Mr. Sujith and took her to the hospital. However, the hospital reports did not mention that she was bit by a Viper.
On her discharge from the hospital, she requested to stay in her parents’ house. The accused slept in the kitchen while the deceased had slept with her mother along with the infant child. The deceased had asked for the windows to be opened as she was facing some difficulty adjusting to the AC.
He further claimed that there were several CCTV cameras installed in the house and the entire incident was captured in the CCTV. However, the CCTV footage available with the police had no incriminating evidence against him. He further claimed that the family members were falsely accusing him because of disputes regarding property and the custody of the child.
Issues
Whether the death of Uthra was a result of Cobra envenomation?
Whether the accused intentionally caused Viper bites over Uthra and is, therefore, guilty of an attempt to murder?
Whether the accused intentionally caused Cobra bites over Uthra and is therefore guilty of her murder?
Observations of the Court
The Sessions Judge ruled in the favour of the prosecution and held that the accused is guilty of all the offences that he was charged with. In light of the same, the Court made the following observations:
The accused had pre-planned the murder of the deceased. He did not even take into consideration the fact that the deceased was still recovering from the Viper bite.
The accused and the deceased were alone in the same room on both occasions, i.e., the night of the Viper bite and the night of the Cobra bite.
The accused had purchased venomous snakes in order to murder the deceased and was looking for the right opportunity to strike in the guise of being a loving and caring husband.
The accused had on both occasions sedated the deceased by mixing drugs in the food/juice and had attacked only when she was in deep sleep. The deceased drank/ate the same mistaking it to be the love of her husband.
The act of commission of murder by the accused was diabolic, cruel, heinous and dastardly. He committed the murder by adopting a method of unparalleled wickedness.
Final decision of the Court
The punishment for murder as provided under Section 302 of the Indian Penal Code is death or imprisonment for life with a fine. Section 354(3) of the CrPC states that if the Court order a death penalty or life imprisonment, the judgement should mention the reasons for which such punishment is being prescribed. This provision is stricter w.r.t death penalties as in such cases the judgement should state the special reasons on account of the death penalty is being prescribed. In this regard, the Court noted that life imprisonment is a rule to which the death penalty is an exception.
The Court cited the case of Macchi Singh v. State of Punjab (1983), wherein it was observed by the Supreme Court that for awarding the death penalty, the crime should be of such a nature that the collective conscience of the people is shook. In light of the same, the Court laid down certain guidelines for ascertaining the nature of the crime. These guidelines include the following factors:
Manner of commission of the crime.
The motive for the commission of the crime.
Socially abhorrent nature of the crime.
The magnitude of the crime.
The personality of the victim of the crime.
The Court further referred to the case of Bacchan Singh v. State of Punjab (1980) wherein it was held that the death penalty should only be inflicted in the rarest of rare cases and the circumstances of the offender that led him to commit the crime should also be taken into consideration along with the circumstances of the crime.
The Court after citing these cases noted that for awarding the death penalty, firstly, the case should fall under the category of rarest of rare cases and secondly, the punishment of life imprisonment is not suitable to the crime. It further noted that the death penalty should be awarded only as a last resort.
The Court also cited the recent case of Abdul Mannan v. State of Bihar (2019) wherein it was observed that while determining if a particular case falls under the ambit of rarest of rare cases, the circumstances of the crime along with the state of mind, socio-economic background etc of the criminal should be taken into consideration. Herein, the Court had reiterated the principle that life imprisonment is a rule to which the death penalty is an exception. It was further observed by the Court that while awarding a death penalty, the Court has to ensure that such an action is required because if the criminal is not subjected to death, he would remain a threat to the society and there is no possibility of reformation and rehabilitation of the criminal.
In light of the aforesaid precedent, The Court thereafter looked into the mitigating circumstances in favour of the accused. The Court noted that the accused was only 28 years old, he had no criminal antecedents and nor was he part of any offence of grave nature of moral turpitude in the past.
The Court noted that because of the young age of the accused and the absence of criminal antecedents, it cannot be deemed that the accused would be a threat to society. The accused had the time to reform and transform himself into a better man. In light of the same, the Court noted that it was not imperative that the accused should be subjected to the death penalty and held that imprisonment for life would be the appropriate punishment in this case.
Death penalty v. life imprisonment : appropriateness
As stated in the case of Macchi Singh, the death penalty should be awarded only in cases where the crime is of such a nature that the collective conscience of the people is shaken. The question, in this case, was whether the collective conscience of the people is shaken by the nature of the crime and if yes, whether life imprisonment in light of the mitigating circumstances was an appropriate punishment?
In Arvind Singh v. State of Maharashtra (2020), the Supreme Court noted that the possibility of rehabilitation and reformation should be examined along with the nature of the crime, i.e., whether the crime falls under the rarest of rare cases and whether it shook the collective conscience of the people. In light of the same, the Court commuted the death penalty of the accused to life imprisonment. The offence in question was the kidnapping and murder of an 8-year-old boy.
In Ravi Ashok Ghumare v. State of Maharashtra (2019), the Division Bench of the Supreme Court gave a split verdict. The offence in question was the rape and murder of a 2-year-old girl. While Justice Subhas concurred with the view of the High Court and confirmed the death sentence on the ground that it falls under the ambit of rarest of rare cases and the collective conscience of the people is shook, Justice Surya Kant commuted the death penalty to life imprisonment on the ground that there was an absence of criminal antecedents on part of the offender.
Conclusion
The Right to Life is a fundamental right and the Courts should exercise extreme caution when they are depriving someone of this fundamental right. The question of whether the murder of Uthra was socially abhorrent in nature so as to constitute the death penalty, is a question of fact and the opinion on this may vary from person to person.
The Court in this case has formed its opinion of the basis of the absence of criminal antecedents and chance of reformation. It is pertinent to note herein that the process of reforming a convict was declared as a part of the Right to Life under Article 21 of the Constitution. In light of the same, the Court has weighed its support in favour of the accused.
“It has become appallingly obvious that our technology has exceeded our humanity”- Albert Einstein. We can call globalization an International Integration. Which has increased the mobility of persons, goods, capital, data, ideas, population migration, the growing importance of Multinational Corporations, easy access to financial markets around the world, development of advanced means of communication, and undertaking World trade. We can call it the formation of a single society instead of a diverse world. The New economic policy of India adopted Liberalization, Privatization, and Globalization impacting major sectors of the Indian economy. The country has become more competitive especially in the field of Information Technology and information technology-enabled services.
Technology and globalization turned our economy into a dynamic, complex system. Globalization led to a transfer of knowledge and technology which transformed our communities and led to economic growth through global competition.
Advances in technology are the main reason that globalization has escalated in the last decade. In present information and communication technology, innovations have become smaller in size, more efficient, and often more affordable. In transport technology, vehicles have become faster and larger, as well as becoming more environmentally friendly and cheaper to run. Whether for personal use or business, technology has made the world seem a smaller place and assisted in the rise of globalization.
The economy is in the midst of rapid transformation, the internet, mobile technology, social media, and big data have unleashed a wave of innovation, and it has created thousands of new startups and reinvented traditional industry.
Technology is transforming business and society. Technology is becoming ubiquitous.
To some extent we need to balance between the use of technology and how it impacts the status quo. For example; when the tractors came into the field, we saw a lot of farmers that were displaced. Because one tractor can do the work of a thousand humans. So we need to economically analyze the net value and the net cost when a particular technology emerges in the industry.
We all know that when the steam engine emerged it changed the manufacturing sector, so we cannot forget that we have seen over time that technology has changed situations and become leverage for progress. Unfortunately, the consequence is that there is the displacement of jobs but at the same time there is the creation of new ones. The sharing economy has enabled new jobs.
