Guardianship under Hindu Law

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July 29, 2024

This article is written by Oishika Banerji and further updated by Pruthvi Ramkanta Hegde. This article explains guardianship under Hindu law and lays down several provisions of the Hindu Minority and Guardianship Act of 1956 along with landmark judicial precedents. The article also covers the meaning and evaluation of guardians under Hindu law.

Table of Contents

Introduction

“Parents are the ultimate role models for children. Every word, movement, and action has an effect. No other person or outside force has a greater influence on a child than the parent.” This statement by American television producer and actor Bob Keeshan highlights the significant influence parents have on their children.

Parents ensure their physical, emotional, and educational development. The role of parents is indispensable and deeply enshrined in the societal fabric. However, there are circumstances where parents may be unable or unavailable to fulfil this needy role. In such situations, the question arises who will step in to provide the necessary care and protection to such a child? The concept of guardianship has paved the way to protect such children.

The concept of guardianship has evolved from one of parental authority to one of protection in recent years and the Hindu Minority and Guardianship Act of 1956 codifies the laws regarding minority and guardianship with the welfare of the child at the core. Under Hindu law, guardianship is a critical aspect that addresses this concern. The Hindu Minority and Guardianship Act of 1956 lays down comprehensive provisions in this regard. The enactment includes provisions for appointing guardians in the absence of parents. Through the many decisions, Indian courts have also played a phenomenal role in interpreting and enforcing guardianship laws. This article provides a deep understanding of the concept of guardianship under Hindu law by means of judicial precedents.

Historical background of guardianship in “Hindus”

In traditional societies, guardianship was deeply rooted in patriarchy. Fathers were considered the sole authority over their children’s lives and property. They had absolute control over their conduct, education, religion, and upkeep, with little interference from the courts. After marriage, mothers were seen as part of their husbands and had no legal authority over their children because they lacked independent legal status.

In ancient Hindu law, the king was regarded as the ultimate guardian of all minors within the state. Apart from Narada, who mentioned parents as guardians, the law largely revolved around the authority of the family’s head, Karta, in joint family systems and gurus in educational institutions.

During British rule, the concept of guardianship evolved through court decisions. Initially, these decisions were influenced by the teachings of legal scholars like Strange and McNaughten. They defined a list of potential guardians, including fathers, mothers, elder brothers, and other relatives. Eventually, the concept of natural guardianship emerged. These sources stated that fathers were natural guardians, and after their deaths, mothers assumed this role. Other than these two, no one else has inherent guardianship rights.

Meaning of a guardian

The word “guardian” is derived from the old French term “gardien,” which means “keeper” or “custodian.” It originated from the Germanic source of the verb “guard.” In general, a guardian is a person who takes on the legal responsibility of caring for someone who can not look after themselves, especially a child who has lost their parents or an incompetent person.

Section 4(b) of the Hindu Minority and Guardianship Act, 1956 provides that “guardian means a person having the care of the person of a minor or of his property or of both his person and property and includes:

(i) a natural guardian,

(ii) a guardian appointed by the will of the minor’s father or mother,

(iii) a guardian appointed or declared by a court, and

(iv) a person empowered to act as such by or under any enactment relating to any court of wards.”

As per the definition, a guardian is someone who is legally responsible for taking care of a minor, their property, or both. This includes different types of guardians, like a natural guardian (usually the parents), a guardian named in the will of the child’s father or mother, a guardian appointed or declared by a court, and a person given this responsibility under any law related to the court of wards. Essentially, a guardian ensures the minor’s well-being and manages their affairs when the parents are unable to do so. The definition in the Hindu Minority and Guardianship Act of 1956 is more comprehensive, as it not only defines “guardian” but also categorises different types of guardians. The Hindu Minority and Guardianship Act of 1956 specifically applies to Hindus and includes provisions that align with Hindu personal laws only.

