This article is written by Sonia Shrinivasan, an intern at iPleaders, RTI Cell and the article has been edited by Khushi Sharma (Trainee Associate, Blog iPleaders).
Table of Contents
Introduction
Property and related disputes in India account for almost one-quarter of the cases decided by the Supreme Court of India. Moving to the lower tiers of the Indian judicial systems, land and property-related disputes account for more than 65 percent of the civil cases annually. Studies show that it takes almost 20 years on average for disposing of a property dispute, and the expenses incurred during this period, right from the institution of the suit to the execution of the decree, are sky high, and more often than not, burn a heavy hole in a common man’s pockets, depriving him of his life savings.
Considering the alarming rise in property disputes and the monetary load the resolution of such disputes put on the ordinary man, the Insurance Regulatory and Development Authority introduced an insurance scheme, ‘Title Insurance,’ to protect potential buyers from any challenge to a recently acquired property.
What is title insurance
Legally speaking, a title is a legal instrument indicative of the ownership of a particular piece of property. It suggests that the one possessing the title has ownership of the property in question and all the rights and ways arising out of it. Most importantly, a title essentially determines whether or not one can transfer his property to another.
A definite title is a must for any successful transaction involving properties or real estate of any kind. As the words suggest, title insurance simply refers to the protection of buyers from any loss (usually financial/monetary) arising out of any dispute in the title of the said property. Therefore, title insurances can be understood to be an indemnity from any claims filed against a property in question- back taxes, conflicting wills, etc. and is a one-time fee, involving extensive searching into the title data to minimize the possibilities of backdated disputes. It usually insures the owner against most forms of property-related risks like false documents, incorrect records, etc.
The International Scenario
This indemnity insurance is widespread globally, especially in Canada and the United States of America. In fact, the first-ever title insurance company was constituted in Pennsylvania (USA) as early as 1853, by the name of ‘The Law Property Assurance and Trust Society.’
Historically speaking, before introducing the entire concept of title insurance, it was the buyer’s onus to ensure the correctness of the seller’s title, and if any defect surfaced subsequently, it was the buyer who was left to single-handedly bear the loss.
It was only in 1868 when the Supreme Court of Pennsylvania, in Watson v Muirhead, wherein the Plaintiff lost his entire investment due to the discovery of a prior lien on the property. The Defendant, Muirhead- the one who conveyed the property to Watson in spite of being aware of the lien on the property did not disclose the same to Watson, on wrong advice of his lawyer, according to whom the said lien was not valid. When the said dispute was brought before the lower court to decide, they ruled that the defendant could not be penalized for acting upon a piece of incorrect legal advice given by a professional.
Subsequently, in 1874, the Pennsylvanian legislature passed an Act permitting the incorporation of such companies providing title insurances.
Presently, there seem to be over 4000 title companies functioning in the USA. It can be correctly inferred that the entire concept of title insurance emerged in the US, which was subsequently adopted by the neighbouring states, viz., Mexico in the late 1970s, and Canada in 1989. Interestingly enough, 25 of the 27 top title insurers in the world are American corporations.
Title Insurance Policy in India
There have been quite a few attempts to recognize title insurance policies in India formally.
The insurers made the first attempt in 2009 towards filing title insurance products with the IRDA; the regulatory authority constituted under the supervision of the Ministry of Finance to regulate and license the insurance industries in the country. However, these policies were labelled as too expensive by a majority of the developers in the real estate sector and, as a result, were not given recognition.
Finally, in 2016, the Real Estate Regulatory Act (section 16) made it mandatory for the real estate promoters to purchase title insurances for all their projects spanning over 500 sq.m. or involving the construction of buildings/residential spaces of 8 flats or more.
Later on, in 2016, the IRDA submitted a report titled ‘Title Insurance in India,’ recommending the areas of coverage and rules of the policies formulated under this head.
In the latest development, in the latter half of 2019, the IRDA formulated clear-cut guidelines for insurance companies, outlining the factors to be kept in mind while drafting insurance policies and boosting the demand for title insurance in the market.
Presently, there are seven insurance companies offering products under title insurance registered with the IRDA. They are- Bajaj Allianz General Insurance Co. Ltd.; Liberty General Insurance Ltd.; HDFC Ergo General Insurance Co. Ltd.; The New India Assurance Company Ltd.; National Insurance Co. Ltd.; ICICI Lombard General Insurance Co. Ltd.; and Tata AIG General Co. Ltd.
Salient Features
Any title insurance policy, irrespective of the company providing it, basically contains provisions to indemnify the policyholder from the following risks:
Forged documents
Incorrect documentation
Claims of ownership by a third party
Restricted easement rights
Pending lawsuits or liens against the property in question
Regulatory Framework
As discussed earlier, Section 16 of the Real Estate Regulatory Act, 2016 (RERA) makes the purchase of title insurance for a promoter for projects and residential schemes over 500 m. sq. area or consisting of more than eight flats. This title insurance transfers to the buyers (referred to as allottees) upon agreeing on sale. Non-compliance with the said provision attracts a penalty of up to 5% of the project’s estimated cost.
RERA empowers the state governments to formulate and notify the rules regarding title insurance within their territorial boundary.
RERA provides for a complaint redressal mechanism, for complaints put forth by the allottee, i.e., a person to whom the property in question has been transferred through sale; about any structural defect in the property or for the violation of any terms of the agreement to sale, by the developer, within 5 years from the date of possession of the property by the allottee.
Benefits of getting a title insurance
Getting title insurance in the present times is always beneficial in the long run.
It achieves the statutory requirements enlisted under RERA, thereby protecting the real estate transactions since it enhances the credit value of one’s property as collateral, aiding in easy credit financing.
The policy covers the exorbitant litigation expenses, thereby averting the unwarranted financial strain on the policy holders’ pockets.
It protects the home and property owners in cases of disputed ownership, especially in countries like India, where well-kept digital records of properties and land holdings are scarcely found.
Certain insurance companies provide extensive coverage and assistance in out-of-court settlements to prevent expensive and long judicial battles; thereby saving the time and money of the parties involved.
For residential projects, it helps the builders until the completion of the construction processes and provides an additional sense of security to housing finance providers while giving out home loans to purchase such property.
Challenges to the framework
In spite of the state governments being empowered to form and implement the rules in order to regulate the scheme for title insurance under RERA, no active regulations have been made by the states even after more than 4 years of implementation of the Act.
Title insurances mainly involve extensive title searches to rule out any case of multiple and conflicting ownership. These title searches require proper maintenance of land and property records by the concerned government officials. However, considering the sorry state of affairs of the government repositories in such cases, this is a major challenge.
The 2016 IRDA guidelines recommended forming a uniform policy nationwide, requiring the payment of the premium as a one-time payment; the cost depends on the nature of the property, i.e., residential or commercial.
Conclusion
Having no protection against potential title disputes is bound to expose the buyers to significant risk if the property suffers from titular defects. Come to think of it; you save extensively to finally be able to purchase your dream home, only to find that the house you bought with your hard-earned money suffers from titular defects, unpaid back taxes, and whatnot. Having title insurance, in this case, saves you from an unfortunate monetary loss and protects your interest in the said property.
However, with reference to the Indian context, exorbitant premium prices, lack of uniform guidelines for operation, and no concrete mechanism in place to make the masses aware of the benefits of getting title insurance, the demand for the same is poor. This is indicative that simply introducing statutory requisites to create a demand for a commodity, in the case of insurance policies, is not a step in the right direction. The comprehensive IRDA guidelines need to be analyzed and implemented urgently, in order to ensure that there are enough companies providing title insurance as a product, to ensure fair competition in the insurance sector, so that ultimately the best of services are made available to the common man, without burning a hole in his pocket.
This Article is written by Paras Nath Mishra and the article has been edited by Khushi Sharma (Trainee Associate, Blog iPleaders) and Vanshika Kapoor (Senior Managing Editor, Blog iPleaders).
Table of Contents
Introduction
Conciliation is an advanced mechanism of getting justice in very limited time with an expenditure of reasonable cost where parties are free to negotiate the dispute and conciliator will help to assist the same for the settlement of the dispute. In the process of conciliation, the conciliator is free to have his own rules; he is not bound by the Civil Procedure Court or Evidence Act, which makes this proceeding even easier to have and it is as effective as that of judicial proceedings.
Why is this proceeding easier to have? Because the parties are free to have the conciliation according to the time with which they mutually agree. A conciliation is an advanced form of panchayat where parties before the Panch (the deciders) will express their statements and then the deciders will assist the parties to settle the dispute but it has a slight difference while the formulation of the agreed agenda. In conciliation the parties after negotiation and settling the dispute they have to sign the written agreement which has to be authenticated by the conciliator but in the panchayat, everything is done verbally no signing of the agreement is done.
Section-wise explanation of the Act
Section 61: talks about the conciliation and its application and scope
This part will apply when a dispute arises between the parties who share any legal relationship. But if any law restricts the use of conciliation then this part will not apply or this conciliation process will not be entertained.
A legal relationship can be contractual or non-contractual and if we want to invite parties for conciliation we can do so.
61(2): This part will not apply to those laws that have already been mentioned, about these types of disputes will not be taken for conciliation then the process of conciliation to those laws will not apply.
Section 62: talks about how the conciliation proceedings start
62(1): says the party needs to send a written invitation to the other party with a brief about the disputes and for what type of dispute the party is asking for conciliation.
62(2): says the conciliation proceeding will only take place when the other party accepts the written invitation of being tried through conciliation.
62(3): says if the other party rejects the written invitation of being tried through conciliation then the matter will not be decided through conciliation.
62(4): if the invitation is not accepted within 30 days of the day he (initiating party) sends the invitation or didn’t get a reply within the time prescribed in the written invitation then the party is free to assume that his invitation stands rejected by the party and has to inform about the rejection of an invitation to the other party accordingly.
Section 63: talks about the appointment of a conciliator for conciliation
63(1): says there shall be one conciliator which is mandatory for conciliation until the parties agreed to call more than one conciliator.
63(2): says if there is more than one conciliator then the conciliators will work together and jointly.
Section 64: talk about the process of appointment of the conciliator.
Subject to sub-section-2 of section 63;
64(1)(a): says if parties want to appoint one conciliator for the proceeding then the mutually agreed conciliator will be appointed as a sole conciliator.
64(1)(b) says if parties want to appoint two conciliators then each party can elect or appoint one conciliator from each side.
64(1)(c). says if parties want to appoint three conciliators then each party will appoint one conciliator from each side and will mutually agree and elect a third conciliator who will act as a presiding conciliator for the proceeding.
64(2): says the parties can take help or assistance from the institution or person for the appointment of a conciliator for the proceeding.
Says the party can ask for a recommendation of the conciliator from such suitable institution or person and then the institution or person is free to recommend the name of a suitable conciliator to the parties.
Says that the party may agree to appoint the conciliator directly by the institution or the person for the conciliation but,
the institution or person who is directly appointing the conciliator should keep in mind while appointing the conciliator that it must be independent, impartial, and of different nationality other than the nationality of the parties, it should not be more favourable to the one party of the dispute.
Section 65: talk about the submission of statement before the conciliator
65(1): says that the conciliator upon his/her appointment ask the parties to submit the statement of the issue in brief so that a conciliator be aware of the issue of the dispute and one copy of the statement will be sent to the other party of the dispute which is mandatory for the conciliation proceeding.
65(2): says that the conciliator can further request the parties to provide more statements of facts so that clarity can be made to the case with the evidence which supports the facts of the case if available or not presented before the conciliator and the same has to sent to the other party which is also a mandatory case.
65(3): says that if the conciliator believes that he needs more explanation or any additional information of the particular point or case he can even further request the party or parties to submit more about the asked point or case to the conciliator.
Section 66: talk about the restriction of conciliator
The Conciliator is not bound to follow the Code of Civil Procedure, 1908 or the Indian Evidence Act, 1872. He can even conciliate the proceedings by making his own rules.
Section 67: talks about the role of the conciliator which he needs to perform while proceedings
67(1): says that the conciliator will assist the parties to come up with an amicable solution for a dispute and while doing so he has to be independent and impartial while assisting the parties.
67(2): says that the conciliator needs to follow the principle of objectivity, fairness, and justice while assisting the parties and also keeps in mind the business practices and circumstances between the parties which can be broken if a dispute went ungraceful.
67(3): says that the conciliator can conduct the proceeding in which he thinks appropriate according to the situation and circumstances demands. If the parties request to sum up the process in quick succession then the conciliator can ask for the oral statement rather than the written statement from the parties.
67(4): says that the conciliator can even propose before the party in disputes if he believes that particular proposal is in benefit of both the parties, and that proposal need not be in writing it can be orally as well as in writing and proposal need not be accompanied with the statements of proceedings.
Section 68: talk about administrative assistance
That can be taken for the parties as well as for the conciliator with the consent of the parties from any institution or person for any particular assistance over the point of proceedings.
(Administrative Assistance means* If the conciliator or the parties needs any help to explain their point of view which is helpful for the proceeding, they can ask the conciliator to arrange the assistance from any institution or person for that matter).
Section 69: talk about the communication between the parties and the conciliator
69(1): says that the conciliator may invite the parties orally or in writing to communicate with him or he may communicate with the parties if they are not comfortable telling something related to the dispute before the other party then the conciliator can have a private caucus with the parties together or separately.
69(2): says that if the parties have not decided the place for private caucus then the conciliator according to the situation and circumstances of proceedings can decide the place in consultation with the parties for the private caucus.
Section 70: talk about the disclosure of information
If the conciliator receives any factual information regarding the disputes then the conciliator can disclose to the other party if he thinks it appropriate to disclose so that the other party can have the opportunity to present his view, but if the party reveals certain information before the conciliator with specific conditions of non-disclosure of the information then the conciliator is bound not to disclose the same before the other party.
Section 71: talks about cooperation with the conciliator
The parties shall cooperate with the conciliator in good faith and if anything is requested by the conciliator, parties are compelled to submit the written materials, any evidence, and attend meetings thereof.
Section 72: talk about the suggestion given by the parties for settlement of a dispute
After the invitation by the conciliator or each party may submit their suggestion on his initiative to the conciliator for the settlement of a dispute.