Today’s situation is the first stage of how society might look in the next 5 or 10 years. If the sharing economy works to its fullest capacity there is a possibility that in the future people might drive cars less, own cars less, own fewer apartments as advancement in AirBNB, etc., Due to technology we are seeing people freelancing more, working from home, changing ownership model of cars and transportation seems to be changing rapidly. Sharing economy will contribute to economic growth. Now we are in the era that we have seen the IoT (Internet of things), our sensors are monitoring everything and creating data. We are seeing more and more companies looking at that data, analyzing that data. Technological innovation has helped create new positions like data scientists that never existed 10 years ago.
Space is also likely to become a good investment looking at the big tech companies drivers like Elion Musk, Jeff Bezos who are investing very heavily in space. But the immediate need of the people is to understand how to look at the data analyzed and make actionable insights from data is the rapidly growing trend.
The positive and negative impact of technology and globalization
Spreading the know-how
Globalization using technology has benefited the spread of knowledge and technology, it has helped spread growth potential across countries.
Outsourcing
Off source, work has become possible using computers and the internet, which helps the companies spend less than ever.
Eg: US companies find it more profitable to contact IT software in countries like India as their services are cheaper.
Faster collaboration
With the growing popularity of devices like smartphones and personal computers, companies can collaborate more frequently in so many more ways than ever before.
E-business
New business models like online shopping have replaced the old trend of doing business. This resulted in more diverse customers around the world and the transaction has become efficient.
Wide choice of potential employees
Websites like Indeed and LinkedIn enable companies to choose from a wider range of skilled human resources which makes them focus on the needed skills rather than campaigns.
Improved shipping
Gives better seashore collaboration and the best possible business flow. It lowers cost and improves vessel and environmental performance saving fuel with shorter route detection.
Increase in per capita income
The per capita income of Indian households has increased after globalization. Increased standard of living and improved purchasing power.
More choices for the consumer
Many new products from different countries reached countries that are remotely placed and thus gave more choices for the consumer to choose from.
The negative impact of technology on globalization
Destruction of environment
We are all aware that the race for globalization has put a blind eye to the impact that it is causing on the environment. Many green pastures have been destroyed causing an increase in greenhouse emissions.
Greater risk of spreading communicable disease
With the increase in technology and transportation, the chance of spreading a communicable disease has increased. Covid-19 is a classic example that forced almost the entire world to terminate their transportation services. There is a loss of almost $4 trillion to the global GDP for the years 2020 and 2021 according to the UNCTAD report published on 30 June 2021.
Multinational corporations and their influence through lobbying on foreign policy
Most of the MNC’s influence the government and suppress them from passing any laws that do not favour the MNC’s. Due to monetary power, the MNC’s indulge in activities in formation and collapsing a democratically elected government.
Agriculture has remained undermined
Despite an increase in technology and globalization, the basic sector like agriculture remained underdeveloped causing a lot of poverty and suicidal death in farming communities. Agricultural communities are not absorbed into technological innovations and they are left on their own.
Business security concerns
As company data is usually backed up to cloud business around the world has become more vulnerable especially with their private data.
Lack of job security
Technology has made job security a big issue as technology keeps on changing every day which means individuals need to keep up with the changes in their profession.
Lower wages
Companies can search all across the globe for the lowest price labour so in some cases you will receive lower wages for a job that should be paid a higher rate.
Cultural imperialism
Rich countries are generating more content on the internet; it becomes a form of cultural imperialism in which western values usually dominate. The cultural aspect of globalization is destroying our culture and values. Swami Vivekanand once said one should learn science from the west and let them have a deep sense of our rich moral values.
Social aspect
Nowadays foreign deputation is of high value which youths cannot resist. They finally lose touch with their parents.
Destruction of local industries
Companies take advantage of cheap labour in certain locations which destroys local industries.
Conclusion
No matter how good our technology is there will always be a drawback. It is necessary to have a second-generation economic reform and reduce the negative impact of globalization due to technology on the global communities. Instead of countries focusing on becoming a global economic power it would be a good place that we consider the world as one place and push for the good of all humans as a whole.
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This article is authored by Akash Krishnan, a student from ICFAI Law School, Hyderabad. It discusses in detail the importance of intention in forming legally binding contracts.
Table of Contents
Introduction
An offer plus an acceptance to the offer make an agreement. But not all agreements are contracts. An agreement must be enforceable by law to make it a contract. An agreement is eligible to be enforceable by law when the following factors are satisfied:
Intention to create a legal relationship between the parties;
Lawful consideration and lawful object;
Capacity to contract;
Free consent;
The agreement is not declared void or illegal;
Certainty of meaning;
Possibility of performance of an agreement;
Other necessary legal formalities.
Intention to create a legal relationship
When two or more parties enter into a contract, one of the essential elements is that the parties should have an intention to create a legal relationship between themselves. An agreement will never reach a stage of a contract if there is no intention to create a legal relationship between the parties. So, for an agreement to become a contract, it is imperative that the parties who are entering into the contract must have an intention to create a legal relationship with each other. The intention should be such that if any of the parties do not perform their obligations then the other party can initiate legal proceedings against the defaulting party.
The Indian Contracts Act 1872 does not have any express provision to define the concept of ‘intention to create legal relationships’ between the parties. But over the years there have been several national and international precedents wherein it was held that to create a binding effect over a contract, parties must have an intention to create a legal relationship.
Importance of the intention in creating a legal relationship
The material aspects that govern the concept of intention is:
The parties cannot sue each other in the absence of intention.
If the intention to create legal relations is absent then the contract is a mere promise.
The contract will not have a binding effect if there is no intention to create legal relations.
In Balfour vs. Balfour (1919), the principle of intention to create contractual relation was explained by Lord Atkin as: ‘Not all agreement between the parties results in a contract because their meaning is not termed according to law. In these circumstances, nobody can suggest whether there is a binding contract or not and one of the most common forms of such agreement is the agreement between a husband and a wife or an agreement within the family. This type of agreement can never fall within the ambit of a contract even though there is a consideration as there is no intention between the parties to bear legal consequences.’
The sources of contract law have laid down two tests to determine the existence of an intention to create legal relation
Objective Test – In this, the court will form an opinion based on how a reasonable person would think, the type of circumstances at that time, and what was the intention of the parties.
Rebuttable presumption – In several cases such as family/social agreements the court has a presumption regarding the intention to create a legal relationship, but this can be rebutted on the basis of facts and circumstances.
Test of Objectivity
The test of contractual relations should always be objective and not subjective. In the objectivity test, it doesn’t matter what parties intend but what a reasonable man at the time creating a contract will think. The court will look at the perspective of a reasonable man and not the intent of the parties.
Simpkins v. Pays (1955)
In Simpkins v. Pays (1955), a mother, her daughter and their paying guest decided to participate in crossword puzzles, all in the name of the mother. The expenses for the same were contributed by all the women at that time, without any obligations. They won one of the games, but the mother was reluctant to share the prize money with her daughter and the paying guest. The Court, in this case, held that any prudent man considering this situation would have thought that there must be an intention to share the prize. Therefore, the mother was bound to share the prize with the daughter and the paying guest.
Carlill v. Carbolic Smoke Ball Company (1893)
In Carlill v. Carbolic Smoke Ball Company (1893), Defendant published an advertisement stating that a 100 pounds reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic influenza colds or any diseases caused by catching a cold after having used the Carbolic Smoke Ball three times daily for two weeks. On seeing this advertisement, Mrs. Carlil, the Plaintiff went and bought at the chemist’s one of the smoke balls. She used it three times daily for two weeks according to the prescribed direction supplied. However, she contracted influenza. Mr. Carlil filed an action to recover the 100 pounds. The trial judge passed an order in favour of Mrs. Carlil.