Application of Hindu Minority and Guardianship Act, 1956

Section 3 of the Hindu Minority and Guardianship Act of 1956 prescribes the provisions for the application of the Act. Accordingly, it states that the Act applies to:

Any person who follows Hinduism in any form, including Virashaiva, Lingayat, or followers of the Brahmo, Prarthana, or Arya Samaj movements.
Any person who is Buddhist, Jain, or Sikh by religion.
Any person living in the areas where this Act is effective who is not a Muslim, Christian, Parsi, or Jew, unless it can be shown that such a person would not have been governed by Hindu law or any related customs if this Act had not been passed.
Any child, whether born to married or unmarried parents, if both parents are Hindus, Buddhists, Jains, or Sikhs.
Any child, whether born to married or unmarried parents, if one parent is a Hindu, Buddhist, Jain, or Sikh, and the child is raised as part of that parent’s community.
Anyone who has converted or reconverted to Hinduism, Buddhism, Jainism, or Sikhism.

Exception

This Act does not apply to members of any Scheduled Tribe as defined in Article 366(25) of the Constitution of India. However, the Central Government can make it applicable to them by issuing a notification in the Official Gazette.

Interpretation of Hindu

In this Act, the term “Hindu” includes anyone to whom the Act applies, even if they are not Hindu by religion. This is based on the specific provisions mentioned earlier in the Act.

Guardianship under Hindu Minority and Guardianship Act, 1956

The Act includes various aspects, such as the types, rights, powers, and responsibilities of guardians. It also covers the appointment and removal of guardians for minors. It includes the following aspects:

Natural guardian

Section 6 of the Hindu Minority and Guardianship Act of 1956 prescribes the provisions for the natural guardian of a Hindu minor. Accordingly, the Section says that the natural guardian of a Hindu minor is responsible for both the child’s personal well-being and property. However, a person cannot act as a natural guardian if there is any undivided interest in joint family property. The following person can become the natural guardian of the minor child:

For a boy or an unmarried girl, the father is the natural guardian, with the mother taking over if the father is unavailable.
For children under five years old, custody usually goes to the mother. In the case of an illegitimate boy or an unmarried illegitimate girl, the mother is the primary guardian, followed by the father.
For a married girl, the natural guardian is her husband.

There are specific exceptions where a person cannot act as a natural guardian:

If they have ceased to be a Hindu or,
If they have renounced worldly life to become a hermit or an ascetic. It is important to note that the terms “father” and “mother” in this context do not include step-fathers or step-mothers.

In Navin Singh vs. Smt. Jyoti Parashar And Another (2004), the Allahabad High Court delved into the interpretation of the term “natural guardian” as outlined in Section 6(a) of the Hindu Minority and Guardianship Act of 1956. The court’s interpretation is aligned with the Guardians and Wards Act of 1890, and the Hindu Minority and Guardianship Act, 1956. Section 25 of the Guardians and Wards Act, 1890, deals with the return of the custody of a minor to their guardian. The term “guardian” under this Act is broadly defined and not limited to the natural guardian alone. The court emphasised that a “guardian” includes any person having the care of the minor or their property. In this case, the court acknowledged that the mother, Jyoti Parashar, although not the natural guardian, could file an application for custody under this Act because she was currently taking care of the minor child, Nick Singh. Section 6(a) of the Hindu Minority and Guardianship Act, 1956, designates the father as the natural guardian of a Hindu minor boy. Petitioner contended that application under Section 25 of the Guardians and Wards Act was not maintainable since he, as the father, is the natural guardian within the meaning of Section 4(c) of the Hindu Minority and Guardianship Act. Further contended that the Family Court at Agra lacked jurisdiction as Nick was ordinarily residing in Maharashtra. The findings of the Family Court regarding custody were perverse.