Section 73: talk about the settlement agreement
73(1): says that when it appears to the conciliator that there’s a requirement for formulation within the settlement which may be acceptable to both the parties he can formulate such settlement and submit to the parties for his or her observation and after receiving the observation from the parties, if parties need an extra reformation within the settlement then the conciliator may reformulate the settlement consistent with their observations.
73(2): says if parties reach the conclusion or final settlement of dispute then they may sign a settlement agreement and if parties need any help while signing the agreement they may request the conciliator to assist and he then assists the parties in signing the agreement for settlement of a dispute.
73(3): says when the parties sign the settlement agreement, it will be final and binding on the parties and they may even use it for any claim.
73(4): says that the conciliator needs to authenticate the agreement and provide one copy of an agreement to each party.
Section 74: talk about the status and effect of the settlement agreement,
It says that the settlement agreement will have the same effect as if it is an arbitral award (same as the court’s decree) on agreed terms of dispute passed by the arbitral tribunal in section 30 of this act.
Section 75: talk about confidentiality
Which says that the parties and the conciliator shall keep all the matters or anything related to conciliation proceedings, confidential which shall extend to settlement agreement until it is necessary to disclose the settlement for the enforcement and implementation of this agreement.
Section 76: talk about the termination of conciliation proceedings
Which will be terminated on the below given points.
[the day means the date of declaration when the parties declare in writing]**
The proceeding will be terminated on the day parties sign the settlement agreement; or
The day conciliator declared on writing after consulting with the parties that the further proceeding will no longer be fruitful or useful for the parties then the conciliation proceedings will be terminated; or
The day parties address the conciliator on writing to terminate the conciliation proceedings; or
The day, one party addresses the other party and the conciliator in writing to terminate the conciliation proceedings.
Section 77: talk about resort to arbitral and judicial proceedings
The parties shall not initiate any arbitral or judicial proceeding for the dispute while ongoing conciliation proceedings. The arbitral or judicial proceedings can be initiated only when it becomes necessary for the preservation of its rights.
Section 78: talk about the cost of proceeding
78(1): says after the termination of the conciliation proceeding, the conciliator shall fix the cost of conciliation and send the written notice of an equivalent to the parties involved.
78(2): [For the purpose of sub-section-1] defines the term “cost” which means a reasonable cost-
Fee and expenses of the conciliator which has been spent while proceeding including the cost of calling witnesses to appear for the proceeding with the consent of the parties;
Any expert advice requested by the conciliator for the proceeding after the consent of the parties;
If any assistance has been taken including the assistance from sections 64* and 68** for the proceeding in pursuance of clause (b) of this section;
[Section 64: Appointment of conciliator]*
[Section 68: Administrative assistance]**
And any other expenses incurred related to the conciliation proceeding and the settlement agreement.
78(3): The expenses of the proceedings will be asked from the parties equally until and unless there is a proportion divided or stated in an agreement that the parties are required to bear all the costs of the proceedings and if any other expenses have been incurred then that party will pay the money due to which the extra expenses have been incurred.
Section 79: talks about a deposit
79(1): says that the conciliator may direct the parties to deposit the money in advance for the cost including the cost of sub-section 2 of section 78 which he expects can often be incurred for the conciliation proceeding.
79(2): while in the course of proceeding if the conciliator believes that there will be a need for an extra amount other than the deposited amount then the conciliator may direct the parties to deposit the amount in equal proportion.
79(3): if the parties are not depositing the full amount of proceeding which is required according to the sub-section 1 and 2 of this section within 30 days of the proceeding then the conciliator may suspend the proceeding or make a written declaration of the termination of the proceeding to the parties which will be effective from the day conciliator sign the declaration.
79(4): says that if any amount is left after the expenses of till the declaration date then the conciliator will return the amount to the parties.
Section 80: talk about the role of the conciliator in other proceedings
Unless and otherwise agreed by the parties:
The conciliator shall not act as arbitrator, representative, or counsel of a party in any arbitral or judicial proceeding in reference to the conciliation proceeding.
The parties are not allowed to present the conciliator as a witness for any arbitral or judicial proceeding.
Section 81: talk about the admissibility of evidence on other proceedings
The evidence that has been presented during the conciliation proceeding has no reliability including the below-given points and the same cannot be presented before any arbitral or judicial proceeding irrespective of the proceeding is related to dispute or not:
Any views or suggestions made by the other party to settle the dispute;
Any admission made by another party during the process of conciliation;
Any proposal made by the conciliator;
Or the other party made a proposal to accept the settlement of the dispute.
The above points will have no reliability if a case went for any arbitral or judicial proceedings for the resolution of a dispute.
Reference
Bare act of Arbitration and conciliation act, 1996
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The administration of public lodging by numerous domain proprietors, landlords, and caretakers in most developing nations, including Nigeria is frequently bothered by helpless maintenance, high rentals and as a rule, tenants are unsatisfied with their abode units. These components in addition to poor or no tenancy agreements among landlords and tenants contribute towards the overall decay of public lodging.
Drafting of a far-reaching tenancy agreement requires the administrations of an equipped attorney, who will succinctly illuminate the obligations and duties of both the landowner and the inhabitant. Without an exhaustive tenancy agreement, the struggle between the landowner and the inhabitant may emerge when one gathering isn’t happy with the lead of the other.
The relationship of landlord and tenant might be characterised as the relationship that exists between gatherings to a lease. It normally emerges when the proprietor of a bequest awards, typically through agreement, the right to ownership of his property or part of it, to someone else to hold for a particular time frame. Such an award is known as a lease, downfall, or tenure. The relationship between landlords and tenants in Nigeria has arrived at an extremely critical stage in the current society in Nigeria, consequently, there is a need to know and survey the impact of the relationship between the landlord and the tenant on residential properties. Likewise, we must know the situation among tenants and landlords in residential structures preceding the legal assessment of occupancy law in Nigeria. All the more significantly, it is likewise attractive for each gathering to know their rights as ensured under the different material laws on the topic. This will guarantee a quiet concurrence among tenants and landlords in residential structures.
Tenancy agreement : meaning, components and purpose
A tenancy agreement is a legal contract between a landlord and the tenant which sets out the rights and obligations of both the landlord and the tenant when renting a property in Nigeria. Both landlord and tenant have something many refer to as ‘suggested rights’ in all tenancy connections. In any case, a tenancy agreement is significant in light of the fact that it gives further security to both the landlord and tenant, and it develops the suggested rights. Assuming that you are a landlord and are going to lease your property, or that you are a tenant going to lease a property, it is prudent that you demand that there is a tenancy agreement. In Nigeria, the tenancy agreement is a rule made by the landlord or their lawyer. As the landlord is the proprietor, they set the terms on which they need to lease their property and present this to the tenant.
As the tenancy agreement is an agreement between two gatherings – the landlord and the tenant, the tenant has the privilege to audit the conditions of the tenancy agreement to decide if the agreement ensures his/her advantages. Most tenancy agreements are clear and straightforward; in any case, it is fitting where conceivable to get a lawyer to survey the terms and counsel on what they mean for the tenant’s current and future rights.
After basically inspecting the idea of a tenancy agreement in the Nigerian setting, it is important to list out the substance of a decent tenancy agreement in Nigeria that is without ambiguity. Understanding the substance of a drafted tenancy agreement should be the pre-essential for which the two players appropriately consent to the arrangement structure. Here is a list of contents to expect in a typical Nigerian tenancy agreement;
Name and address of the landlord and the agent,
Name of the tenant,
Address of the property,
The duration tenancy,
How much the rent will be, due date and mode of payment,
Other applicable amounts including – attorney fees, agent fees etc,
What the rent covers – does it include bills and other charges?,
Rules of tenancy – pets, subletting, lodgers, guests, usage of property etc.,
The obligations and responsibilities of both the landlord and tenant.
The tenancy agreement also contains responsibilities to be undertaken by both the landlord, and the tenant. The responsibilities of the landlord include but are not limited to the following; ensuring that the property is in good working order and equipped for the tenant to move into and inhabit; repair and maintain the property; inform the tenant when they intend on entering the property to do repairs; insure the property and all contents that do not belong to the tenant.
After enumerating the responsibilities above, it is also pertinent to note the responsibilities of the tenants too as contained in the tenancy agreement. The responsibilities of the tenant include but not limited to the following; ensuring the prompt payment of house rents as at when due; repair any damages caused by the tenant on the property; keeping the property clean and tidy; abiding the tenancy rules as contained in the tenancy agreement.
Landlords and tenants
In every one of these, one should remember that the landlord is an individual or organisation that possesses a property (a structure, house, condo, or plot of land) that is leased to other people (tenants). This plan is generally expressed under the terms and conditions of a tenancy agreement. Most landlords in Nigeria lease their property to create pay. They consider it to be a business workout. Numerous landlords would contend that the genuine motivation behind claiming property and leasing it out is the security it offers for what’s to come. In connection, a tenant is someone who leases a structure, house, plot of land, or piece of property for a fixed time frame.
The relationship between the landlord and the tenant relies upon an arrangement. While their relationship is regularly reasonable, some typical issues are learned about Nigerian metropolitan regions: The landlords protest that their tenants don’t take incredible thought of the rental lodging, pay their lease late, get into underhandedness generally, and don’t fathom that expanding costs of utilities, upkeep and fixes make it essential to raise the lease. The tenants fuss that their landlords disregard to stay aware of the lodging fittingly, don’t fix things when they break, charge preposterously high costs for utilities, increase the lease suddenly, threaten when the lease is paid fairly late. It is seen that the relationship between landlords and tenants in Nigeria, generally speaking, isn’t pleasant.
Various rental agreements among landlords and tenants in Nigeria are up close and personal and casual in nature, wrapped up outside of any regulatory construction or formal by and large arrangement of laws.
Rental housing is a common phenomenon in Nigeria and her cities. Millions of low-income earners and younger households in Nigeria use renting to meet their housing needs. In all these, the need for a tenancy agreement becomes really important to avoid unnecessary future disagreements between landlords and tenants.
The rental sum a landlord charges will rely upon the nature of the actual accommodation, including the unit’s admittance to essential framework, public administrations, neighborhood conveniences and occupations. In most rental plans, the rental rate will be set at a level which permits the landlord to benefit from the rental unit and to have a profit from the speculation, by acquiring more than the sum put resources into developing the rental unit and the support costs. In any case, in instances of sponsored public area lodging, the rental rates might be lower than what is needed to recuperate the first speculation. Landlords will, in general, contend that rents are excessively low, though inhabitants, and their affiliations, contend that they are excessively high.
Tenancy agreement as a shield in Nigeria
In Nigeria, particularly Lagos state, the appropriate laws regulating tenancy agreements are the Rent Control and Recovery of Residential Premises Law Vol. 7, Laws of Lagos State, 2003 and the newly enacted Lagos Tenancy Law, 2011(similar laws exist in all the other states in Nigeria).
The Lagos Tenancy Law has aroused considerable public interest since its enactment, much of which surrounds the issue of advanced rent which the law prohibits. Section 4 of the new law makes it unlawful for a landlord to demand or receive any rent in excess of one year from a sitting yearly tenant, six (6) months from a sitting monthly tenant, and one year from a new or a would-be tenant. It is also unlawful for new and sitting tenants to offer to pay rents in excess of one year. The penalty for violating this provision is a fine of One Hundred Thousand Naira or three (3) months imprisonment.
The steadily expanding relocation of individuals into the significant urban communities in the country in a quest for greener fields has made the mission for getting good accommodation in these urban areas a Herculean errand, which truth be told, not many privileged people can bear. Numerous Nigerians manage with squatting with family relations or companions while some manage with unhygienic accommodations due to modest rents. Additionally, yearly lease increases present a test to most tenants.
Landlords in significant urban communities in Nigeria are essentially delighted in the unbridled enthusiasm for house rents – the greater part of them set out on self-assertive increments of rents by outlandish extents at ordinary spans, regularly utilising this as a procedure to launch tenants who can’t stay aware of such unpredictable increments, realizing beyond any doubt that someone else remaining by would rapidly seize the condo paying little mind to the nonsensical increment in rate. In Lagos State especially, vulnerable Nigerians experience untold difficulties in the possession of some insatiable and insidious landlords who utilise different strategies to discharge tenants who can’t meet with silly and unreasonable increments of rent.
Conclusion
In conclusion, in Nigeria, the tenancy agreement is an instrument in property that gives assurance to every one of the gatherings involved in the rental housing area. The Nigerian rental housing area is generally an informal setting, where tenancy agreements are not enforceable in light of the fact that the majority of the agreements are either done verbally or informally without a solid backing of the law, subsequently unenforceable. The arrangements of the lease control and recuperation of premises laws in Nigeria have been held more in defiance than in compliance this could be because of the wide hole between housing need and housing supply most particularly in the metropolitan communities.
Also, the Nigerian government should do more to provide cheap housing, find a way to regulate rental housing practices, and enact laws that will enforce the use of tenancy agreements that will protect both parties involved.
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This article is written by Aditya Baheti pursuing LLB from Campus Law Centre, University of Delhi and the article has been edited by Khushi Sharma (Trainee Associate, Blog iPleaders).
Table of Contents
Background
The Hon’ble Finance Minister announced as part of the Budget Speech for F.Y. 2019-20 that initiative to set up a social stock exchange (SSE) under the Securities Board of India (SEBI) for social enterprises (SE) working for social welfare to facilitate adequate fundraising for such enterprises. The SEBI constituted Working Group (WG) and Technical Group (TG) have published their reports on the working feasibility and framework required for SSE.
Need for the SSE
Last two year has left humankind with no better safeguard than a collective show of strength to meet the challenges posed by the pandemic. In India, the case has not been any different. Since the outbreak of Covid-19 especially the intensity second wave has put the social sector under cumbersome pressure. The need for SSE is felt more than ever before especially in the light of following factors:
COVID Pushed shortage
So far in FY21, the fund collection for non-government organization (NGOs) has declined by 43% from the previous year. Unrestricted funds or donations that are not attached to a specific initiative and can be used for any purpose has plummeted 63% in the same period.
It is interesting to note that one inadvertent reason which has pushed for such a shortage is the PM CARES fund under which any donation is fully exempted under 80G of the income tax Act. Another ad hoc reason that has arisen out of Covid-19 is the shortage in CSR funding. As 30-50% of the total funding of NGOs is CSR and almost half of such funding comes in March and due to Covid-19 companies contributing major CSR funding have diverted more than half of their total budget toward covid-19 relief purposes and lockdown in the usual period of receipt of funding has disrupted that process.