The Carbolic Smoke Ball Company appealed to the Court of Appeal and the appeal was dismissed on the ground that the offer in the advertisement coupled with the performance by the plaintiff of the conditions specified therein created a valid contract on the part of the defendants to pay the 100 pounds mentioned in the advertisement and the plaintiff was entitled to recover the 100 pounds.
Lord Justice Bowen was of the view that, although the offer is made to all the world, the contract is made with that limited portion of the public who come forward to accept the offer, as any prudent man who reads the advertisement would presume that there is an intention to create a contract with the company.
Let us now look into some instances wherein the intention of the parties plays a crucial role in determining the existence of a contract.
Family or social agreements
In cases of family or social agreements, the intention of the parties is evaluated according to the terms of the agreement and the circumstances in which the agreement was entered into. In these types of agreements, the Court has to decide whether there is an intention to create a contractual relationship or not. Most of the time, a family agreement or a social agreement does not intend to create contractual relations except in cases of separation or splitting up.
Agreement between husband and wife
Agreement between a husband and wife is an example of family and social agreement. Most of the time an agreement between husband and wife does form a binding contract. Let us now discuss some landmark cases in this regard.
Balfour v. Balfour (1919)
Brief facts
The defendant and his wife were enjoying their leave in England. But due to some circumstances, the defendant had to return to Ceylon and he and his wife had to stay in England for medical reasons. The defendant agreed to pay some amount for probable expenses. With time differences arose and their relationship soured due to which the husband stopped sending expenses to his wife. The wife initiated legal proceedings against her husband to enforce the agreement.
Order of the Court
The Court held that this agreement was purely domestic and social and neither of the parties was legally bound as there were no express terms to create a legal relationship between the parties.
But the agreement between husband and wife does always depend upon the presumption; sometimes it is rebutted depending on each case’s facts.
Exceptions
Mcgregor v. McGregor (1888)
In Mcgregor v. Mcgregor 1888, a husband and wife withdrew their complaints under an agreement by which the husband promised to pay her an allowance and she was to refrain from pledging his credit. This agreement was held to be a binding contract
Agreement between parent and child
Agreement between parent and child is also an example of family and social contract which is presumed to be an example of social agreement and does not have the effect of a binding contract. Let us now discuss some landmark cases in this regard.
Jones v. Padavatton 1969
Brief Facts
In Jones v. Padavatton 1969, Padavatton, a divorced woman, was living in Washington, USA, with her son. She had a good job as an accountant in the Indian Embassy. Jones was Padavatton’s mother who was living in Trinidad and she wanted her daughter to leave the USA and be a barrister in England and then return to Trinidad. Jones promised to pay $200 per month to her if she comes to Trinidad after becoming a barrister from England. Padavatton agreed to do this and Jones paid her bar tuition fees @ £42 per month. Later, Jones proposed to purchase a house where Padavatton and her son could live and also let out leftover rooms to derive income from tenants. But the differences grew between Jones and Padavatton when she was not able to complete her legal education within 5 years and she also remarried during her education. Jones cut down the allowances and also initiated legal proceedings against Padavatton to evict her from the house. The issue before the Court was whether there was a contract between Jones and Padavatton allowing possession of the house.
Order of the Court
The Court, in this case, held that this is a family arrangement that draws its essence from good faith of the promise which is not made to form a binding agreement. In the light of the same, it was held that there was no intention to create a contractual relationship between the parties
Exception
Although the agreement between the relatives is an example of the social agreement in certain cases it is rebutted on the basis of facts and circumstances.
Parker v. Clark 1969
Brief Facts
In Parker v. Clark 1969 The Clarks were an elderly married couple. Mrs. Parker was Mr. Clark’s niece. Mr. Clark suggested that she and her husband move in together with them. Mr. Parker supported the idea but expressed concern that if they move in, they need to sell their house. Mr. Clark wrote to Mr. Parker stating that the Clarks will bequeath their home to Mrs. Parker, that her daughter, the Parkers, and in furtherance of the same, they sold the house and moved in with Clarks. But, after some time this started falling apart and the Parkers were denied their share of the house. The Parkers initiated legal proceedings for breach of contract.
Order of the Court
It was held that since the action of the niece and her husband were very serious and there was an intention to create a legal relationship between the parties. Hence, the Clarks cannot deny the share to the Parkers.
Commercial agreement
The other presumption is that commercial agreements are intended to create a legal relationship between the parties. It is generally presumed that whenever a business transaction is involved there is an intention to create legal relations between the parties.
Esso Petroleum v. Commissioners of Customs and Excise 1976
Brief Facts
In Esso Petroleum v. Commissioners of Customs and Excise (1976), A promotion campaign was advertised by Esso Petroleum that a free coin from the world cup collection coin will be given on the purchase of four gallons of petrol by any person. The issue that arose was whether there was enough quantity of coins produced to be given in resale and if so whether it will attract tax liability.
Order of the Court
The Court held that the coins were offered in a commercial context and thus there was an intention to create a contractual relationship. In this case, it was observed that coins were not given in exchange for money therefore there was an intention to create contractual relations but there was no consideration involved.
Exception : Comfort letter
Kleinwort Benson Ltd.versus Malaysia Mining Corporation 1989 case
Brief Facts
In this case, Malaysia Mining Corporation Metal Limited, which was a fully owned subsidiary of Malaysia Mining Corporation approached the claimant bank Kleinwort Benso for a loan. Since Malaysia Mining Corporation Metal Limited was a new company, the bank approached Malaysia Mining Corporation (Parent Company) to act as a guarantor. MMC Bhd refused to be a guarantor but instead handed a letter of comfort to the bank in view that MMC Bhd ensures that their subsidiaries are always in a good position. Subsequently, MMC metal ran into bankruptcy and the Bank initiated proceedings against MMC Bhd to recover the loan based on a comfort letter.
Order of the Court
The Court held that there is no legal effect of a comfort letter. It was clear when the MMC Bhd refused to be a guarantor that they did not intend to be legally bound.
Conclusion
In various judicial pronouncements, the court was of the view that there should be an intention to create a legal relationship between the parties. This intention can either be presumed or need to be proven with the help of facts and circumstances. The position of intention is different in common law and Indian law. In common law intended to create a contract is an essential part to form a binding contract and consideration in a contract only has an evidentiary factor. In Indian law, the scenario is different, in India consideration is considered an essential part of a contract, and the existence of consideration proves intention to create legal relations.
There is a thin line of difference between commercial contracts and family/social agreements. Therefore, due to this thin line of difference, it will be difficult for Indian courts to determine the existence of an intention to create legal relations as even in family contracts there will be an essence of consideration that will overlook the existence of intention.
We live in the world of the internet. In the post-modern society where computers are a necessity, the world feels crippled without the existence of the internet. With more personal and sensitive data of citizens up on the internet, there is an increased demand for cyber security which consists of penetrating the system and testing its cyber security defence against potential threats. This system of penetration testing is well known as hacking. Historically, hackers have been put across as evil guys and the same has been further confirmed by the number of movies and television series which portray the same. While hacking in general is to crack the password and get into the system to check for any security threat within the system, hacking has received a lot of negative attention over the years. A lot of this is primarily because a lot of hackers use their skills for malicious purposes and leak sensitive information which costs the organizations millions in costs and damage control every year.
Who is a hacker?