However, the court held that natural guardianship does not automatically entitle the father to take custody of the child in all circumstances. The court recognised the father’s position as the natural guardian but noted that the child’s welfare was paramount. Meanwhile, the court harmonised the provisions of both Acts by stressing the welfare of the child as the primary consideration in custody disputes. While the Hindu Minority and Guardianship Act, of 1956, acknowledges the father as the natural guardian, the Guardians and Wards Act, of 1890, allows for a broader interpretation of guardianship, it allows the mother or any other person caring for the child to seek custody. However, the court interpreted that the label of “natural guardian” does not automatically confer an absolute right to custody. Instead, the focus must be on who can best serve the child’s welfare and interests. The court upheld the Family Court’s orders and rejected the petitioner’s contention. The court held that the primary consideration was the welfare of the child. The court permitted the Family Court to hear the matter and deemed the respondent’s application for custody of the child valid.

Natural guardianship of adopted son

Section 7 of the Hindu Minority and Guardianship Act of 1956 states the natural guardianship of adopted sons. Accordingly, Section 7 states that when a minor boy is adopted, the person who naturally becomes his guardian changes. After adoption, the adoptive father becomes the natural guardian of the boy. If the adoptive father is no longer able to be the guardian, e.g., due to death, the adoptive mother then becomes the natural guardian.

Powers of natural guardians

Section 8 of the Hindu Minority and Guardianship Act of 1956 prescribes the provisions for the powers and limitations of natural guardians. Accordingly, it states that:

General powers of the guardian

As per Section 8(1) of the Act, the natural guardian has the authority to take actions that are necessary, reasonable, and proper for the benefit of the minor or the minor’s property. However, the guardian cannot make personal commitments on behalf of the minor.

Restrictions on property transactions

As per Section 8(2), without the court’s prior permission, the natural guardian cannot:

Mortgage, sell, gift, exchange, or otherwise transfer any part of the minor’s immovable property.
Lease any part of the minor’s property for more than five years or for a period extending beyond one year after the minor reaches adulthood.

Voidable transactions

As per Section 8(3), any property transaction by the natural guardian that violates Section 8(1) or Section 8(2) can be declared void, if challenged by the minor or someone acting on the minor’s behalf.

Court permission

As per Section 8(4), the court will only grant permission for the guardian to conduct restricted actions mentioned in Section 8(2), if it is necessary or advantageous for the minor.

Application of the Guardians and Wards Act, 1890

As per Section 8(5), the process for getting court permission under Section 8(2) follows the rules of the Guardians and Wards Act of 1890. Specifically, such applications are treated as proceedings under the Guardians and Wards Act. The court must follow specific procedures and have particular powers as per the Guardians and Wards Act. If the court denies permission, an appeal can be made to a higher court.

“Court” under this Section refers to the city civil court, district court, or any court authorised under Section 4A of the Guardians and Wards Act, 1890. The relevant court is the one with jurisdiction over the location of the minor’s property. If the property spans multiple jurisdictions, any court covering a part of the property’s location can handle the case.

In Minor Mahima vs. E.K. Lingamoorthy (2014), the Madras High Court interpreted the application of Section 8(2) of the Hindu Minority Act. This case involved Kalaivani, the mother of the minor petitioners, seeking permission to sell immovable property belonging to her minor children under Section 8(2) of the Hindu Minority and Guardianship Act, 1956. Kalaivani’s husband, (the father of the minors) had passed away in a motor accident and left behind the property in question.

The main issue arose as to whether Kalaivani, as the natural guardian of the minors, could seek permission to sell the minors’ property under Section 8(2) without being formally appointed as guardian under Section 29 of the Guardians and Wards Act, 1890.

Petitioner contended that as the natural guardian of the minors under Section 6(a) of the Hindu Minority and Guardianship Act, she had the inherent right to manage and dispose of the minors’ property for their benefit. She contended that Section 8(2) of the Act allowed her to seek permission from the court without needing a prior appointment under Section 29 of the Guardians and Wards Act.