Large Social Spending
According to the Indian Philanthropy Report, for the fiscal year 2021, private-sector funding totaled about INR 64,000 crore, close to 23% more than in the fiscal year 2019 (INR 52,000 crore).
Despite this growth in funding, the social Sector remains underserved. Compared with other BRICS countries, India underspends on the social sector—reflected in its relatively poor ranking (117th) in the Sustainable Development Report. According to the Niti Aayog VNR report, India additionally needs 6.2% of GDP expenditure to meet the demands of the social sector by 2030. The report estimates that the annual demand for the social sector funding would be at 21.2 lakh crore by 2025. Given this gap and the pandemic induced setback to the social sector, India will continue to face a significant annual funding deficit in the near term if a systematic approach is not given to bridge these gaps.
Change of outlook:
A report on social enterprises in India by the British Council pointed out that-
“Younger social enterprises are becoming increasingly interested in repayable finance as a method to grow their business. And are also accessing diverse non-traditional sources of finance.”
This shows that is growing popularity of the private limited structure over NGO registration as having greater autonomy over how they use their profits/ surplus. The number of social enterprises registering themselves as NGOs is 23% or Section 8 co. is 3 % in comparison to 58% opting to register their social enterprise as of private Co. and WG report by recommending a standard form of reporting for both NGO and FPE on use of funds, approach and impact created by them have endeavored to overcome reporting or disclosure bias if any with respect to a specific legal structure.
Restriction under current framework
The existing dispensation of funding for the social sector provides diverse avenues of fundraising. However what lacks is the availability of a common platform and uniformity in reporting the utilization and impact created by social enterprises which pales the transparency in the system and also results in inadequate availability of information even to investors which has also been observed by the working group. Therefore, SSE is an institutional attempt to overcome these barriers.
Impact of Social Enterprises
A broad estimate indicates that there are as many as 2 million social enterprises working for the improvement of socially, economically or physically weakened class and other deprived classes especially women which constitute be one of the major group of beneficiaries reached by these social enterprises as per a survey by a British council.
In terms of employment, particularly by COVID-19, unemployment has reached 12.4% and 11.2% in urban and rural areas, respectively. And in the survey by British Council, 62% of the surveyed social enterprises have stated that the creation of employment is their primary goal.
On the gender equality aspect, 25% of these enterprises have been led by females, higher than the average of 8.9% in mainstream enterprises having a female top manager. Yet their contribution is not fully acknowledged as 86% of the social enterprises surveyed stated that access to finance was one of the major constraints faced by them which is only 15% in mainstream enterprises. Some usual constraints are lack of funding, access to investors, limited supply of capital, so on and so forth.
Meaning
A Social stock exchange is a platform to list securities and raise funds by social enterprisesthat are engaged in creating a positive social impact. An exchange like this would help not only such enterprises looking for funds but also sociable investors who look for bonafide entities engaged in social sectors. It would be a separate segment under the existing Indian stock exchanges, although unlike conventional stock exchanges, SSE has a deeper purpose which should be reflected in their governance, design and operations.
Benefits
The raison, d’être of SSE is to increase funds available to the social sector by enabling diverse avenues of funding to social enterprises and reducing their over-dependence on impromptu sources like grants and donations which are primarily based on the discretion of limited investors. As per the said report, 33% of the social enterprises said that they faced a lack of access to investors because of limited networks.
As noted by India philanthropic report 2021 SSE would help in the availability of large-scale social spending needed in India which is currently underspending and running on a deficit.
On the procedural side, an SSE that mandating compulsory reporting of impact created by social enterprises to assess the platform would help in better disclosure of fundraised, utilized and thereby impact created. This will go a long way in establishing trust among various stakeholders like investors, the government and other interested parties.
Social Enterprises
SEBI reports define social enterprises as a select class or category of enterprises that are engaged in the business of “creating positive social impact” which is further classified into not-for-profit organisations (NPO) like trust society or for-profit enterprises (FPE) like a private company, partnership etc. This categorization is required because the category as a whole includes entities that differ significantly in terms of their legal structure, existing regulatory structure, and other factors. Furthermore, allowing both NPO and FPE to feature would aid in achieving the scale and demand required for SSE to remain financially viable.
Process of assessing SSE
Measuring Social Impact:
“For us it’s about putting the principles of fairness and decency before profits” – Jen woodgate (social entrepreneur Cuddle + Kind)
As such SSE would allow its platform to raise funds only by those social enterprises which have created and reported social impact. Therefore, measurement of the social impact is inevitable. However, quantifying social impact has always been found to have some inherent setbacks.
In the words of Professor Alnoor Ebrahim notes, as an example, “delivering emergency relief and basic services in sanitation, water, and housing is easier to measure than impact on public policy or on good governance, freedom, and rights or societal transformation such as improving human rights or democratic conditions”.
In such cases, the best possible test is what an organization is doing and whether its strategies are working to influence societal change. And while measuring such impact the approach should be from the perspective of actual impact created on the target segment rather than mere reporting of corporate behaviour.
Eligible Social Enterprises
Technical group advocates in its report that to qualify as a social enterprise, the entities whether NPO or FPE has to demonstrate primacy of social impact. SSE is an institutional approach and to ensure its viability as a platform it is inevitable to provide an exploration of the platform only to bonafide social enterprise prioritizing societal need rather than mere profits.
The report has listed out the social enterprise need to be predominantly engaged in the activities provided as eligible activities to ensure their qualification. The scope of activities allowed has been premised on the same footing as of Schedule VII of the companies Act and Sustainable development goals which includes poverty health climate sports so on. Social enterprises can either deliver products or services or work on research, policy analysis and development, promote awareness building, governance, or work on capacity building.
Eligible Activities
A broad view of the list:
Promote sports like Olympics.
Strengthen Non-Profit Ecosystem.
Promoting livelihoods for rural and urban poor.
issues of misinformation and data protection.
Promoting welfare of migrants and displaced persons.
Bridging the digital divide like in internet access.
Access to land and property for disadvantaged communities.
Promotion of financial inclusion.
Slum area development, affordable housing, sustainable cities.
Disaster management activities.
Supporting incubators of social enterprises.
Eradicating hunger, poverty and inequality.
Environmental sustainability, forest and wildlife conservation.
Protection of national heritage, art and culture.
Promotion of education and employability.
Promoting gender equality, empowerment of women and LGBTQIA + communities.
Ineligible Activities
The TG clearly recommended keeping political or religious activities outside the ambit of eligible activities to ensure that the very object of social enterprises remains social.
Certain organisations are also restricted from assessing the SSE even if they demonstrate the primacy of social impact. The first one is corporate foundations that are primarily funded by a parent corporate entity or group of corporate entities because these foundations have strong financial backing from their parent company and are usually formed to fulfil the social commitments of their parent company.
Political or religious organisations and Professional or trade associations are also restricted. As the central object of SSE remains the availability of funds to social enterprises which are mainly concerned with their social target, organisations engaging for instance in a trade that has profited as their primary objective goes contrary to the very object of the SSE. However, it has to be noted that social enterprises are not restricted from engaging in the trade as a part of their social objective or incidental to it.
Infrastructure companies and housing companies other than affordable housing companies are also not allowed to offer securities on SSE. Affordable housing is part of eligible activities and companies engaged in it are recommended to be kept within entities that are eligible to assess the social stock exchange if it fulfils the criteria of the primacy of the social impact.
Target
The next element for social enterprises to qualify as eligible social enterprises for SSE is its target population, segment or region. Social enterprises shall target population, segment or region that are underserved or less privileged or that have recorded lower performance in the development priorities of national or state government under eligible activities.
The predominance of Eligible Activity :Finally, to be qualified as an eligible social enterprise, the technical committee has advocated a filter by setting a minimum engagement limit for intended social enterprises in the eligible activities to access SSE.
The social enterprise shall have a minimum of 67% of its total activities qualifying as eligible activities to the target population.
This is to be established through one or more of the following :a) Revenue b) Expenditure C) Customer Base. a) Revenue – At least 67% of the immediately preceding 3-year average of the social enterprises revenues comes from providing the eligible activities to members of the target population.
b) Expenditure – At least 67% of the immediately preceding 3-year average of the SE’s expenditure has been incurred for providing the eligible activities to members of the target population.
c) Customer base– Members of the target population to whom the eligible activities have been provided constitute at least 67% of the immediately preceding 3-year average of the SE’s customer base/beneficiaries.
The inevitable result of such a filter would be the availability of the platform to only bonafide social enterprises predominantly engaged in eligible activities resulting in better social fulfilment to investors and thereby society at large.
Declaration of Primacy of Social Impact
Once a company has fulfilled the mandatory eligibility criteria it has to submit a declaration of the same in the prescribed form.
Framework for listing
Considering the nature of both NPO and FPE is different the technical group recommended a different procedure for both. However, eligibility criteria remain the same for both.
Listing Process for NPO
Registration
The requirement to demonstrate that it is qualified to be an eligible social enterprise under the framework applies to all social enterprises. However, only NPOs as social enterprises are required to register on any of the SSE, regardless of whether they choose to list their securities or not. FPEs can, however, go straight for listing if they are companies registered under the Companies Act and comply with the requirements under SEBI regulations.
Registration for eligible NPOs would serve multifold ends. The technical group pointed out that since NPOs differ in their legal structure and the laws or bodies governing them. Therefore, registration would help in taking the diverse nature of NGOs to a common stage. In addition, it would also help to develop a sense of discipline which is required to raise money through the public on an institutional platform. Even without listing registration would signal the primacy of social impact and the quality of their governance and transparency. For registration the TG has recommended these mandatory requirements:
A. Legal Requirements
The Entity should be :
An NPO is legally incorporated as (charitable trust, society, or corporation under Section 8).
Be governed by (MoA & AoA/ Trust Deed/ Bye-laws/ Constitution) & be transparent about whether it is government or privately owned and/or controlled.
Having a registration certificate under 12A/12AA/12AB of Income Tax valid for a minimum of next 12 months and does not have any notice or ongoing scrutiny by income tax authorities regarding any condition of tax exemption under 12A/12AA/12B.
And must have a valid IT PAN, a Registration Certificate of a minimum 3 years of its existence and 80G registration under Income Tax.
B. Minimum Fund Flows
In order to ensure that the NPO wishing to register has a sufficient track record of operations, the following have been recommended-
In the last financial year, receipts or payments from audited accounts or Fund Flow Statements must be at least Rs. 50 lakhs.
The receipts from audited accounts/the fund flow statement for the last financial year should stand at least at Rs. 10 lakhs.
Listing
Only those NPOs that have met the eligibility criteria in terms of social impact and has submitted its audited financial statements for the previous three years, as well as social impact statements in the format prescribed, can issue offer document.
The offer document to issue securities at SSE shall comprise a list of various heads called the ‘differentiators’ like vision, target, segment, management, finance and others which shall help the potential investors to make a comparative assessment of the soundness of similar NPOs being listed and form a well-informed investment decision.
A list of such differentiators as provided in the report of the TG are:
The TG, by pointing out these differentiators clearly specified a need for a higher threshold for social enterprises to channelize the social stock exchange as a route of funds in comparison to other available sources like CSR or individual donation.
Moreover, the NPOs are required to include more detailed information about the track record and impact created on the target segment in the listing document for program-specific and project-specific listings.
Type of Securities Available :Modes available to NPOs for fundraising shall be Equity (Section 8 Co’s.), Zero Coupon Zero Principal (ZCZP) bonds, Social Impact Fund (SIF), Development Impact Bonds (DIB), and funding by investors through Mutual Funds.
Listing Process for FPO
Eligible FPE, shall require to fulfil the existing regulatory guidelines under various SEBI Regulations for listing securities such as equity, debt in addition to the differentiators recommended by the technical group.
Further, FPEs have been granted an option to list their securities on the appropriate existing boards and the extent of regulation to be followed shall also depend upon the chosen board. Thus, the issuer can list the debt securities on the main-boards, while equity securities can be listed on the main boards, or on the SME or IGP depending on their discretion.
Type of Securities Available :FPE may choose any type of instrument that SSE allows depending upon its structure and needs. FPEs have already popular instruments in form of equity and debt or specialized instrument like Social Impact Funds.
Post Listing Disclosures
Transparency in the affairs of an entity is one of the core pillars of governance. Taking it especially in the context of SSE where investors are induced by the objective of social fulfilment rather than any financial benefit, it is essential for the success of the SSE and securities to be listed on it to have strong, fair and impartial disclosure practices which ensure robust transparency. The working group report also observed this while recommending disclosure requirements.
Looking at the advantageous functions performed by such disclosure it has been recommended for all social enterprises.
NPO
Both types of NPOs whether listed or even registered but not listed its securities need to comply with a minimum set of disclosure required to remain listed.
Disclosures
General :Vision, mission, activities, and scale of operations. Governance :Legal form, board and management, org-level risks and mitigation, related party transactions and other ethical concerns, remuneration policies, stakeholder redressal, compliance, and certifications.
Financial :Balance sheet, income statement and cash statement, program-wise fund utilisation for the year, auditor’s report and auditor details.
A balance sheet, an income statement, a cash statement, funds utilised program-wise for the year, and an audit report.
Material Event
NPOs shall report within 07 days of any event that might have a material impact on the planned achievement of their outputs or outcomes, to the exchange on which they are registered/listed. Some examples pointed out in the report are events like exit of key executives, disturbances in the implementation locations, regulatory restriction and so on. The analogy of this disclosure can be drawn to Regulation 30 of SEBI (LODR) 2015 which mandates a listed entity to notify promptly all material events or information to stock exchange(s) and not later than twenty-four hours following the occurrence of event or information.
FPE
FPE’s having listed equity/debt will comply with the disclosure requirements as per the application segment such as main-board, SME, IGP etc.
FPE’s with listed equity/debt shall comply with the applicable segment’s disclosure criteria, such as main-board, SME, IGP, and so on.
It is specified in the report that any social enterprise either NPO or FPE whose Total Post Issued Share Capital is More than 25 Cr. shall follow the Indian Accounting Standard issued under Section 133 of the Companies Act 2013 and other remaining SE shall follow the Accounting Standard issued by ICAI.