The term ‘hacker’ was first used by tech journalist Steven Levy in 1984 through his book called ‘Hackers: Heroes of the Computer Revolution. A hacker is an individual who is highly skilled and creative in terms of being able to solve computer-related technical issues. While hackers could also include someone, who utilizes their skills to gain unauthorized access to someone else’s system to commit a crime. The definition of who a hacker is has changed radically over the decades. Hence, the term ‘hacker’ has had a divisive meaning. While some look at them with admiration because of their skills, another group of people looks at them as anti-social elements who use their skills to carry forward an unethical act. The term ‘hacker’ was first used in the 1960s to describe someone with high technical capabilities and a really good understanding of computers and networking. Although hacking is so well received by today’s world that today many top universities now provide specialized courses on hacking, the majority of the hackers are self-taught.
History of hacking
The term hacking did not originate from computers. The first computer hackers came into existence in the 1960s. During those times computers were used in temperature-controlled rooms and it was really expensive to run a computer and not everyone had access to a computer. A group of students from MIT was desperate to learn how computers worked. So, they created programming shortcuts and called them ‘hacks’. They were used to complete all the computing tasks quickly. Some of these hacks created by the students were better than the original programs. By the 1970s the world was equipped to welcome hackers. While hacking gained recognition, hackers made some serious money and were in demand, the first mainstream hacking was done by a Vietnamese person named John Draper where he found a way to make free phone calls. In the 1980s hacking reached heights of its popularity. For the first time in 1981, personal computers were introduced by IBM which led to a drastic increase in the usage of computers worldwide, especially in the US market. The personal computers were equipped with memory storage and a Central Processing Unit along with other inbuilt software.
How does hacking work?
Hackers are well versed with technical issues and they use the same skills to test or exploit cybersecurity systems. They acquire coding skills to understand how technology functions. Ethical hackers use their skills to test the security systems in the cyber world and check for possible vulnerabilities. They then determine the security drawbacks and advise where governments and other organizations should work to boost their security strategies to keep any threat factors away. Hacking, therefore, is today considered a profession with a lot of potentials. While professionals who carry forward their work ethically are an asset there are instances where hackers steal sensitive information and financial information thereby disrupting and causing serious havoc. They even impersonate others to gain confidential information. They may also use their technical skills to install dangerous malware or to steal and destroy the data thereby compromising the cyber security of the organization leading to serious disruptions in the services provided by the organizations.
Law and hacking
Hacking is not a new concept or a crime that has arisen overnight. Most countries do have penal provisions to regulate and address hacking or provide for appropriate punishments. The last few years have witnessed a lot of convictions for crimes related to hacking. There are also instances where hackers have caused massive damage yet are let out scot-free despite their identities not being secret. While most countries including India have penal provisions where hacking is held as a criminal offence, hacking done for ethical purposes is barely addressed in the law. Nor does ethical hacking have any rich jurisprudence. The huge increase in cases involving cyber-attacks has led to a need for a comprehensive legal framework providing a holistic approach towards ethical hacking. When a hacker hacks into someone’s system with the prior permission of the owner and does so with good intent to check for the weaknesses in the cyber security of the system, then such a kind of hacking is ethical in nature and should not have any legal consequences. However, if the hacking goes beyond the permissible limits then it should be considered a criminal act. Under the Information Technology Act, Section 43 and 66 define hacking and provide for a punishment of imprisonment up to 3 years or a fine of up to five lakh rupees. However, given the evolving nature of crime and increasing use of technology, India needs a more stringent legal framework regulating cyber-attacks including hacking.
Is ethical hacking a crime in India?
Hacking contravenes the underlying principles of the Indian legal system. Ethical hacking can be understood as the process of hacking a system with the permission of the owner of the system or software for ethical purposes. This could include breaking into a system to check its working efficiency, security level and identify the weaknesses in the software. Ethical hackers are also known as ‘white hat hackers. In ethical hacking, there is no criminal intent present. Under the Indian laws, to hold one accountable for a crime, there needs to be a criminal activity tagged along with a guilty mind or a wrongful intention. Additionally, the Indian laws do not make a mention of ethical hacking therefore the concept enjoys a neutral status. However, from a constitutional perspective, Article 21 of the Indian constitution provides one with a right to privacy which is being infringed when one hacks a system. However, if done with the consent of the owner, then one can’t be held liable. The upcoming Personal Data Protection Bill will also redefine the ambit of this profession cum crime and provide adequate remedies for citizens.
Hackers : heroes or a menace
Hacking should ideally be used to benefit the digital landscape. Initially, hackers were neither destructive nor doing the world a great favour. Steven Levy terming hackers as heroes were considered a bold move against what his publisher advised him. In his book, he goes on to say that they are adventurers and risk-taking artists. Even within the computing society, being called a ‘hacker’ was not looked at as a matter of pride. Even today the majority of the people look down on hackers as a menace or an anti-social element trying to extort or damage the interests of the citizens and the society. Hackers can be of great help even to the government. A good hacker helps in identifying the flaws with the software. They are a necessary component of cyber security. They can help solve some serious security issues than what a security solution could ever do. Some governments and national intelligence agencies take the help of hackers to try to break into enemy nations’ security systems to leak various defence and other sensitive information.
Conclusion
There is no doubt that the internet has undergone an astonishing change and undisputed growth. Yet without it being regulated, it could create a menace causing more destruction than benefit. With the internet being easily available to anyone and the increased usage of unsecured systems, hacking looks like a guest who is here to stay. Increased cyber-crimes are a reality of the 21st century. Hackers are often portrayed negatively while some of them help society by preventing anti-social elements disrupt services. Further, another group of hackers who have the same set of knowledge use their skills to cause destruction. One cannot generalize hackers as ‘bad’ or ‘good’. It is the ethos they carry with them which determines whether they serve as a vigilante or a spy. It would do a favour to the planet if all the hackers supporting the cybercriminals would come out of their dark paradise and contribute towards helping an already existing community to make the world of cyberspace safe and secure for all of us.
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The Three Circle Approach is a worldwide recognised standard model for successfully conducting family businesses. This is made up of three primary components: family, company, and ownership, and it is the foundation of any family firm. Strong communication and long-term commitment are seen in the business. Each circle; family, business management, and ownership has its own governance structure and developmental stages. Renato Tagiuri and John Davis are said to have created the model in 1978 at Harvard Business School.
However, to know the title “Understanding the Three Circle Model for Family Business and it is relevance in today’s time”, especially when compared to the Indian context can be cleared by knowing – Birth of 3 circle Model,How 2 circle model becomes 3 circle model, Understanding 3 circle model, Time Tested, Indian Family Business– Understanding, Business main communities, Present day times, Financial Performance, Conflicts and Legal entanglements, Contribution to India’s GDP, Conclusions and Recommendations.
Birth of 3 circle model
The Three Circle Model is a globally accepted standard model for operating family businesses successfully. This has Family, Business and Ownership as its main components and these form the pillar of any family business. These circles are exclusively inter-dependent and resultant of all. This results in strong communication and commitment for the future. Each circle – Family, Business management and Ownership, has its own governance structure and has its own stages of development. Each member of the family contributes to different stages of development. It is claimed that the model was first developed at Harvard Business School by Renato Tagiuri and John Davis in 1978.
How did the 2 circle model become the 3 circle model?
The Two-Circle Model recognised the interdependence of family and business, as well as the need for family and company goals and interests to be aligned. This approach also made it easier to comprehend the uncertainty that individuals and the system might experience because of the clashing of family and corporate norms. The two circles fell short of capturing the interactions and tensions they observed in the family business systems which ranged from a fledgling retail operation owned and run by its husband-and-wife founders to a late-generation manufacturing empire owned by cousins with a large number of non-family executives. Examination of various family business situations revealed whether the three circles can appropriately characterise these systems. The Three-Circle Model not only fits non-family employees who were awarded minority shares, but also helped anonymous public owners of listed family companies understand their perspectives, aims, and concerns. With the advent of the third circle- ownership- additional attention could be given to topics that were not expressly addressed by the previous two circles. The term “success” referred to the process of transmitting leadership and ownership from one generation to the next. Owner buyouts have helped to resolve certain difficult situations. Bringing in outside investors to help a family business grow was sometimes necessary. The family business system, which is the integration of all three subsystems, has now been fully defined by connecting the family, company, and ownership circles.
These three rings have been sketched for forty years by academics, business families, and their advisors to get insight into the inner workings of their family businesses and business family connections. The three circles can be used to describe all family business systems, and each family business system can be described uniquely using this framework.
This design (along with the addition of the ownership circle) also served as the basis for Tagiuri and Davis’ definition of family businesses: “A family business is one whose ownership is controlled by a single family and in which two or more family members, through their managerial positions, ownership rights, or family duties, have substantial influence over the company’s direction and policies”.
A three-circle perspective was required to arrive at this definition. The model of ‘3 Circle Model for Family Business Management’ is depicted in Figure 1.
In a family business system, an individual is assigned to one of the seven sectors formed by these three overlapping rings. Within the top circle, only an owner (partner or shareholder) will sit. The left-hand circle will be occupied by family members, while the right-hand circle will be occupied by employees of the family business. You will only be in one circle if you only have one of these roles. If you have two jobs, though, you will be in an overlapping sector, sitting in two circles at the same time.
You’re in the bottom-centre sector if you’re a family member who works in the firm but has no ownership position. You will sit in the centre of the three overlapping circles if you are a family member who works in the business and is an owner.
“Think about different responsibilities that family members have: being a family owner, or a family employee,” Davis continues, “and think about where critical people are placed in the system.” Role overlaps and potential role confusion are shown by these overlap areas in the Model.”
Each of the Model’s seven interest groups has its own set of opinions, aims, concerns, and dynamics. The Model reminds us that each sector’s viewpoints are valid and should be acknowledged. No one point of view is more valid than another, but the various points of view must be combined in order to determine the future path of the family business system. The functioning and reciprocal support of each of these groups are critical to the long-term survival of family business systems.
Seven separate interest groups (or stakeholders) with a connection to the family business can be depicted using the Three-Circle Model:
Family members who are not active in the business but are descendants or spouses/partners of the proprietors but are not employees.
Family members that are not employed in the company.
Non-family business owners who don’t work in the company.
Non-family business owners that work in the company.
Employees who are not related to you.
Members of the family who work in the company but are not proprietors.
Business owners who are members of their family.
Time tested
How can a 40-year-old model still assist us in understanding and managing difficulties in today’s family business systems, when so much in business, technology, wealth, family, and society has changed?
Part of the reason why the Model has endured the test of time and remains relevant today is that it is adaptable in its original form. The Model provides for this as society’s notion of “family” evolves. In-laws, blended families, divorcees, adoptions, domestic partners, and whomever the family refers to as a member of the “business family” due to ownership ties — all these positions are consistent with the Model.
Similarly, the ownership circle can allow a wide range of possibilities. The Model enables changes in ownership when a family firm goes public or invites a private equity partner. The Model considers if the corporation issues several classes of stock (voting and non-voting) and holds some of the shares in a trust. The Model accommodates joint ventures, mergers, acquisitions, and other sources of money that affect the ownership circle today since families have many different financial options.
Many businesses have changed dramatically during the last 40 years, but the Model’s business circle is adaptable: it can represent one or numerous enterprises, holding companies, joint ventures, and more. It can also refer to a circumstance in which a family firm has sold its operating company and is now managing its financial assets as a separate corporation. The family may be in a new line of work, but it is still their line of work. The “company” circle can be renamed the “family office,” and the paradigm remains valid.
The changing environment will continue to shape enterprises, ownership groups, and families as the pace of change, globalisation, technology breakthroughs as disruption increases around the world. The Three-Circle Model will continue to adapt to this change.
Indian family business
Understanding
Recorded business evolution and growth activities are seen with the exchange of goods from around 5000 B.C. exchange of goods for goods are known as the barter system. The barter system is not called business as no purpose of making profits is seen. People were satisfying the requirements of each other. The beginning of a business is seen from the time of the Indus Valley Civilization.
The period of Indus valley civilization was 3300 BC to 1700 BC. The first known civilization from where the roots of business started. Agriculture was the main occupation of the people. They used uniform weights and measures and traded with other cities. Besides farmers, other classes of people such as barbers, carpenters, Ayurveda doctors, goldsmiths and weavers existed. The business happened from generation to generation. Family businesses were seen during the Maurya Empire (321 to 185 BCE) and during the Islamic period (1206- 1750). Hence the family business seems to have existed in India for ages. It is a known fact that many communities in India are called by the profession’s name and families have even tagged the initials which they have acquired from generations.
Main business communities in India
Sindhi
Sindhis have a long business history, dating back to the Indus valley civilizations of Mohen Jo Dharo and Harappa. Trading coins were discovered alongside antiquities and modern architectural prototypes, giving Sindhis the identity of a peace-loving and money-making community. Sindhis are from Sindh, which is located on the banks of the Indus River in modern-day Pakistan. In fact, the term Indus is an anglicised version of Sindhu, from whence the phrases Hindu, Hindustan, and India were derived. As a result, when India was partitioned in 1947, most Sindhis came to India and were identified as Hindu Sindhis.
Marwari
The sinking roots of a group of Bania/Jain merchant castes from Rajasthan’s Marwar (Jodhpur), Bikaner, and Shekhawati desert tracts into the economic environment embracing nearly the entire country is a remarkable event. The Agarwals, Oswals, Maheshwaris, and Khandelwals of this area – loosely grouped under the term ‘Marwari’ – were confined to their homeland as local shopkeepers and moneylenders, if not army food suppliers and financiers for various Rajput princely regimes, until approximately the 16th century.
The latter function was critical in extending their reach to new regions. They sometimes accompanied Rajput forces connected to Mughal armies as ration suppliers and paymasters, which opened up possibilities for setting up shop all throughout the Gangetic plains and the Deccan. Even the several independent, but cash-strapped, princes that sprang from the ruins of the Mughal Empire were financed by Marwari bankers as early as the 18th century. As a result, the Jagat Seths became treasurers to the Nawab of Bengal, just like the Gopaldas Manohardas financed the Kingdom of Benares and the Ganeriwala and Pittie families cultivated a relationship with the Nizam of Hyderabad. They usually lent against the security of ijara, which are land revenue-farming rights allocated to a certain region.
Gujarathi
Gujaratis’ creamy layer accounts for 9.34 per cent of the country’s total. Gujaratis appear to be one of the most powerful communities in terms of wealth creation. Gujarati is a business language. They enjoy doing business and want to take it to new heights. Why are Gujaratis so successful in business? One can find evidence of Gujarati merchants trading with the Mediterranean and Arab nations or empires if you go back 2000 years. Ahmedabad, in Gujarat, is known as the “Millionaire Capital of the World.”
Gujaratis are interested in business management. They adhere to the first and most fundamental business guideline, which is to “never allow emotions to govern money-related decisions.” Every year, you can hear cheery corporate messaging about how these Gujarati brands are promising and rising swiftly. Gujarat’s industry has reason to celebrate, as eight Gujarat-based companies have been named category leaders in attractiveness on India’s most Attractive Brands list for 2015.