Social Impact Report
As the working group cleared that it is not only on the basis of technical compliance that a social enterprise would be eligible to explore SSE or remain to continue to be on SSE but it has to be in the true spirit and to take this consideration to its logical end, the technical group has advocated a disclosure in form of social impact report once their security has listed or even registered in case of NPO.
To put in the words of TG, the report is to capture the qualitative and quantitative aspects of the social impact generated by the entity, and where applicable, the impact generated by the project or solution the security is meant to fund . In other words, this report would highlight the problems existed, the solution which the instrument or the security intended to fund the challenges, approach adopted in meeting the challenges and as a consequence the impact resulted in the target segment.
Summarization of post-disclosure requirement:
PARTICULARS
APPLICABILITY
TIMELINE
General Governance and Financial
NPO
Annually
Material Event Reporting
NPO
Within 7 days of the event
Social Impact Report
Both NPO & FPE
Annually
It has to be noted that FPE shall make disclosures as per requirements of the application segment such as main-board, SME and IGP, etc.
All information given as part of the pre-listing and post-listing procedures must be displayed on the social enterprise’s website.
Critical Areas for Success
Only three (Canada, Jamaica, Singapore) out of seven (Brazil, Portugal, South Africa, UK) SSEs that were set up across the world are still active and a study shows that one of the common yet significant reasons for their close down is the absence of a viable revenue model for SSE. It has been observed that due to lack of scale and demand the platform fails to generate enough income to cover its costs.
A review of already existing SSE shows that projects which are more visible and lend themselves to revenue stream are more popular, like environment, healthcare than the care of elderly, gender-based violence. Therefore SSEs need to be encouraged to make their project or cause more visible and to adopt a model which their project can streamline with revenue sources.
The Minimum taxation approach and compliance burden on investors would be inevitable for the success of SSE not only in India but also have been seen in other existing SSEs. The WG report has reiterated it by advocating for suitable tax relief to SEs, investors and SSE.
Organisations listed on SSEs are relatively large. At least this has been the case as shown in a study. For instance, a median revenue of USD 8.2 million was recorded by 25 of the 36 for-profits listed on the UK SSE that released annual revenue statistics. The three individual social enterprises listed on Canadian SSE reported median annual revenue of around USD 4.7 million. These numbers don’t highlight very optimistic bets on the wide feasibility of SSE for maximum social enterprises in India. Therefore, an inference could be drawn that reaching scale is amongst the most important challenges for SSE.
Conclusion
Even though SSE is more than a decade old as a subject internationally, in India it is still at a nascent stage. Past record of underspending in the social sector and compounding by Covid-19 makes persistent flow of capital inescapable. And SSE being institutional approach would help in giving a systematic and large-scale solution to it. However, its success would still be largely determined by the scale and awareness it reaches.
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With the digital boom, social media has integrated with our lives and “Influencer” marketing has become a new tool for reaching out to people. In the recent past, people have developed this habit of going through “reviews” of their favourite influencers before making any purchase decisions.
In fact, the stats say that there has been a considerable growth in the share of influencer marketing and it has been found that these influencers are trusted by millions which has made them a hot-cake for the brands to endorse their products.
It has not only paved the way for brands to market their products but has also given the common man to build his own brand through content creation and engagement. As most of these influencers are normal people the content created by them is more relatable to the people hence more engaging. This article will focus on how these influencers make their earnings with the help of social media platforms and what are the tax implications for the same.
Increased use of social media platforms
The number of social media influencers on Youtube and other platforms has increased considerably especially during the last two years. As the pandemic has limited physical interaction, the brands have now turned towards these social media influencers to market their products on their respective products leading to considerable growth in their revenues.
There has been a significant shift in the consumer base to social media platforms. Not only the number of users but also their time spent on these platforms has increased considerably, with such a huge number of users, social media has paved a way for social media influencers to market the products and hence earn significant revenues.
The graph represents the trends of time spent by the users on social media platforms:
For a detailed report of time spent on social media platforms by users click here.
Due to the digital boom in the last few years, there has been an emergence of people making videos on various topics be it education, fitness, tips/ideas/classes related to business, reviews of movies, books, gadgets, etc.
With such a large number of users across the country, People are using youtube and other social media platforms as a medium to connect to a large proportion of the population, and hence trying to make it a full-time profession. Since there is a large number of users, it creates an opportunity for the vloggers as well as the social media influencers to sponsor and advertise products of other brands. Needless to say, this generates income and when there is any kind of income earned in India, it is liable to be taxed as per the provisions of the Act. So, this article would deal with the Implications and treatment of Income by YouTubers and Influencers as per the provisions of the Act.
Receipts from Youtube (On the basis of views and engagement).
Advertisements and endorsements from brands.
Consultancy services on video making, designing, SEO and optimisation.
Income from affiliate marketing and other sales funnels.
Receipts from Youtube
If a Youtuber is creating content in the form of videos then he will get remuneration as per the Youtube monetisation policy from Youtube itself.
Advertisement and endorsement from brands
Apart from earnings through Youtube, a Youtuber also receives payments through brand endorsements where they promote a certain brand in their videos and through AdSense as well.
Consultancy services on video making, designing, seo and optimisation
Many YouTubers also offer consultancy services through their Youtube channel to other people who want to learn the skill of brand creation, content creation, video making, SEO, SMM, and other allied services. Many of them also sell courses on the same as well which also forms a part of their revenue.
Income from affiliate marketing and other sales funnel
It is often seen that Youtubers or influencers promote products directly or through affiliate marketing by mentioning the links of products/services they are promoting and when any user makes any purchase using their link a part of the revenue goes to the influencer/Youtuber.
How is this income taxed?
For individual influencers
If the said vlogger/influencer is an Individual then he/she shall be taxed as an individual, unless registered as an LLP or Partnership Company. As a YouTuber or influencer is a professional hence, their income from social media platforms will be treated as “Income form Business and Profession” (PGBP) as per the provisions of the Income Tax Act.
Since it is a service-based business only normal provisions of the Income Tax Act are applicable. Individual influencers’ earnings are taxed at current slab rates. If the gross receipts during an FY exceed 1 crore then the tax audit is Liable. And the provisions of TDS will also be applicable to the YouTuber/Influencer whenever any payment is made to him/her. This means that tax shall be deducted before making payments to them as per the rates prescribed under the Act. The credit of which can be claimed at the time of filing the income tax return.
When the gross turnover/receipts during an FY is below 1 crore then the said YouTuber/Influencer shall be taxed normally and maintain the books of accounts, but if the gross receipts are more than 1 crore in an F.Y. then the books of accounts shall be audited as per section 44AB of Income Tax Act,1961.
In the case where your tax liability is more than Rs 10,000/- in a given Financial Year (FY), you are liable to pay advance tax as per the provisions of the Act. It shall be paid in the following manner :
June 15TH -15% of advance tax.
September 15th – 45% of advance tax.
December 15th – 75% of advance tax.
March 31st – 100% of total tax liability in that given FY.
All the TDS that has been deducted in a financial year and the advance tax that has been deposited is reflected in Form 26AS. As per the provisions of the Income Tax Act, tax deducted at source (TDS) is also applicable to the payments made to the YouTubers and influencers. Rates of TDS applicable will depend upon the nature of service or the type of transaction entered into.
Applicability of income tax on Youtubers or influencers
Income earned through Youtube or sponsorship collaborations are considered to be treated as “Income from the profession” and hence the tax is levied as per the slab rates.
Income tax can be levied under two schemes
Income from business and profession
A. An aggregate of gross receipts is calculated during the FY, And then all the expenses are adjusted against the gross receipts. But only those expenses are adjusted against the gross receipts which are allowable under Section 37 of the Act.
B. After the adjustment (Gross profit – Expenses*) the difference is the Net profit and hence the tax is payable on the same.
C. All the other provisions of income tax apply for exemptions as per the provisions of the Act, deductions as under 80C, 80D, etc. and disallowances if any as per Section 37 of the Act. As per the provisions of the Income Tax Act, a taxpayer has to get his books of accounts when the gross receipts are equal to 1 crore or greater in an F.Y. In an F.Y. if the taxable income is less than 50% of the gross receipts then it is mandatory to get the accounts of the said business audited.
Presumptive scheme
Applicable to residents who have a total of gross receipts less than 50 Lakhs in a F.Y.
Then 50 per cent of the total gross receipts are to be treated as taxable income and thereby the tax shall be paid on the same at the prescribed slab rates under the Income Tax Act.
Important point to be noted is that there are no deductions allowed against this above calculated income.
Allowable expenses as per the Act (under Section 37 of Income Tax Act)
Expenses in the due course of business: If you can show that a particular expense is done in due course or furtherance of business then you can claim the same against the gross receipts. For example bills of travelling done for vlogging, bills of hotel stay, Internet-bills, electricity bills, cost of your repairs of equipment etc.
Expenses incurred in marketing and promotions.
Depreciation: All the capital goods; that is, the equipment used in the business like laptop, cameras and other accessories used for the purpose of doing any business activity. All the expenses incurred in acquiring of assets cannot be treated as expenditure while depreciation can be claimed on the same as per the provisions of the Act.
Example
Mr. Tarun is a Youtuber who earns INR 26 lakh through sponsored posts during FY 2019-20. His expenditure includes the following:
Camera crew and editors’ salary – INR 3 lakh,
Marketing team – INR 1.5 lakh,
Total software subscription fee – INR 70,000.
In this case, Net profit would be INR 20.8 lakh. In the above example opting for a presumptive scheme would be better since the net taxable income is 13 lakh as compared to 20.8 lakh.
Guidelines for influencers on the applicability of GST
A blogger is an individual who is engaged in creating content in a digital form through which it provides space to brands to endorse their products. Before going into a detailed discussion for applicability of GST on vlogger/Youtuber/influencers we need to look into their working model. Most of the bloggers earn their revenues through AdSense which works as a mediator between brands and bloggers.
GST applicability on bloggers
As per the provisions of the Act, every supply of either goods or services made for a consideration by a person in the course and furtherance of business shall be considered as “Supply” under GST. And we know that bloggers supply services to brands or advertisers by endorsing them on their respective platforms.
Nature of services
The services offered by a blogger are categorised as OIDAR Services (Online Information and Database Access or Retrieval services). Under Section 2(17) of IGST Act 2017, Online Information and Database Access or Retrieval Services (OIDAR) means services whose delivery is made through the use of information technology over the internet or an electronic network and the nature of which can be automated and involves minimal human intervention where it is impossible to deliver the same without information technology and includes electronics services such as advertisement on the internet.
Place of supply
As per Section 13 of IGST Act 2017, the place of supply shall be the place at which the blogger is performing business or where he has registered as the “Principal place of business”. And the place of the recipient of service of supplier that is Google Adsense, Where the location of the recipient of services is outside India it shall be treated as export of services under section 13 of the Act.
As per Section 13(12) of the IGST Act, the place of supply of OIDAR Services shall be the location of the recipient of services. Accordingly, the bloggers are covered under sec 13(12) of the GST Act and the place of supply of service is the place of Google AdSense/YouTube. (out of India).
Whether it is export of service or not?
Section 2(6) of IGST Act 2017 defines export of services like the supply of any service when, ––
1. The supplier of service is located within the territory of India;
2. The recipient of service is located outside the territory of India;
3. The place of supply of service is located outside the territory of India;
4. The consideration for such kind of services has been received by the supplier of service in convertible foreign exchange; and
5. The supplier of service and the recipient of service are not merely establishments of a distinct person.
Reasons behind vlogger services being considered as “Export”
1. The service providers are registered and located in India.
2. The recipient (Google) of services is located outside India (Singapore).
3. The place of supply is also outside India as discussed above (Under Section 13(12) of IGST ACT).
4. Payments received by the bloggers are in convertible foreign exchange.
5. Vloggers and Google are not merely establishments of a distinct person.
Hence, it shall be treated as an export of services.
Zero rated supply
As per the provision of Section 16(1)(a) of the IGST Act 2017, the export of services is treated as a zero-rated supply. That means vloggers are providing zero-rated services to Google AdSense and Google YouTube for running advertisements on their blogs and YouTube videos. If such services are provided to a facilitator registered in India, it will not be considered as zero-rated and the GST rate applicable will be 18%.
Registration requirement
One of the most concerning questions for a vlogger is when does the liability to get itself registered arises under GST? So here is the answer:
As per the provisions of Section 22(1) if a vlogger /YouTuber/ influencer is making gross receipts or aggregate turnover of 20 Lakhs (10 lakhs in special states) or more in a financial year then he is liable to take registration under GST Act (10 lakhs in special states). For a list of special category states here).
GST returns
All the Bloggers/Youtubers/Influencers registered under GST are required to file returns as mandated for other businesses which shall include GSTR-1, GSTR-3B, AND GSTR 9 (annual return).
Other relevant issues
Though the vloggers/Youtubers/influencers receive payment directly through PayPal, bank transfer and the amount are inclusive of GST, but they don’t raise Invoice in the favour of Google although it is recommended that they should raise a proper invoice as per prescribed format under GST (For a prescribed Invoice format under GST click here) and need not give the invoice to Google, still, it is highly recommended that invoice should be raised and keep it along with books of accounts. This will help them while filing GST returns.
Further, blogger services are considered as export of services, and payments get transferred directly to the bank, a Foreign Inward Remittance Certificate (FIRC) is required to support the refund claimed. FIRC is a certificate issued by the bank against any inward remittance received against an export.
Conclusion
As per the changing needs of society, the professions are also evolving, and so the tax should as well. Keeping that in mind the government of India has undertaken the implementation of GST in 2017 and tried to keep it as comprehensive as possible so as to include every commercial activity under its purview and here under this article you can see how it has strategically taxing services offered by social media influencers. On the other hand, the Income Tax Act has also provided a comprehensive explanation as to how these influencers are to be treated under the provisions of the Act. This step will not only prove to be beneficial for the government in increasing its revenues but will also help in keeping track of transactions done with international entities which would enable curbing round-tripping and conversion of black money into white money also it would help India earn a considerable amount of foreign exchange which would in turn help in reducing the fiscal deficit of India.