Banias
Bania comes from the Sanskrit word banijya, which means “to trade.” It’s something the community has done for centuries. A few things have, of course, changed. As employees, some Banias have achieved international acclaim: Anshu Jain is the CEO of Deutsche Bank, while Ajit Jain is Warren Buffett’s personal favourite at Berkshire Hathaway. Nitin Nohria is the Dean of Harvard Business School, whereas Dipak Jain is the CEO of Insead. Vanias are also known as Banias or Mahajans. Vania is derived from the Sanskrit term ‘Vaniji,’ which means ‘merchant.’ Agarwal, Dasora, Dishawal, Kapol, Nagori, Vagada, Modh, and Nagar are among the Vania gotras (clans). Many of these names are derived from the names of the places from whence they originate. The Agrawal get their name from Agar Town, despite the fact that they are mostly found in North Gujarat. The Jharola are from Rajasthan and Maharashtra, and they inhabit eastern Gujarat. Vania’s titles include Shah, Shroff, Parikkh, Chokshi, Seth, and Gandhi.
Agrawals
“Among the commercial community of North India, there are three main groups—Agarwals, Oswals (who are Jains), and Maheshwaris,” writes K.K. Birla in his autobiography Brushes with History. The Agarwals and Oswals are large families; the Maheshwaris are smaller but more closely knit.”The Agarwal community is divided into 18 gotras (or 17 and a half, according to some). Bansal, Goel, Garg, Jindal, Kansal, Mittal, Singhal, and other surnames will be familiar to most Indians because they are a tremendously prosperous community. If the BJP wanted to attack Kejriwal’s gotra or family lineage, they should have targeted Bansals rather than Agarwals. This is also not very clever, because, as we will discover later, the Bansals are brutally adept at business and are hardly troublemakers. Outside of firsthand experience, I learned most of what I know about the Agarwals through Bhartendu Harishchandra’s Agarwalon Ki Utpatti (Origin Of Agarwals) and the Anthropological Survey of India’s People Of India series. The Agarwals are the only community that appear in at least five volumes, demonstrating their extensive presence.
The Agarwals are “the highest and most important sub-division of Banias,” according to the work on Uttar Pradesh (Volume 42, Part 1) “. The Marwaris are a branch of the community that migrated to Rajasthan. The others spread east to Uttar Pradesh, Bihar, and other states. According to this volume, Agarwals’ written script is “Perso-Arabic.” “. According to the book, their name was derived from the aromatic wood of the Agar (agallochum, which is used to make incense), which they traded-in. Another suggestion is that the name Agarwal comes from Agroha, a historical town in Haryana’s Hisar district. The Agarwals claim genealogy from the 18 sons of Agra Sen, a Scythian ruler who may have also been the name’s origin.
The Agarwals are “ranked lower than the Brahmans, the Kayastha, and the Vaishyas,” according to Volume 16, Part 1 (on Bihar) of the Anthropological Survey of India”. “The majority of the Agarwals subscribe to the Vaishnava school of Hinduism”, according to the report, however “a substantial number follow the teachings of the Digambar sect of Jains.” It concludes by stating that the Agarwals are “one of the country’s most respected and enterprising mercantile communities.” According to the Rajasthan volume (Volume 38, Part 1), the Jain Agarwals were converted by a man named Lohacharya, and Agarwals “write in Devanagari script.” This volume says that the “largest section professes Jainism,” which I find difficult to believe unless it exclusively applies to Rajasthan’s Agarwals. The Bania caste and the Agarwal community are conflated in Volume 23, which is about Haryana, with the remark that “Banias are also called Agarwals and Gupta.” The king’s name is spelt Ugar Sain, and he is said to have had 17 sons. According to this volume, a few Agarwals also practise Sikhism.
Maheshwari
Maheshwaris origin starts from Raja Khandelsen, the monarch of Khandela in Rajasthan, and his two queens, Rani Suryakuvar and Indrakuvar are the heroes of the legend. The king had no offspring, thus there was no one to carry his name or country, and the queens were unable to conceive despite performing innumerable pujas (prayer rituals), yagnas (fire rituals), and charitable gifts. After sharing his grief with Maharishi Yagyavalk, he discovered that his current circumstances were the result of a curse he had received in a past incarnation.
Such is a history of Maheswaris who turned into a powerful trading community, many of them turned into a family-run businesses and contributing to India’s GDP
Present day times
The family business after India’s independence is run as Hindu Undivided Family (HUF). In India, major names like Rahejas, Hiranandanis, Virwanis have reformed the real estate sector. In the field of education, Mumbai’s top colleges are run by the HSNC board. Major names in Bollywood film financing are also Sindhis like the Bhagnanis, The Taurani’s of Tips Industries, Karan Johar and his mother Hiro Johar.
If you are into wearing denim jeans, there is a 45% possibility that it was made in a factory owned by Sindhi possibly, in the Sindhi majoritarian township of Ulhasnagar.
In recent times, the family business community comes from the families of Sindhi, Marwari, Gujarathi, Banias, Agrawals, Maheshwaris. Some prominent companies are trading Internationally and contributing to India’s GDP. Each community, though not having a fixed business model, has been very successful in doing business and contributing to India’s growth.
Financial performance
In a research study on Indian family businesses, the financial success does not appear to be totally consistent with the prevalence of family businesses unless the family involvement in business is majorly through ownership and management. The Family firms account for 63% of the two-digit National Industrial Classification (NIC) codes in the list of 302 organisations, having operations through a broad range of industries.
Univariate analysis of the two groups, the family and non-family business was done using the samples of companies, which provides mean, standard deviation, minimum, and maximum values of all the important variables for understanding the performance indicator and other factors regarding the performance. The statistical results are depicted in Figure 2.
The results show that despite the prevalence and significance of family firms in the Indian economy, they do not seem to be performing better than their non-family counterparts. This could be due to a variety of reasons. The advantageous position of a family in the business can have certain repercussions for the business.
Family businesses can suffer when there are several hostile family stockholders who enable them to cancel one another’s initiatives.
With the passing of generations, the potential for conflict amongst the controlling family increases because of the increase in the number of relatives.
Family conflicts can lead to a high rate of failure amongst family businesses and are the reason why a lot of family businesses are not able to continue their operations beyond two-three generations.
In comparison to its actual share of ownership, the controlling family has a disproportionate percentage of control. If there are specific sorts of shares that enable control with limited ownership, or if holding corporations are used for pyramiding objectives, this can happen.
Conflicts and legal entanglements
Cause of challenges
Most legal challenges that arise in a family business stem from unofficial familial relationships. The complexities of decisions made from love and affection are frequently challenging and lead to disagreements. If one manages a family business, here are the top three legal issues one should be aware of:
Organizational Structure: The majority of family businesses operate because of a strong family relationship or to take advantage of particular legal advantages. A HUF Deed, for example, is typically issued with the goal of obtaining tax exemption. It’s tough to get rid of something once it’s been made. It is indisputable that some family enterprises begin as a side business which then grows into larger entities once they have established a successful track record. It provides them even more reason to ensure that an appropriate structure is in place. This is only a small part of the problem.
Figure 1- 3 Circle Model For Family Business Management
Family Integrity Good ROA
Family Dispute Business on Pyre
Figure 2- The statistical results
At the outset of any organisation, deciding which ownership structure to use is a difficult task. In the case of a family business, the problem is made worse because one’s rights and obligations are determined by one’s status in the family rather than one’s contribution.
How to put structure in a setting where everything is run by hierarchy?
Any structure put in place must be carefully considered and implemented. It’s possible that there’s a solid shareholder or partnership agreement in place. The following are some of the points that should be included in the contract:
The contribution/investment of each family member.
Family member’s job in the firm is well defined.
A stake in the family’s property.
Sustained credibility.
Policies on Employment: While most organisations have employee rules that broadly clarify what an employee’s job, obligations, and liabilities are, there are times when family enterprises avoid having family members sign contractual agreements.
There is no actionable claim one can file against the other in the future if there is a problem because there is no contract to show it. It is one of the most common blunders made by these companies. There’s nothing wrong with ensuring that family members have agreements in place to guarantee that the business runs well.
A contract must also ensure that family members are treated equally and that employment duties are shared. Furthermore, it will ensure that everyone in the family has the same basic expectations and that no one has any contractual difficulties that could lead to a rupture.
Permits and licenses: Every firm, large or small, is expected to comply with a number of laws, rules, and regulations in order to avoid future legal action. They are the most crucial part of every company. However, in a family business, a lack of such information can be problematic.
Few legal entanglements in the family business
In the case of the Ambani family business after the death of Dhirubai Ambani the sons, Mukesh Ambani, Anil Ambani were so entangled in legal wars At present, it’s seen that Anil Ambani is financially blown up too much and is out of business now. (“Reliance Natural Resources Ltd vs Reliance Industries Ltd “, 2010)
Even in such a situation, there is a valuable contribution to India’s GDP by the ‘Family Business community’ and are discussed below:
Sindhis: With a population of only 0.30 per cent, they provide 2.4 per cent of India’s total income tax. Sindhis contribute 2.0 per cent of the country’s GDP. Entrepreneurship has long been regarded as a primary driver of job creation, economic growth, and national success.
Marwari: The contribution of Marwaris to the nation’s industrial activity is as great as it has ever been. Indian industry relies on families like the Birlas, Bajajs, Goenkas, Neotias, and Singhanias. In reality, this network includes some of the most well-known personalities in the stock market, from Radhakishan Damani, the man behind D’Mart, to ace investor Rakesh Jhunjhunwala, commonly known as the big bull. It’s probably safe to assume that the Marwaris have the Midas touch when it comes to making money!
Gujaratis: with only 5 % of the national population, contribute 7.3 % to the national GDP and 5.6 % of total FDI inflow in the country. 7.2 % of all the all-Indian Universities are in Gujarat.
Banias: accounted for 2.4% of the income tax and 2.0% of the country’s GDP. These people have been active in business for decades and have established themselves as forerunners by winning the trust of the people.
Agarawalas and Maheshwaris: accounted for 2.7% of the income tax and 2.4% of the country’s GDP.
Now after knowing the facts – “Is it not appropriate to question whether – 3 circle business model” was developed in 1978, when India was having family businesses for ages?
Conclusions and recommendations
The presence of family enterprises among the world’s business organisations is considerable. The extant literature on the performance of family-run firms in relation to their competitors presents a diversity of perspectives. It is opined that this is due to the “3 Circle Model” developed in 1978.
Family enterprises that come from ages clearly play a significant part in the Indian commercial landscape and economy. This is also true presently as only a select few business communities are contributing to India’s GDP. The findings demonstrate that when accounting-based measures of success are considered, there appears to be no substantial difference in performance between family and non-family enterprises in India, however, non-family firms appear to do better when market-based measures of performance are considered.
However, it should be highlighted that putting the advice offered to family-run firms on how to overcome their limitations and try to be global players into practice may not be simple. This is since family values, rituals, and traditions are deeply ingrained in family businesses. They find it difficult to change their business habits and traditions and undo what is comfortable to them. Some business families in the country have found that separating ownership from management did not produce the desired results, and they have been compelled to revert to the previous order because the split and greediness has resulted in a fall in family fortunes. Other business families are similarly concerned about such shifts because of such events.
Himani Chahal; Anil K. Sharma. (2020). Family Business in India: Performance, Challenges and Improvement Measures. Journal of New Business Ventures, 1(1-2), 9-30. https://doi.org/10.1177/2632962X20960824
Modiyani Richa Ashok. (2015). Family business management practices of sindhi community an analytical study of the underlying business model North Maharashtra University]. http://hdl.handle.net/10603/106143
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Investors of a company need to be prioritized over all other functionaries and giving rights to investors is one of those incentives, to keep them invested. Pre-emptive rights are just one of those tools in the hands of the company. The rights given to an investor are Country specific i.e. rights applicable in the US, may or may not be applicable in India. In this article, we will try to provide some deep insights into the topic for a general understanding of the readers.
What are pre-emptive rights?
Pre-emptive rights allow the shareholders to buy additional shares in any future issue of the company’s common stock before the shares are offered to the public. A pre-emptive right is also called anti-dilution provision or subscription rights. It allows an investor to maintain a certain percentage of ownership in the company as the company issues more shares. A US company may give preemptive rights to all its shareholders, but this is not required by law. The same will be mentioned in the company’s charter. The shareholder may also receive a subscription warrant, entitling them to buy several shares of a new issue usually equal to their current percentage of ownership.
Preemptive rights are usually an incentive for early investors and a way for them to offset some of the risks of investment, specifically if the newly offered shares are priced lower than the original shares. They are in the form of contract clauses that grant investors the option to buy additional shares.
A preemptive right is essentially a right of first refusal. The shareholder may exercise the option to buy additional shares but is under no obligation to do so. The preemptive right clause is commonly used in the U.S. as an incentive to early investors in return for the risks they undertake in financing a new venture. The preemptive rights give the investor the option to convert the preferred shares to common shares after the company goes public.
This right is not mandatory but is routinely granted to shareholders in the U.S. Several states grant preemptive rights as a matter of law but even these laws allow a company to negate the right in its articles of incorporation.
Types of Pre-emptive Rights
A contract clause may offer either of two types of preemptive rights, the weighted average provision or the ratchet-based provision.
The weighted average provision allows the shareholder to buy additional shares at a price that is adjusted for the difference between the price paid for the original shares and the price of the new shares.
The ratchet-based provision, or full ratchet, allows a shareholder to convert preferred shares to new shares at the lowest sales price of the new stock.
Benefits of Preemptive Rights
Major Investors
The rights are generally useful for major investors having large numbers of shares in the company. The major shareholders due to their percentage of shares in the ownership also hold a major share in maintaining a voice in overall company decisions. Also, those who are likely to benefit are the early investors and company insiders.
Shareholders
Preemptive rights protect a shareholder from losing voting power as more shares are issued and the company’s ownership becomes distributed. Since the shareholder is getting an insider’s price for shares in the new issue, there also can be a strong profit incentive. In the worst case, there is the option of reducing losses by converting preferred stock to more shares if the new issue is priced lower.
Companies
It is less expensive for a company to sell additional shares to its current shareholders than to issue additional shares on a public exchange. Issuing stock to the public entails paying an investment banking service to manage the sale of the shares. The savings in direct sales to existing shareholders lower the company’s cost of equity, and hence its cost of capital, increasing the firm’s value. Preemptive rights also are an additional incentive for a company to perform well so it can issue a new round of stock at a higher price.
The offering of Pre-emptive rights in the US
U.S corporations are not required by law to offer their common shareholders preemptive rights, and most don’t. The presence of a subscription warrant, while purchasing the stock, is a guarantee that preemptive rights have been bestowed with. On the contrary, the U.K and European Union recognize the preemptive rights of common shareholders. However, in the U.S, such rights are generally offered to the early investors and other insiders, who have purchased shares or have been awarded options in the company, that are yet to go public.
In the U.S, the preemptive rights can be waived off, provided both the parties agree to the same. In the U.K, a waiver has to be signed by each shareholder for it to be recognized in the eye of law.
Pre-emptive rights in India
The Companies Act has always found a mention of the preemptive rights of shareholders. Section 105C of the Companies Act 1956 has an exclusive mention of the presumption rights of the existing shareholders. It states “Where the directors decide to increase the capital of the company by the issue of further shares such shares shall be offered to the members in proportion to the existing shares held by each member (irrespective of class) and such offer shall be made by notice specifying the number of shares to which the member is entitled and limiting a time within which the offer if not accepted, will be deemed to be declined; and after the expiration of such time, or on receipt of an intimation from the member to whom, such notice is given that he declines to accept the shares offered, the directors may dispose of the same in such manner as they think most beneficial to the company.”