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Arbitration is an alternative dispute resolution mechanism devised to thrive on party autonomy and accelerated redressal, contrary to litigations before the court. While parties are at liberty to develop an arbitration clause conserving their own convenience, court intervention is minimised to its crude essence. However, the present stature of the Arbitration and Conciliation Act, 1996 is a product of augmenting metamorphosis to cater to the diverse challenges in the arbitration realm. Courts, by virtue of the Arbitration Act, 1940, possessed discretionary powers to arbitrarily grant extensions for issuance of arbitration award, resulting in a perpetual trial. This has ceased to persist in the present scenario as the old statute is held ironically to the very purpose of the arbitration.
Arbitration advocates speedy trials therefore; a time cap is concomitantly necessary – within which the arbitral tribunal must deliver an award. Upon delivery of the award, the tribunal becomes functus officio. However, this article deals with the status of a tribunal that has failed to pass an award within the requisite time. Besides recapitulating provisions that encompass time-fidelity, this article aims at concurring its title, with reference to the statutory ground for termination of arbitrator laid down in the Arbitration and Conciliation Act, 1996 (hereafter referred as “the Act”) elucidated through notable judgements.
Section 14(1)(a) of the Arbitration and Conciliation Act, 1996
In case an arbitrator becomes De Jure and De Facto unable to perform their function or fails to act without undue delay, it constitutes grounds for termination of the arbitrator’s mandate. De Jure inability of an arbitrator refers to their legal incapacity to execute their functions and is disentitled from holding their office. For instance, if the arbitrator is an undischarged insolvent, bankrupt or a convict. De Facto or factual inability refers to circumstantial drawbacks of the arbitrator during the course of arbitration, such as physical ailment or illness, that makes them incapable to deliver themselves.
This provision is applicable to the instance where an arbitrator fails to adjudicate a dispute within a time frame that has been stipulated within the arbitration agreement and exceeds that time limit to deliver an award. Post the 2015 Amendment Act, the time period for each step of an arbitral proceeding has been specified and the law demands strict adherence to them. Therefore, it is binding upon the tribunals to produce and award within respective timespan, violating which shall result in termination of the tribunal’s mandate.
On termination of the mandate of an arbitrator, the law prescribes substitution of arbitrator as resort for aggrieved parties under section 29A (6). The manner of appointing a substitute arbitrator is the same as the arbitrator initially appointed. It is pertinent to recall that parties can mutually appoint an arbitrator or appeal under section 11 of the Act before the court of appropriate jurisdiction for such appointment.
Section 29A of the Arbitration and Conciliation Act, 1996 Section 29A of the Act covers provisions quoting a time limit within which an arbitral award needs to be passed. The section was exteriorised via the Arbitration and Conciliation (Amendment) Act, 2015. The act further underwent a rampant modification in 2019 based on the recommendations of the High Level Committee aimed at reviewing institutionalization of arbitration mechanisms in India. Section 29A, in its present form dictates stipulation of a twelve months span within which an award needs to be passed by the sole arbitrator/tribunal. This time period is accounted from the date of completion of pleadings as under Section 23(4) of the Act,2019. Prior to 2019 amendments, the time specification for passing of an award was twelve months from the date of appointment of arbitrator.
Section 29A (4) provides that on failure to adhere to the time limit under Section 29A (1) or extended-time period under Section 29A (3) to pass an arbitral award, the mandate of the arbitrator is subject to termination. At this juncture of arbitration, the parties may resort to either of these remedies:
An application under Section 29A (1) can be moved by party consensus before the lapse of the twelve months’ time. Parties can seek a maximum of six months extension period.
Either party can seek extension of period even beyond six months till the maximum capped limit provided under section 29A (3). Such application can be moved before or after the lapse of the twelve months period.
Jayesh Pandya vs. Subhtex India Ltd. In the course of arbitration between the parties, the Respondent has moved an application seeking the appointment of an arbitrator before the Hon’ble Court. Subsequently, the Appellant, in disapproval, has challenged the aforementioned appointment vide writ petition before the Court of Bombay. Here, the Appellant’s petition was rejected which led the application to move before the Supreme Court. The arbitration proceeding was suspended until trial, during which the former arbitrator passed away. The demise of the arbitrator, by virtue of section 14, formed grounds for the Apex court to dismiss the petition and subsequently appoint a new arbitrator.
The duration of procedural hearing of statement of claims and counter-claim has exhausted the time limit for passing of an award, therefore it was practical to appeal for extension of time limit for issue and publication of award. However, the Appellant refused to consent to an appeal for extension. The parties have failed to amicably obtain an extension for issuance of award. At the later stage of arbitration, the appellant has refused to accept the award of a functus officio tribunal, as the four months stipulated time period has been exhausted and the mandate of the arbitrator has become de jure incapable of delivering an award in a timely manner as under section 14(1)(a) of the Act, 1996. The Bombay High Court held that the appellant’s thorough participation corresponds to their waiver of right to challenge the award at this conclusive juncture of arbitration and post publication of award. Therefore, the Bombay High Court ordained against the necessity of Court intervention in this particular judgement. However, the Hon’ble Court fails to understand the veracity of the facts that the award has been passed by a tribunal with no authority to pass the same. The appellant further relied on the NBCC Limited V. JG Engineering Private Limited, upholding the arbitrator’s arbitrary actions in presuming an extended time period whereas, to do so, it needs to seek consent of both the parties.
Overturning the judgement of the Bombay High Court, The Apex Court in its judgement of the case of Jayesh Pandya V. Subhtex India Ltd., levied greater emphasis on the Sections 14 and 15 of the Arbitration and Conciliation Act, 1996. The Hon’ble Supreme Court, in this case, acknowledges the termination of arbitrator’s mandate on the grounds of incapability to produce an award within time-limit, thereby, failing to act without undue delay.
NBCC Ltd. vs. JG Engineering Pvt. Ltd. Status of an arbitrator post lapse of time limit of arbitration has been subject of judicial concern even prior to the 2015 Amendment Act. The Hon’ble Court commented that the power vest in court by virtue of Section 28 of the Arbitration Act,1940 has been dispossessed and it antithetical to the principles of arbitration.
In this case, where NBCC ltd and JG Engineering pvt ltd have executed a contract on 30th March, 1993 for conducting construction works at Bhubaneshwar Airport, entered into arbitration as per their precluded agreement, the parties had mutually accorded to a specific duration within which the expected a yield of arbitral award. The arbitration agreement explicitly reflects party consensus in stipulating a time period, therefore the arbitral tribunal cannot exercise power to further extend time without parties’ consent. It has been established that the parties have not consented to the arbitrator’s decision to extend time, meaning the arbitrator has acted outside the scope of the arbitration agreement. Since the arbitrator has, within themselves, no power to extend the time period on expiry of the limit set by the parties, their mandate ipso facto stands terminated upon expiry of their tenure under that arbitration agreement. However, an arbitrator reserves the capacity to seek extension in case of predicated delay, which they are required to proceed with after seeking parties’ consent. Same can only be amenable in the instance where the arbitration agreement in itself is silent on such action. Thus, an arbitrator stands obligated to pass an award within the time that parties have mutually decided in the arbitration agreement. This time limit can be expanded only with the consent of parties.
Furthermore, the arbitration between NBCC and JG Engineering has continued over a period of nine years. Such inefficacy defeats the superlative purpose of arbitration as a rapidly efficient dispute redressal forum. Based on this backdrop, the Hon’ble High Court, its impugned order, has dismissed the appellant’s contention, claiming technical complexities associating the primary dispute, as a force majeure instigating an extensive trial, causing the delay in issuance of an award. However, the parties as well as the arbitrator have liberty to move an appeal before the Court seeking further extension to conclude arbitration, which neither entity has done. The Hon’ble Court is of the view that the present arbitral tribunal has no cogent reason for acting in breach of due deadline in passing an award. Its comment is founded on the fact that there have been three reappointments of arbitrators in the course of arbitration – indicating the procedural hearing conducted has already been subject of review, thereby of indispensable authenticity. The arbitral tribunal has no possible cause for further delay in publishing an award.
Conclusion
No conclusive mechanism can be devised dictating the interpretation of statutes by the Courts. It has majorly reflected upon the subject matter of litigation and nature of the dispute. Similarly, the Arbitration and Conciliation Act, 1996 is no exception. Nonetheless, when parties choose to stipulate a time period in their arbitration agreements, despite the existence of statutory provisions prescribing time-limits, it is advisory to me to consider discrepancies that may arise at a later stage in arbitration. The Madras High Court’s judgement of Suryaved Alloys and Power Pvt. Ltd. V. Shri Govindaraja Textile Pvt. Ld.is a recent instance of the judiciary’s perspicuous interpretation of Section 29A, endorsing adherence to statutory time-limit as crucial.
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Conflicts are unavoidable in any relationship but commercial interests cannot afford for these conflicts to go unresolved. Therefore, various methods have been devised to resolve conflicts or disputes arising out of contractual relationships. Traditionally, litigation in courts was the most preferred option but the fast-moving world today has, to a great extent, shifted towards alternate dispute resolution (ADR) methods like arbitration, conciliation, mediation and negotiation. The major reason for this shift has been the benefits of ADR, some of them are: (1) Saving time, (2) Parties’ control over the process (or party autonomy), (3) Confidentiality, (4) friendly atmosphere, etc.
In this article, we will look into a landmark Supreme Court Judgement wherein the court put to rest the much-deliberated question of law on parties’ autonomy in arbitration: whether two Indian parties can choose a forum for arbitration outside India. InPASL Wind Solutions Private Limited v. GE Power Conversion India Private Limited, the Supreme Court has given the emphasis on party autonomy and held that two Indian parties can select a foreign seat of arbitration
Background
Facts
PASL Wind Solutions Private Limited (“PASL”) and GE Power Conversion India Private Limited (“GE Power”) are two Indian companies that entered into a settlement agreement dated December 23, 2014, over disputes in relation to the expiry of certain converters. The settlement agreement provided for disputes to be resolved by way of arbitration under the International Chamber of Commerce (“ICC”) Arbitration Rules, with Zurich as the seat.
In 2017, PASL referred the dispute for arbitration before the ICC. This was opposed by a preliminary application filed by GE Power challenging the jurisdiction of the Sole Arbitrator on the grounds that Indian parties cannot arbitrate their dispute before a foreign seat of arbitration. PASL opposed this application and argued that there was nothing in the law that barred Indian parties from doing so. The tribunal rejected GE Power’s challenge but acceded to its suggestion of shifting the venue to Mumbai. This was done in order to reduce the cost of arbitration. Tribunal held that the seat will still be Zurich and only the arbitration proceedings will be held in Mumbai. Later the Award was passed in favour of GE Power.
Enforcement Proceedings
After the Award was passed, GE Power asked PASL to pay the amount granted under the Award, however, PASL failed to oblige. GE Power initiated enforcement proceedings before the Gujarat High Court for enforcement of the Award under Section 47 and 49 of the Arbitration and Conciliation Act, 1996 (“Act”). In addition, a Section 9 application was filed for securing the award in the interim. The enforcement proceedings were opposed by PASL on the basis that Indian parties cannot choose a foreign seat of arbitration as it was against the public policy of India, starkly contradicting its earlier stand.
The High Court upheld the enforcement of the Award and held that two Indian parties can choose a foreign seat of arbitration. However, it dismissed the interim application under Section 9 filed by GE Power. The HC gave the reason that the remedies under Section 9 are available for ‘international commercial arbitration’ as specified under Section 2(2) of the Act and the definition of ‘international commercial arbitration’ under Section 2(1)(f) requires at least one foreign party. In the present case, both the parties were Indian companies.
Appeal
PASL challenged HC’s order before the Supreme Court of India and cross-objection was filed by GE Power challenging the dismissal of the Section 9 application. The present judgement emanates out of this appeal. The matter was looked into by a three-judge bench and Justice Rohinton F. Nariman authored the judgement.
PASL’s main contention was that two Indian parties cannot designate a seat of Arbitration outside India as doing so would be contrary to Section 23 of the Indian Contract Act, 1872 read with Section 28(1)(a) and 34(2-A) of the Arbitration Act. By designating a foreign seat, parties would be able to opt-out of the substantive law of India, which would be contrary to the public policy of the country.
The ruling of the Supreme Court
On designating a foreign seat by Indian parties
The Supreme Court, while considering PASL’s contention that Indian parties selecting a foreign seat would be contrary to Section 23 and 28 of the ICA, discussed the case of Atlas Export Industries v. Kotak & Company (“Atlas”)
To have a better understanding of how the Supreme Court relied on this case, let us first look at what the issue was and what was held in the Atlas case.
In the Atlas case, it was argued by the appellant that the award of an arbitral tribunal seated outside India should be held to be unenforceable. The arbitration clause of the contract which had the effect of compelling them to resort to arbitration by foreign arbitrators impliedly excluded the remedy available to them under the ordinary laws of India which is opposed to public policy. Under section 23 of the Indian Contract Act, the consideration or object of an agreement is unlawful if it is opposed to public policy.
The Division Bench of the SC held that the case at hand was covered under Exception 1 to Section 28 of the ICA. Exception 1 clearly says that in instances where the contract requires a dispute arising between parties to be referred to arbitration, the contract will not be rendered illegal as per Section 28. Justice R Lahoti observed, “Merely because the arbitrators are situated in a foreign country cannot by itself be enough to nullify the arbitration agreement when the parties have with their eyes open willingly entered into the agreement”. The Court in the present case declared Atlas as a binding precedent and reiterated that if a contract has the effect of compelling the parties to resort to arbitration by foreign arbitrators and thereby implicitly excluding the remedy available to them under the ordinary law of India, the same is not opposed to public policy. The court rejected the contention raised under Section 28(1)(a) of the arbitration act stating that the said section falls under Part I of the Act which is applicable only to India-seated arbitration.
On Party Autonomy
The Court reiterated what was held in Bharat Aluminium Co. V. Kaiser Aluminium Technical Services and held Party autonomy to be the ‘brooding and guiding spirit of arbitration’. The parties have autonomy on the application of three different laws governing the entire contract: (i) proper law of contract, (ii) proper law of arbitration agreement, and (iii) proper law of the conduct of arbitration, popularly known as “curial law”.
The Court examined the conflict between freedom of contract and the check put on it by public policy. It observed that freedom of contract needs to be balanced with clear and undeniable harm to the public. The court finally held that nothing stands in the way of party autonomy in designating a seat of arbitration outside India, even when both the parties are Indian nationals.
On Maintainability of Interim order under Section 9
In the appeal filed by PASL before the Supreme Court, GE Power filed a cross-objection to the Gujarat High Court order which dismissed the application under Section 9. The Supreme Court upheld the Gujarat High Court judgement except its finding where it held that the Section 9 application was not maintainable. The Supreme Court opined that the term “international commercial arbitration” in the present context does not refer to the definition contained in Section 2(1)(f) of the Act. It is a seat-centric definition related to arbitration taking place outside India. The court held that international commercial arbitration taking place outside India, with the parties being Indian, can have interim relief under Section 9 of the Act unless the contract speaks to the contrary.
Conclusion: Highlighting the significance of the judgment
The principle of party autonomy gives rights to the parties to choose applicable substantive law and these laws govern the dispute resolution process. Party autonomy is one of the major pillars for the rise of international commercial arbitration. Foreign companies with subsidiaries based in India and companies having international transactions would now find it easier to get their disputes resolved under a neutral jurisdiction. Moreover, a reading of the judgement would suggest that the court has weighed in for bolstering party autonomy. This decision is a welcome step in making India an arbitration-friendly country.
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This article is written by Ms. Nikara Liesha Fernandez from the School of Law, Christ University, Bangalore. This article deals with arguments suggesting the unconstitutionality of the IT Rules, 2021, based on direct application of the provisions of the Indian Constitution as well as principles set forth by the Courts of Law through various precedents.
Social Media Intermediary companies such as Facebook, Whatsapp, Twitter, Telegram, and LinkedIn, to name a few, were made to submit the required details as per the Rules to the MeiTY. These rules have raised a myriad of concerns from both the companies as well as the users of their services. For example, Twitter even sought an extension of the compliance window and requested that the Government safeguard the freedom of expression of the public. Similarly, Whatsapp has lodged a case in the Delhi High Court challenging the government with regards to the IT Rules, 2021 on the grounds that the new requirements mandated by them violated customer privacy.
The defence used by the government as to the reason for establishing these rules was the need for a robust grievance redressal mechanism through which ordinary citizens who are the users of the intermediary platforms and other forms of digital media would be empowered to seek redressal for their grievances in a timely and organized manner. For this purpose, the new rules mandated the appointment of a Grievance Redressal Officer (GRO) who is to be a resident of India and the authority to handle customer grievances, especially those grievances involving issues such as sexual offences (including women and children with regards to pornography), dissemination of fake news causing public disorder and other misuses of social media on similar lines.
Unconstitutionality of the IT Rules, 2021
The Constitution of India is considered to be the supreme law of the land and all actions of individuals and organizations are required to be in tune with the same. Being a law that supersedes all other laws and takes the apex stance, it is reasonably assumed that all legislation passed by the legislature (and in this case the executive) must be in line with the provisions of the Constitution. However, there appears to be a significant departure from the same regarding many points of the IT Rules, 2021 which have been discussed below. As a rule, any law that is in contravention of the Constitutional provisions is liable to be struck down by the judiciary. However, due to political influence and corruption, striking down/amending the IT Rules, 2021 by any authority other than the ones who promulgated it themselves (i.e. the legislature), would lead to chaos within the wings of governance of our country.
Violation of Article 14
Article 14 of the Constitution upholds the equality of law and equal protection of the law to all individuals. Discrimination between individuals in the eyes of law is held unconstitutional and differential treatment of the same is prohibited.
Violation of the right to a fair hearing
The right to a fair hearing or ‘Audi alteram partem’ is considered to be a procedural and institutional facet of Article 14.
The oversight mechanism (level III) under Section 13, chapter IV of the IT Rules empowers the Secretary of the Ministry to issue directions ‘for blocking of online content to persons, publishers, or intermediaries in control of hosting such information, without giving them an opportunity of hearing’. The conditions for the same are once again not specified and just termed as an ‘emergency’ instead. This not only violates the right of the publisher and persons of the said content to know why their content has been taken down but also does not give them a fair hearing that violates their right to be heard. This compromises both the equality of the concerned persons as well as their equal protection of the law. The judgment in the case of Maneka Gandhi v. UOI (1978) clearly reiterates and upholds this right which is in tune with the rule of law and principle of natural justice explained below.
The Supreme Court has stated, in the case of Siemens Engineering & Anr. v. UOI (1976) that a mere pretence of compliance would not satisfy the requirement of law. The crux of the rule, as elaborated by the Supreme Court in the case of Anwar v. State of Jammu and Kashmir (1970) is that the person affected must have a reasonable opportunity of being heard and the hearing must be a genuine one.
Violation of the rule of law and principle of natural justice
The Rule of law upholds the supremacy of the Constitution and deems anything arbitrary or unconstitutional in nature as automatically a violation of Article 14. The vague and ambiguous nature of these rules is indicative of the unconstitutionality of the same. Violation of the rule of law, in turn, violates the principle of natural justice. ‘Natural Justice’, as defined by the Court in the case of Canara Bank v. V.K. Awasthy (2005), refers to ‘those rules which have been laid down by the courts as being the minimum protection of the rights of the individual against the arbitrary procedure that may be adopted by a judicial, quasi-judicial and administrative authority while making an order affecting those rights.’ Violation of the principles of natural justice would amount to a violation of Article 14 as in the case of Rajasthan State Road Transport Corporation v. Bal Mukund Bairwa (2009) unless such non-compliance has been expressly allowed (established by the Supreme Court in the case of H.L Trehan v. UOI (1998). It has been established by the Court in the case of C.B Gautam v. Union of India & Ors.(1992) that the principles of natural justice are applicable even if it was not statutorily required.
Arbitrary exercise of powers in the regulation of digital media
Article 14 is considered to be the protector against any form of arbitrariness and unfettered discretion. This violates the principle of natural justice as well which goes hand in hand with the fact that in the instance where any proceedings are found to violate being fair, just, and reasonable, such proceedings offend Article 14 and Article 21, as held by the Court in the case of Dharampal Satyapal v. Commissioner of Central Excise & Ors. (2005).
In other words, Article 14 targets arbitrariness as it is believed that any action in order to be defined as arbitrary must involve the negation of equality, and therefore equality is antithetic to arbitrariness, as stated by the Court in the case of EP Royappa v. State of Tamil Nadu(1974).
As held by the Court in the case of State of Punjab v. Shri Amar Singh, General (1998), reasonability and fairness, being a basic requirement of Article 14, is the antithesis of the arbitrariness exercised by the Government in the passage and criteria of these rules. These rules thus fail the test of reasonability.
There have been no clear limits that have been stated by these rules as to just how far the rules empower intermediaries to ‘regulate’ digital media. This particular ambiguity of the rules is of paramount concern as users of these intermediary platforms are left feeling insecure and unsafe about personal and private data which is put out on these intermediary platforms.
Although the rules specify that they are limited to only identifying the first originator of the information and do not disclose all the contents of the message, the government can choose to couple this with the IT Decryption rules and in this event, there will be no question of retaining our right to privacy.
This is not the first time the government has been criticized for its low standards of data encryption in licensing agreements with telecom providers. The Report of the Justice B.N Srikrishna Committee on Data Protection of 2018, stated that poor encryption standards pose ‘a threat to safety and security of the personal data of data principles.’
The rules under Section 3(1)(h) also state that the intermediaries are empowered to preserve the information of their users for a period of 180 days on receiving such an order from the authorized agency ‘for investigative purposes’, even after the said user has deleted his/her account. This is particularly dangerous to the user’s privacy as in the absence of any data protection law in our country, it is unclear to the user how much data will be under surveillance and how safe this entire process is.
Unequal playing field for the publishers of different forms of media
The provisions of Article 14 of the Indian Constitution provide for the equal protection of the law and prohibits discrimination on the grounds of the same.
The Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 rules do not apply to print and electronic media and thus promote hostile discrimination between various media houses.
However, digital media publications by television channels are covered under these rules. This encourages discrimination as the bigger, established media houses who run print media in addition to digital media continue to be able to circulate their content through print and simultaneously be exempted from the rules. Conversely, the smaller, low-budget independent media houses who rely solely on the internet to disseminate their information are deprived of this privilege, thus heightening the inequality between the two. This will lead to the downfall of the latter who play an integral part in circulating unbiased, legitimate content.
The definition of a ‘publisher of news media and current affairs content’ as under Section 2(1)(t) of the Act does not extend to replica e-papers of newspapers which is another ground for discrimination.
Existence of two statutory bodies governing a single set of rules
A difference of the bodies administering the different parts of the rules is also discriminatory in nature, as part II of the rules which deals with the regulation of intermediaries is administered by MeiTY and part III of the rules which deals with the regulation of digital news media is administered by the Ministry of Information and Broadcasting (MIB).
Violation of Article 19
Article 19 upholds the freedoms of the various rights contained under it from sub-clauses (1)(a) to (1)(g).
Violation of Article 19(1)(a)
Article 19(1)(a) of the Constitution guarantees the freedom of speech and expression of all the citizens of the country.
Freedom of the press implicitly comes under Article 19(1)(a). In a country of over 100 crore people, it is imperative for the freedom of the press to prevail especially in the area of criticism of the Government to prevent totalitarianism. The rules, under the premise of catering to the safeguard of the people of India’s sensibilities and traditions, seek to ‘regulate’ this freedom, however, by imposing such vague restrictions on such a broad area of categories, this seems more like an act of censorship which will have a chilling effect on the right to free speech and expression. Certain issues need to be depicted by these OTT platforms and intermediaries as this spreads awareness on certain realities and social evils which can only be prevented through circulation among the masses.
Violation of the right to freedom of opinion and the concept of democracy
Before the passage of this Act, the specific number of complaints received by the Government was merely 171 comments with 80 counter comments to the same. This is grossly disproportionate to the population of the country. The Government thus has not followed due diligence and held adequate consultations with the public to gain a justified consensus on the issue.
The press release of the MeiTY regarding these rules prohibits intermediaries from hosting ‘unlawful information’. The specifics of this are not mentioned and this could be used to the Government’s convenience to term any form of opposition and criticism towards it as ‘anti-national’ in nature, which could be transmitted to the masses through the intermediary platforms. This will inevitably lead to autocracy and is completely against the principle of democracy guaranteed by the preamble of our Constitution which upholds the same. As stated by K.M Munshi in the Constitutional Debate of 1st December 1948, ‘The essence of democracy is criticism of the government’. The need for the vibrancy of democracy to be retained was further emphasized in the case of Kihoto Hollohan v. Zachillhu And Ors. (1992) as democracy, which is put into effect by Article 19(1)(a) forms an integral part of the basic structure doctrine.
Violation of the right to information
Coupled with the violation of the right of freedom of the press, the grievance redressal mechanism of these rules is flawed. If they really were to cater solely to every single grievance and complaint as the rules state, the criteria according to which the intermediaries are required to take down content being complained about are very broad and vague in nature. Under the ambiguity of Section 3(b) of the rules, the press would suffer from a lack of credibility and this would hinder its circulation, ultimately building up to a point where the public is deprived of any legitimate news and issues which hinders their right to information.
In the judgments of UOI v. Association for Democratic Reforms (2002) and Anuradha Bhasin v. Union of India (2020), the Supreme Court formally recognized the people’s right to information and the right to be informed as a fundamental right. The users of social media intermediaries are denied their right to information in the event of an ‘emergency’ for the same reasons as stated above.
Usage of ‘technology-based’ measures
The regulation of the fundamental right to speech and expression by ‘technology-based’ measures will inadequately protect the data of the citizens of India. Section 4(4) of the Rules empowers the social media intermediary to employ ‘technology-based measures’, thus giving the intermediary the power to employ artificial intelligence tools. Artificial intelligence, as has been seen over time, is not flawless, as it relies on technology to solve problems relating to humans. The belief that such technology is not free from bias is false as well, as these technologies, in order to work have to be coded by humans who themselves are not bias-free and such coding biases further lead to a lack of accountability and transparency. It can be concluded that these rules empower Artificial intelligence to regulate the fundamental right of free speech and expression, which is very dangerous.
Validity of the Code of Ethics
The Code of Ethics established under Part III imposes additional penalties and obligations for the publishers of content on the internet to follow. The grounds on which such content can be declared as unethical are vague in nature and are likely to have a chilling effect on free speech and expression as well as cripple the creativity and artistic voice of the users and publishers of intermediary platforms. This immense ambiguity is unconstitutional, not to mention that the mere purpose of establishing a code of ethics cannot be said to have been derived from Section 79 of the parent Act.
Violation of the right to access the internet
The Anuradha Bhasin judgment led the Supreme Court to declare the right to access the internet as a fundamental right. The passage of these rules which puts various restrictions on the content available on the internet can also be understood to be a violation of the right to access the internet in its entirety, the scope, and nature of which is still evolving. The Kerala High Court was the first to declare this right as a fundamental right under Article 19 of the Constitution, in the case ofFaheema Shirin R.K. v. State Of Kerala (2019).
Violation of Article 21
Article 21 guarantees an individual with the fundamental right of protection of his life and personal liberty. Article 14 needs to be harmoniously read with Articles 19 and 21, as held by the Court in Maneka Gandhi’s case. As the rules are clearly in violation of Articles 14 and 19 as proved above, this negates the constitutionality of the rules under Article 21 as well.
From Section 3(j) of the rules we see that no actual autonomy given is to the intermediary, as on receiving the Government’s orders in writing, they are required to hand over personal information of the users and their data violating their right to privacy within 72 hours.
Under Section 7, if for any reason the intermediary does not follow the rules, Section 79 (1) of the IT Act 2000 guaranteeing the immunity of the intermediary (also known as the ‘safe harbour provisions’) stands cancelled and they can face action under the Indian Penal Code, 1860. The intermediary is thus left at the mercy of the government, to act as its puppet, and in order to continue to receive this immunity, it has to obey the Government’s orders to hand out our private information to them leaving our data and privacy at risk.
Encryption under the Right to Privacy
Section 4(2) of the Rules violate an individual’s right to privacy as intermediaries providing primarily messaging services are now required to ‘enable the identification of the first originator of the information on its computer resource as may be required by a judicial order passed by a court of competent jurisdiction or an order passed under Section 69 by the Competent Authority, as per the Information Technology (Procedure and Safeguards for the interception, monitoring, and decryption of information) Rules, 2009, which shall be supported with a copy of such information in electronic form’. This violates the end-to-end encryption services guaranteed by such intermediaries. The grounds on which this identification and traceability are to be given by enabled intermediaries are vague such as what exactly constitutes ‘public order’ is not defined. This promotes the arbitrary action of the government.