Under the Companies Act, 1956 a company is obligated to follow the procedure prescribed in Section 81 (including pre-emptive rights of the existing shareholders) only if the company has been in existence for two years (or) at “any time after the expiry of one year of the allotment of shares”.
In the case of Sahara India Real Estate Corporation vs SEBI, the Honourable Supreme Court held that section 81 of the Companies Act 1956, postulates a pre-emptive right on the part of the existing shareholders to the new issue of shares.
Conclusion
Preemptive rights in the U.S. are relevant primarily to shareholders with a significant stake in a company who want to maintain that stake. Generally, they are early investors in a company or other major stakeholders who are given the contractual right to buy additional shares of any new issue to maintain the size of their stake. The ability to buy additional shares also cushions any losses they will incur if the newly issued shares bear a lower price. In India, the preemptive rights to an existing shareholder are guaranteed by the Companies Act 1956.
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The question or debate nowadays in society is what is marital rape and whether it should be criminalized or not? To understand it, we must separate marital rape in two words. Marital and Rape. Marital means relating to marriage or the relations between a married couple. Rape means a male or female has been forced to get into a sexual relationship with another person.
To know collectively what is marital rape, we shall first understand what is marriage and what is rape.
Is marriage a contract or an agreement?
Where two persons of the opposite sex give their consent for marriage. Most importantly, they must have attained the age of majority at the time they enter into such a marriage agreement and it must be in writing. Different religions have different requisites for a valid marriage. But the above-stated point remains the same just followed as per their religious culture/ceremony.
What is rape?
Rape is one of the most heinous and common crimes committed against women. It is the 4th most common crime in India. Rape is defined under Section 375 of the Indian penal code,1860 also known as IPC.
What is meant by rape under the law and its punishment?
Under Section 375 of IPC, 1860 a man is said to commit rape if he penetrates his penis or inserts, to any extent, any object or a part of the body, not being the penis into the private part of a woman or manipulates any part of the body of a woman under any circumstances:
against her will;
without her consent;
with her consent where her consent is obtained by putting her into fear of death or hurt or when her consent is obtained when she is intoxicated or in a state of unsound mind or
when she believes she is lawfully married to that person but he is not her husband or
when she is under the age of 18 or when is unable to communicate the consent.
This is rape. There are two exceptions under this Section; the second exception states that a man who does not engage in intercourse with his wife who is not under the age of 15 years is not said to have committed rape.
Further, the punishments for rape are given under Section 376 of the Indian Penal Code, 1860; whenever a person has committed rape he shall be punished with rigorous imprisonment which may extend up to life imprisonment and fine. When it comes to marital rape, it is not defined under IPC due to which a certain class of women is still struggling.
Now, It’s time to know what is marital rape.
What is marital rape?
Currently, under any law, India doesn’t have any provision for marital rape. We can understand marital rape in general terms. In general, marital rape means when a woman is forced by her husband to engage in sexual relations after marriage, where it is committed against her will and her consent is absent for such intercourse. It is said to be forceful sexual intercourse by one partner upon the other partner.
How does it affect a woman?
Also, marriage or a dispute in one’s family is considered to be a personal matter of a family in India but it also infringes a woman’s right to protect her body where she is living in an abusive relationship with her husband or sometimes even with her in-laws. She becomes a victim of domestic violence. Domestic violence is one of the commonly inflicted abuses after a woman gets married, either physically or emotionally or mentally. The sad part of such a barbaric crime committed against a woman is, though her family knows about it she is advised to stay, hardly anyone comes forward to report the same and in the end, we often lose a soul which is innocent. It destroys a woman’s mental health in all these issues, she gets traumatized day and night, for weeks and months, judged by society if she takes any step to protect herself or is seen to be a woman who disobeys her husband.
Constitution of India
A woman’s basic fundamental rights are getting violated due to the abuse from her husband. Article 14 and Article 21 of the Indian constitution states that the right to equality and equal protection to every citizen and the right to life and personal liberty respectively. Some men think that the person whom they marry is their property, however, a female is not anyone’s property because a female is as much entitled to the rights as any other person receives.
Females have proved innumerable times across multiple sectors such as education, sports, elections that they are not less capable than men. If they get the chances or opportunities they will do their best to achieve the goal. Females still have to fight for their basic rights which were already given to them years back when the Indian Constitution was in the making. Marital rape is a despicable crime and has been criminalized by the law in many countries. It is high time that the Indian government should look into it seriously.
Marital rape outside India and its punishment
Since 1979 some countries have criminalised marital rape either by adding a provision in the penal code or by removing the exemption from the provision or by introducing an act to protect a married woman. Countries like Brazil, Austria, Belgium, Finland, Canada, Dominican Republic, Ireland, Israel have taken active role years back either by changing the provision in the penal code or have decriminalized it before the 1980s or after.
The highest punishment for marital rape is of 15 years of imprisonment in Austria which was criminalised in 1979.
In 1994, Finland criminalized and proscribed punishment upto 4 years; and if violence has been committed on a married woman then the punishment provided is more severe.
Jordan: a husband who has committed marital rape on his wife shall be punished with at least 10 years of rigorous imprisonment.
Ireland: it removed marital rape exemption from Irish criminal law.
Germany: in 1947, the exemption was removed through an amendment.
Dominican republic: criminalized spousal rape in 1997.
US: marital rape has been criminalized.
Israel: In 1980, the decision of the Supreme Court of Israel criminalised marital rape. It was considered a felony crime, with punishment up to 16 years or 20 years.
India: It doesn’t consider marital rape a crime yet, but it has an exception in the IPC under Section 375, a man who has intercourse with his wife who is above the age of 15 years is not considered as raped by her husband. While intercourse with a separated wife is considered as rape and such a person shall be punished up to 7 years of imprisonment under a separate law.
Indian laws on marital rape
Today worldwide, India stands one amongst the 36 countries that haven’t criminalized marital rape. Those countries that have not yet criminalized marital rape are mostly developing nations/countries.
CASE: In Nimishbhai Bhartibhai Desai vs State of Gujarat 2018, the question was raised whether a husband who is forcing her wife to indulge in oral sex would amount to rape or not and should it be punished under Section 376 of IPC?
The court took this matter and said that our country hasn’t made marital rape a criminal offence till now. Because of the fear amongst politicians that it will destabilise the institution of marriage and also women can use this to act against their husband and make false charges against him. Marital rape can’t be unseen by law as it is equal to rape committed by a husband upon his wife so if any husband assaults his wife he would be punished under IPC for the offence of assault but if the same husband forces his wife to indulge in sexual intercourse he would be liable for the offence of assault only under valid marriage and not for rape.
Conclusion
How is it fair, when a married woman is raped by her husband and he is punished for the offence of assault and not rape? An investigation can tell for how long a wife has been raped but the investigation cannot tell us what she has suffered in the past few days or months or sometimes even years. Even if a husband does that for once it is a crime against his wife whom he shall protect and not endanger her life or harm her dignity or lower her in any way whatsoever.
He must be punished for the act he has caused to a human body. We cannot measure the wounds (physical and mental) he has caused nor can anybody compensate for these acts. We should support such women because not every female who suffers decides to speak up about her abusive relationship. We as respected citizens of India should help her out, console her, guide her and in the process protect another woman. While it is known to us now that in India a judicially separated wife is protected under separate law by the Indian legislation the married women should also be protected. In my opinion, the second exemption given under Section 375 of the Indian Penal Code,1860 should be removed by an amendment to protect the Indian woman against marital rape. It’s high time that the Indian judiciary should take a step and deliver a landmark judgment on marital rape.
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