The means as to how the intermediaries will be able to track the first sender are ambiguous. The case of Karmanya Singh Sareen And Anr. v. Union of India (2016) is still pending before the Supreme Court which when decided will clear up the privacy policy issues of such intermediaries.
Violation of Article 50
Article 50 highlights the separation of powers between the legislature and the executive. This concept has been reiterated in the case of Kesavananda Bharati v. State of Kerala (1973) as well as in Indira Nehru Gandhi v. Shri Raj Narain & Anr. (1975). In the former case, the Court established that if any rule is found to be in violation of the basic structure doctrine of the Constitution, it needs to be removed.
It would appear from these rules especially under Section 3(d) that the Government (executive) might take advantage of the Courts (judiciary) and use the power of the court to pass such orders to strengthen and further their own cause.
This article, which comes under the Directive Principles of State Policy, speaks of the separation of powers between the executive and the judiciary. However, these rules, though touted to continue to allow the intermediary to function with autonomy, bring into question this exact fact under the Grievance Redressal Mechanism of Chapter 3 Section 12. The second level of the self-regulating mechanism states that the self-regulatory body would be headed by a retired ‘a retired judge of the Supreme Court, a High Court, or an independent eminent person from the field of media, broadcasting, entertainment, child rights, human rights or such other relevant field, and have other members, not exceeding six, being experts from the field of media, broadcasting, entertainment, child rights, human rights and such other relevant fields.’
The catch in this however is that the self-regulating body can only come into effect after it has been registered with the Ministry of Information and Broadcasting (MIB- who is part of the executive branch of governance) once it is satisfied with the same.
Violation of Article 312
In the case of D.S. Garewal v. State of Punjab and Another (1958), the Supreme Court held that Article 312 of the Constitution dealt with the powers of delegated legislation. Any law, in order to become an Act, must be passed by the Parliament. This is a known fact. Although the government can say that they have the permission to pass these rules under Section 87(2) of the IT Act, 2000, there are certain limits to which the concept of delegated legislation can be implemented.
For example, as observed by the seven-judge Constitutional Bench in the landmark judgment of In Re: The Delhi Laws Act 1912, ‘powers mustn’t be legislated so loosely that the area of the delegated legislation cannot be ascertained, leading it to cover all areas of law’. This is a clear example of the same as despite being derived from Sections 79, 69A and 87 of the IT Act, 2000, the act has not expressly mentioned that it empowers the Government to make such rules as to govern the area of digital news or news media let alone prescribe digital media ethics.
Thus, it would appear that the Central Government has misinterpreted the intention of the Act to suit its own intentions, which is not permitted under the concept of delegated legislation as to state that one is performing the delegated powers of a duty one was never empowered to exercise in the first place, as it was never mentioned in the parent Act either is a clear abuse of powers as the government has acted outside the limits of authority of the Act as can be seen in the case of Hukam Chand Shyam Lal Etc v. Union of India & Others (1975). Since the grounds on which the government has passed this Act are clearly invalid, it automatically makes the rules passed by them unconstitutional and void as well. The Court should follow the precedent set by it in Kunj Behari Lal Butail And Ors v. State of Himachal Pradesh And Ors (2000) and declare the rules as invalid.
Another ambiguity to prevent such misuse of the concept of delegated legislation can be derived from the judgment in the case of St. Johns Teachers Training Institute v. Regional Director, NCTE (2003), where it was established that rules cannot in any way be made to replace the parent Act; it can only be made to enhance or supplement it.
Conclusion
From the above analysis, it is evident that the Government has managed to bypass the due process that is required for the passing of laws of such gravity, in order to further their own interests which will inevitably lead to an increase in their control over the content portrayed by the social media intermediaries and OTT platforms. It is of utmost urgency that these rules be revised in order to allow the intermediaries and other forms of digital media to retain their independence themselves, in such a way that is in line with the laws of society and the customs and sensibilities of the people as well.
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This article is written by Harman Juneja, a student of Dr. B.R. Ambedkar National Law University, Rai, Sonepat. The article talks about extending protections to the accused in light of the case of Mian Abdul Qayoom v. The State Of J&K.
Table of Contents
Introduction
The article is based on a recent case that raised important questions about the problems and issues that the accused faces while going through a trial. Although the case was related to preventive detention, it covers the trouble of every undertrial person in the country.
India’s criminal law is merely a mirror of the Victorian heritage that the Britishers left behind. Only a few amendments have been made to the law over time to appease pressure groups and vote banks. These laws, which have been in place for nearly seven decades, have not given any attention to the predicament and socioeconomic situations of more than 50% of the country’s people, who live in abject poverty. India, being a poor developing country, needs something other than a carbon duplicate of the laws in developed western countries.
Mian Abdul Qayoom v t.he State Of J & K
Facts
In the case of Mian Abdul Qayoom v. the State Of J&K (2020), the detainee was a famous senior advocate who had been practising in the High Court of J&K for the past forty years and was also the President of the J&K High Court Bar Association in Srinagar. It was submitted by the petitioner that the detenu had been previously placed under preventive detention in the year 2010, and after imprisonment in various sub jails in J&K, the detention order was forced to be withdrawn. The detenu was reported to have been caught during the intervening night of 4th/5th August 2019 and held in Police Post Rangreth for two days. After that, he was moved to Central Jail, Srinagar. On learning of this, the General Secretary of the J&K High Court Bar Association, Srinagar, filed a petition in which the respondents were served with a notice demanding that they reveal the authority under which the detainee was imprisoned.
Issue of the case
The issue before the judges was whether the detention by the detaining authority was justified or not.
Arguments of the parties
The petitioner argued that the detention was not justified. The detainee was not informed of the grounds on which he was detained, and the detention was based on the FIR’s registered between 2008 and 2010, to which he was already detained in 2010. The petitioner also claimed that clear and sufficient reasons were never stated while he was in detention, and how his acts could endanger public life or property.
To these arguments, the respondent stated that detenu was placed under the provisions of the J&K Public Safety Act, 1978. Based on his separatist beliefs and previous unlawful conduct that were considered to be detrimental to maintaining public order, his arrest would inspire the general population to resort to violence, upsetting public order. As a result, the detaining authority stated that it was necessary to invoke relevant portions of the 1978 Act and detain the detainee to prevent him from participating in conduct that would jeopardise public order.
Judgment
It was held that the law of preventive detention is not unconstitutional since it has no objective criterion for ordering preventive detention, and instead relies on the executive’s subjective judgment. This viewpoint is based on the fact that preventive detention is not punitive, but rather preventative, and is used to prevent a person from engaging in actions that are seen to be harmful to specific goals that the law of preventive detention aims to regulate. As a result, preventive detention is based on suspicion or expectation rather than proof.
The subjective satisfaction of a detaining authority to detain or not detain a person is not susceptible to a court’s objective evaluation. The merits of an administrative decision to detain a person should not be scrutinised in court. Therefore the petition was dismissed by the court.
Preventive detention
Preventive detention, as defined by Section 151 of the Criminal Procedure Code of 1973 (CrPC), is an action taken based on suspicion that the individual in question may commit some wrongdoing. If a police officer has information that an individual is about to commit a crime, he or she can be arrested without the involvement of a magistrate and the need for a warrant.
Rights of the detainee
The Indian Constitution’sArticle 22 protects citizens against the abuse of police authority to make arrests and detentions. In some circumstances, it offers protection from arrest and detention. The various provisions under the act are:
Article 22(2) says that every person who is arrested and held in custody must be brought before the nearest magistrate within twenty-four hours of their arrest, excluding the time required to travel from the place of arrest to the magistrate’s court. No one may be held in custody beyond that time without the permission of a magistrate.
The Article’s clause (4) states that no one can be held for longer than 3 months unless a bench of High Court judges or an advisory board chooses to increase the time limit.
The detained individual should be informed of the grounds for his or her detention under the order and given the chance to make a representation against the case, according to clause (5) of Article 22.
Problems faced by the accused under trial
India’s criminal law is a relic of the colonial era. It is a hostile environment for the impoverished and weaker members of society. The law continues to serve and defend the demands of the wealthy while ignoring the needs of the poor. As a result of this bias, wealthy people have been able to elude the law, and the prison population is disproportionately made up of the poor. The high expense of entry to the temple of justice, combined with the hierarchy of courts and appeals after appeals, has resulted in a scenario where the poor are unable to access it.
A person in police custody or awaiting trial does not forfeit their fundamental rights and human rights, just because he or she is incarcerated. This is founded on the concept that hundreds of guilty people should be acquitted, but one innocent person should not be punished. The accused should be considered innocent until the prosecution proves them guilty but sometimes they get labelled guilty even without trial due to media or personal biases. There are a lot of problems that the accused seem to face while being on a trial and these issues are:
Slow trials- This is one of the biggest problems faced by persons going to trial and not only to the accused but also to the aggrieved party. People sometimes face injustice but still don’t take the matter to court as they think it will take a lot of time to get the result which in turn requires a lot of effort and money. For the accused, it is a long period of stress and humiliation to be on trial for such a long period and having to live with the constant fear of going to jail.
In India’s criminal justice system, more than 0.2 million undertrial offenders have been held in prison for years, often for longer than the maximum punishment for the offence they committed.
Overcrowding and a lack of appropriate space to house prisoners in safe and healthy settings affect the majority of jails. It is a reason for many other health problems as well.
Prisons are often hazardous environments, with a high rate of group violence and police mistreatment. Meek and first-time offenders are subjected to torture and forced to perform menial labour. All of this violates the UN Standard Minimum Rules for Prisoner Treatment
The family is frequently thrown into poverty as a result of the main breadwinner’s long absence. The family is also subjected to social stigma. All of these factors encourage youth to engage in delinquent behaviour and be exploited by others.
This is just an overview of the problems faced and the accused, while in the trial, face a lot of unsaid and unheard problems.
The way forward
People who are not proven guilty mustn’t start feeling like a guilty subject or a prisoner, and to accomplish this, their rights must be protected. So some suggestions for the same are as follows:
We don’t have to look far. All that remains is to consolidate the ideas and suggestions made by various expert groups and institutions and to begin putting them into action. In its 268th report, the Law Commission suggested that police officers avoid making unnecessary arrests and that magistrates stop issuing mechanical remand orders.
The bail requirements under Section 436A of the CrPC should be changed, according to the Law Commission’s 268th report, to ensure early release of under-trials. For the people accused of crimes, punishable by up to seven years of imprisonment, those who had served one-third of the maximum sentence should be freed. Similarly, the people accused of offences punishable by more than seven years of imprisonment, who were awaiting trial for offences punishable by more than seven years in prison, should be released on bail if they had served half of their sentence.
Prisoners awaiting trial should be housed separately from those who have been convicted. Even among undertrial prisoners, thorough and scientific classification is required to prevent the contamination of first-time and petty offenders into full-fledged and severe criminals. They should never be held accountable for the actions of convicted criminals.
Institutions that house pretrial detainees should be as close as feasible to the courts.
The strict application of Section 167 of the Criminal Procedure Code, which establishes a time limit for police inquiry in the case of suspected prisoners awaiting trial. The maximum period within which the police investigation must be finished and a charge sheet placed before the court is set out in Section 167 Cr.P.C. For offences punishable by death, life imprisonment, or imprisonment for a term of not less than 10 years, this duration is 90 days; for all other offences, it is 60 days.
The number of judges and magistrates should be increased immediately. At the very least, there should be 107 judges per million Indians. Automatic remand extensions must come to an end, as they are issued only for the convenience of the authorities.
It is recommended that video conferencing between prisoners and courts be encouraged and can even hold special courts in prisons for inmates who have committed minor offences
Conclusion
As you may know, the presumption of innocence is a legal principle that states that everyone accused of committing a crime are presumed innocent unless proven guilty. This principle’s practicality is not much seen in India which is a very serious issue. The article shows how the accused suffer.
The plight of the under-trial persons should be taken into consideration and new policies should be made at the earliest. Separate jails for undertrials, or at the very least segregating them from convicts, would prevent hardened offenders from having a negative impact on undertrials. This type of segregation would also influence the attitude of jail officials and the general public toward those who are on trial. These kinds of changes can make the life of the innocent better and can protect their rights.
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The independence of the judiciary is one of the central elements of India’s democratic system. It is a unique feature that separates India from other countries. However, time and again, the independence of the judiciary has been challenged by external or political influence and this has raised some doubts on the provisions mentioned in the principle of separation of powers. Hence, this article talks about some of the recent instances, where the Independence of the Indian Judiciary has been challenged.
The Constitution of India guarantees independence to the judiciary. However, protecting judicial autonomy begins with the Constitution governing the court. In the end, the independence of the judiciary rests on the creation and support of an overall favourable environment by all state institutions, including the judiciary and the general public. The judiciary’s independence must also be continuously protected against unforeseen circumstances and shifting social, political, and economic circumstances; it is too sensitive to be left unprotected.
Independence of judiciary in India
Due to the prolonged British Raj and then a newly formed democracy, there was always a concern on how the judiciary in India should function. Hence, an independent judiciary was the answer to this question. For the prosperity and stability of the country, the rule of law is very important. An independent and impartial judiciary can establish a stable rule of law. Independence of judiciary means, the power of upholding the rule of law, without any fear or external influence, and maintaining effective control over the actions of the government. The independence of the judiciary is part of the basic structure of the Constitution. The independence of the judiciary ensures that the powers of the Parliament, the State legislature, and the Executive, are properly distributed and there is a balance between the demands of the individuals and norms of the society. The legal system does not have any ideology and political interests and is often rendered neutral.
Few case laws which explain the concept of independence of the Indian Judiciary
In the case of S.P Gupta v Union of India (1982), the court held that the judges should be fearless and should uphold the principle of rule of law. This is the basis of the concept of independence of the judiciary.
In the case of Supreme Court Advocates-on-Record Association & Anr. Vs Union of India (1993), the court observed that the independence of the judiciary is necessary for democracy to function effectively. The court further concluded by stating the powers and rights can never be hampered as long as the judiciary remains independent from the executive and the legislature.
Constitutional provisions on an independent judiciary
Around the world, the independence of the judiciary has been a debate. However, as India has a written Constitution, the independence of the judiciary is mentioned in writing, hence, making this concept even more important. Independence of the judiciary means that the legal fraternity has all the powers to make their own decisions, without any external influence. The judiciary is not only important in dispensing justice but also, in solving disputes arising between the States. This can only be done if the judiciary is free from all outside pressures. Judges play one of the most important roles in the legal system. Hence, independence of the judiciary also means independence of the judges. This means that the judges can submit their reports and take decisions without any influence, they are not dependent on the Government, and they are not dependent on any of their superior judicial officers. Part 5 of the Indian Constitution deals with the Union Judiciary. The independence of the judiciary starts with the appointment of the judges in the courts. Article 124 to Article 147 deal with the appointment of the Supreme Court judges and, Article 214 to Article 231 deal with the appointment of judges in the High Courts. Further, the Subordinate courts are mentioned under Article 233 to Article 237 of the Constitution. The highest subordinate court is that of the court of District Judge. The framers of the Constitution divided the judiciary, legislature, and the executive into three separate organs, so as to ensure that each organ will perform its roles independently and not interfere with the functioning of the other, and also that this will help in justifying the principles mentioned in the Preamble.
The meaning of independence with respect to the judiciary
Even after years of existence, the meaning of the judiciary’s independence is still unclear. Our Constitution’s Articles 124 to 147 deal with the appointment of Supreme Court judges and Articles 214 to 231 deal with the appointment of judges in the High Courts, but our Constitution only mentions the judiciary’s independence; it makes no mention of what such independence truly entails. Judiciary’s independence includes both the independence of the judicial institutions and the independence of the judges who make up its body. However, judicial independence does not mean lack of responsibility or arbitrariness. The country’s democratic political system includes the judiciary. As a result, it must answer to the country’s citizens, the Constitution, and democratic values. The theory of the separation of powers appears to be the concept’s foundation and focal point. Therefore, it largely refers to the judiciary’s independence from the executive and legislative branches. Judiciary’s independence goes beyond just establishing a separate institution free from the oversight and influence of the government and the legislative branch. The fundamental goal of the judiciary’s independence is that judges must be able to resolve a dispute that comes before them in accordance with the law, free from other influences. Because of this, every judge’s independence is a component of the judiciary’s overall independence.
Independence of the judiciary and the rule of law
French theorist Montesquieu contended that a framework in which various authorities exercised legislative, administrative, and judicial authority while all being bound by the rule of law was the best way to avoid despotism. He saw despotism as a looming danger to any government that was not already despotic and the principle of separation of powers refers to this theory. Judicial review is one of the strongest strategies courts use to defend the rule of law. Judicial review refers to the court’s authority to assess the legality of both government executive orders and laws established by the legislature. By employing this authority, the court maintains control over the legislative and executive branches.
The case of Marbury v. Madison (1803), in which Chief Justice Marshall established that the court had the authority to evaluate legislation adopted by the legislature, can hence be credited for giving birth to the concept of judicial review. However, a lot of academics have criticised this idea for a variety of reasons, including judicial authoritarianism, excessive dependence on judges, being undemocratic, and being a barrier to a strong democracy.
Independence of the judiciary : international perspective
The United Nations Charter, the Universal Declaration of Human Rights, the International Covenant on Civil and Political Rights, the International Covenant on Economic, Social and Cultural Rights, the Organisation and Administration of Justice in Every Country, and other basic principles developed to aid the Member States in their task of securing and promoting the independence of the judiciary should be taken into consideration and respected by governments within the framework of their national legislation and practise and brought to the attention of judges, lawyers, members of the executive, and the legislative.
Constitutional provisions (more content for existing heading)
Our constitution has several clauses that guarantee the independence of the judiciary. The following is a discussion of the constitutional clauses:
Security of Tenure:
The Supreme Court and high court justices have been granted tenure security. Once appointed, they stay in their positions until they reach the retirement age, which is 65 years for judges of the Supreme Court (Article 124(2)) and 62 years for high court judges (Article 217(1)), respectively. They cannot be removed from their positions other than by presidential order, and even then only on the basis of proven misbehaviour and incapacity. A majority of all members of each House of Parliament, as well as a majority of at least two-thirds of the members who are present and voting, are required in order to approve a resolution to that effect. Due to the difficult nature of the procedure, there has never been a case of a Supreme Court or High Court judge being removed under this clause.
Separation of the Judiciary from the Executive:
According to Article 50, which is one of the Directive Principles of State Policy, the State must take action to keep the judiciary and executive branches distinct in its public services. Securing the judiciary’s freedom from the executive is the goal of the Directive Principle. There must be a separate, independent judiciary according to Article 50.
Salary and Allowances:
Since judges’ salaries and allowances are set and not subject to a vote by the legislature, it is also a factor that contributes to the judges’ independence. In the instance of judges of the Supreme Court, they are charged to the Consolidated Fund of India, and in the instance of judges of the high court, to the state consolidated fund. Except in extreme financial emergencies, their pay structures can be changed, but they cannot be changed to their detriment (Article 125(2)).
Powers and jurisdiction of Supreme Court:
Parliament is only able to increase the Supreme Court’s authority, it cannot reduce it. Parliament may alter the monetary threshold for Supreme Court appeals in civil matters. The Supreme Court’s appellate authority may be expanded by Parliament. To help the Supreme Court function more efficiently, it could grant it extra authority. It may provide authority to issue orders, writs, or directives for any purpose other than those listed in Article 32. The Supreme Court’s authority cannot be diminished, thereby establishing judicial independence in India.
Penalising for its contempt:
Both the Supreme Court and the high court are able to do so. According to Article 129, the Supreme Court is empowered to penalise for its contempt. Similarly, Article 215 stipulates that each high court should have the authority to impose punishment for contempt of itself.
The conduct of a judge is not discussed in the state legislature or Parliament:
According to Article 211, no debate over the behaviour of any Supreme Court or high court judge in the course of his duties shall take place in the state legislature. A similar provision is included in Article 121, which states that no discussion of the behaviour of the Supreme Court or A high court judge in the performance of his duties may take place in Parliament until a resolution is presented by the President requesting the judge’s dismissal.
Appointment of Judges
The Collegium
According to the First Judges case, the Chief Justice of India’s (CJI) proposal for judge appointments and transfers might be rejected for “cogent reasons.” For the following 12 years, the executive had priority over the judiciary in making judicial appointments. However, the Supreme Court held in the Second Judges case (and subsequently the Third Judges case, which was a clarification) that the judiciary had supremacy in appointing judges. According to it, the Supreme Court’s senior-most judges and the Chief Justice of India will have a major influence on judicial recruitment decisions. Regarding judicial appointments, rules and procedures were established. The executive’s position was drastically diminished, and the judiciary now controlled a major function.
NJAC
With the passage of the Constitution (Ninety-ninth Amendment) Act of 2014 as well as the National Judicial Appointments Commission Act of 2014, the NDA government proposed the establishment of the National Judicial Appointments Commission in 2014. The Commission would be made up of the Chief Justice of India, two senior judges, the Law Minister, and “two eminent personalities” chosen by the Prime Minister and Leader of the Opposition. The NJAC Act and Constitution (Ninety-ninth Amendment) Act, 2014 were, however, declared illegal by the Supreme Court in a case brought by the Advocates-on-Record Association as according to them it undermined the separation of powers and intruded on the independence of the judiciary.
Relevant rulings where the independence of the Indian Judiciary has been challenged
No one is perfect in this world. So, how can a judiciary be perfectly independent? In India too, judicial independence has been challenged in various court rulings. However, before that, to justify this, in India the Constitution has mentioned provisions for the appointment of judges in the Supreme Court and the High Court, but the final approval while selecting the judges is in consultation with the President of India. A few of these court rulings are:
The Rafale deal case
In this case, the Indian Government announced a deal with the French Government to purchase 36 Rafale fighter jets from the French company Dassault Aviation in 2015. The deal also included a 50% offset clause which meant that the French company had to invest 50% of the contract value in India by purchasing Indian goods and services. Next year, the company and Reliance Group announced a joint venture. Dassault specified that it wants to invest $115 million to fulfill its offset obligation partially. Hence, the matter went to the Supreme Court where the litigants alleged irregularities in the deal. The Court turned down the corruption charges on the grounds that it had less scope for judicial review in defense matters. This decision of the Court proved to be controversial as the government stated that the judgment had some factual errors. The judgment consisted of the CAG(Comptroller and Auditor General) report and the Parliamentary Accounts Committee report which were submitted to the Court by the government and were termed as misinformation. The Court decided to review the petitions on merit, hence closing the controversy.
The Bhima Koregaon case
In 2018, the celebrations for the bicentenary anniversary of the Bhima Koregaon battle were interrupted due to violence leading to the death of a person and several injuries. The police investigated and arrested several activists claiming that inflammatory speeches were made by them eventually leading to the violence. Hence a PIL was filed seeking an investigation by the SIT(Special investigation team) over the Unlawful Activities (Prevention) Act charges against the arrested activists. The litigants alleged that the Mumbai Police were biased in their decision. The case went to the Supreme Court who dismissed the case with a 2:1 majority. While the two judges who were Chief Justice of India Dipak Misra and Justice Khanwilkar were satisfied with the investigation done by the Mumbai Police, Whereas, Justice D.Y Chandrachud was not. Justice Chandrachud dissented, alleging that the arrests were made targeting political dissent.
Aadhar Act as a money bill case
In this case, the issue was whether the Aadhar Act in 2016, was passed as a money bill. The court held that it was a money bill again with a majority. Justice A.K Sikri accepted the act as a money bill and referred to Section 7 of the Act which states that the Aadhar based authentication can be used for benefits or services charged on the Consolidated Fund of India, hence it can be used as a money bill. Whereas, Article 110 of the Constitution stated that the money bill can be used only on services related to spending and receiving of money by the Union Government. Hence, the judgment was criticized and Justice Chandrachud who had dissented to the judgment termed it as a fraud on the Indian Constitution.
The CBI-Alok Verma case
In this case, the judgment was delayed. The government had divested the CBI director Alok Verma of all his powers. This needed sanctions from a high-powered committee under the Delhi Special Police Establishment Act. The Supreme Court examined the details of the corruption charges against the CBI director. Later, the Court directed the reinstatement of Verma as the CBI director on the basis of the sanctions of the selected committee. However, the reinstatement was ordered when Mr. Verma had just three weeks left for his tenure. Hence, this raised criticism once again.
Is India’s judicial independence at stake
The above-mentioned court rulings were criticized on the grounds that they had political interests. However, there have been instances where the judges after retirement have enjoyed certain benefits. Former Chief Justice of India Ranjan Gogoi was made a member of the Rajya Sabha after stepping down from the post of CJI. Similar instances in the past have occurred. In 1991, Justice Ranganath Mishra stepped down as the CJI and was later made the Chairman of the National Human Rights Commission. Justice M. Hidayatullah was the Chief Justice of India who retired in 1970. He later became the Vice President of India. There have also been instances where the members of Parliament have become judges. Due to the COVID 19 pandemic, the courts are shut and all physical hearings are done online. This has made things difficult because there is already a huge pendency of cases. Hence the courts decided to deliver judgments on cases that are very urgent. However, the listing of urgent cases for hearing has been controversial. A petition was filed in the case ofJagdeep Chokkar v Union of India (2020), for the return of the migrant workers who were helpless and stranded amidst the lockdown to their homes. This matter was not heard immediately, whereas a petition filed in the case of Arnab Goswami v Union of India (2020), for quashing the FIRs against him, was heard on the next day. Hence this was controversial as to which case the court found more important. Further, the internet in Jammu and Kashmir was shut down for nearly 6 months. The Court took a long time to hear this matter. The people in Jammu and Kashmir were deprived of the internet and cut of from the rest of the world. As we have touched on the cases where the court has faced criticism for having political interests, there have been many landmark judgments that were assumed to have political interests but the judiciary stood strong. In the case ofIndira Gandhi v Raj Narain (1975), Raj Narain, an activist challenged the appointment of the then Prime Minister Indira Gandhi on the grounds that it was faulty. This case was just before the emergency was implemented. The Court found out that the appointment of Indira Gandhi was faulty and she was ordered to leave her office. This judgment proved to be one of the major judgments in the context of judicial independence. However, in recent times, the judiciary has had to face a lot of criticism due to the cases they give more priority to, and also the post-retirement stint of the judges. This shows that there is work needed to be done in the functioning of the justice system. Few suggestions are:
The salaries given to the judges in India are less as compared to the other countries, which makes a strong reason why the judges look for post-retirement jobs.
Many times it is seen that highly influential cases are given more priority than the cases which are of a social cause and are really necessary to be heard. The reason this might be happening is the low strength of the judiciary. Increasing the strength of the judiciary can help in solving influential as well as genuinely urgent cases.
There is a need to impose a law that ensures that the judges do not get post-retirement jobs. This will ensure a little discipline and reliability in the working of the courts.
Suggestion
Before the concept of the collegium given by the Supreme Court, Article 124 of the Indian Constitution stated unequivocally that the President of India, in concert with the Chief Justice of India, would appoint any judges to the Supreme Court. This indicates that the constitutional writers themselves thought the appointment of judges required the intervention of the executive. It has been made very obvious that all of the components of a democratic government require the establishment of certain safeguards. The Constitution’s framers made a conscious decision to keep the executive involved in the selection of the judiciary in order to prevent any abuse of power by a single branch of government, despite the fact that the entire concept of the separation of powers was created to keep each branch independent of the other. However, collegium governance should also exist with regard to the promotion or transfer of judges in order to protect their judicial independence and allow them to exercise their judgement freely without interfering with their personal or substantive independence. So, we can say that independence of the judiciary is necessary while not forcing itself on the other wings of the government.
Conclusion
The work that the justice system does is very difficult. Hence, the judiciary has been given the power of judicial independence which is mentioned in the Constitution of India. The judges do a phenomenal job of administering impartial justice to the people. However, while doing this, there are bound to be people who are not happy with the decision. Hence, this is where the independence of the judiciary is challenged. Now, no one can ever prove whether there is any sort of influence on the justice system in India. However, the above-mentioned case laws and the examples of judges acquiring jobs after retiring from the judiciary, call for some serious reforms in the country’s justice delivery system.
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.
LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:
a) Revenue – At least 67% of the immediately preceding 3-year average of the social enterprises revenues comes from providing the eligible activities to members of the target population.
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