The respondents contended that Section 29 of the Guardians and Wards Act mandated a formal court appointment before a guardian could deal with a minor’s property exceeding specified limits. They contended that Kalaivani lacked the legal standing to apply under Section 8(2) without first being appointed as guardian under Section 29.

The court, after hearing both parties’ arguments, held that Section 8(2) of the Hindu Minority and Guardianship Act allowed natural guardians, such as Kalaivani, to seek court permission to sell minors’ property without requiring prior appointment under Section 29 of the Guardians and Wards Act. The court further emphasised the welfare principle and the inherent rights of natural guardians to act in the best interests of minors. Section 29 of the Guardians and Wards Act applies to guardians appointed by the court and mandates prior court permission for specified property transactions. The court clarified that Section 8(2) of the Hindu Minority and Guardianship Act did not impose the same formalities regarding court appointments for natural guardians.

Under Section 6(a) of the Hindu Minority and Guardianship Act, after the father’s demise, the mother, Kalaivani was recognised as the natural guardian of the minors. The court upheld that Kalaivani’s natural guardianship sufficed for invoking Section 8(2) without requiring a formal appointment under Section 29. It affirmed Kalaivani’s right as a natural guardian to seek permission to sell the minors’ property under Section 8(2) solely based on her status and responsibilities under the Hindu Minority and Guardianship Act.

Testamentary guardians and their powers

Section 9 of the Act lays down the provision for testamentary guardians, which means guardians who are appointed by will and also prescribe their powers. Accordingly, the Section states that,

As per Section 9(1), a Hindu father, who is the natural guardian of his legitimate minor children, can appoint a guardian for his children through a will. This guardian can be responsible for the child’s person, property, or both, except for undivided property interests.
As per Section 9(2), if the father dies before the mother, the guardian appointed by the father’s will does not become effective. However, if the mother later dies without appointing another guardian in her will, the father’s appointed guardian will take effect.
As per Section 9(3) & Section 9(4), a Hindu widow or a mother, who is the natural guardian of her legitimate minor children, can appoint a guardian through a will. This guardian can be responsible for the child’s person, property, or both, excluding undivided property interests. This applies to:
- A widow acts as a natural guardian.
- A mother acts as a natural guardian because the father is not entitled to act as such.
As per Section 9(5), the guardian appointed through a will can act as the minor’s guardian after the death of the father or mother, as applicable. This guardian will have the same rights as a natural guardian under this Act, within the limits specified by the Act and the will.
As per Section 9(6), if the appointed guardian is for a minor girl, their rights and duties as a guardian end when the girl gets married.

Incapacity of a minor to act as guardian of property

As per Section 10, a minor cannot act as the guardian of another minor’s property. Essentially, minors are not allowed to manage or take responsibility for the property of another minor.

De Facto guardian not to deal with minor’s property

As per Section 11, after this law came into effect, no one can manage, sell, or handle the property of a Hindu minor just because they have been acting as the minor’s guardian without legal authority. Being a de facto guardian does not give a person the right to deal with the minor’s property.

In Mayilswami Chettiar vs. Kaliammal (1967), the Madras High Court dealt with the matter regarding the alienation of the minor’s property by the de facto guardian. This particular case concerned a mortgage executed by a mother on behalf of her minor children, where the mortgage amount was Rs. 1,500, but the lower courts found that only Rs. 900 was justified by necessity. It was to cover family costs like upkeep and the education of minor children.

The issue considered was whether a mortgage executed by the mother, acting as the natural guardian of the minor, was valid if the father or the other natural guardian was alive.

The appellant argued that since the father was alive, the mother acting as de facto guardian had no authority to mortgage the property of the minors within the meaning of Section 11 of the Hindu Minority and Guardianship Act.

The Madras High Court made a reference to Section 11 of the Hindu Minority and Guardianship Act, 1956, which provides that any alienation of the minor’s property made by the de facto guardian after 25th August 1956 is not valid and the same is void ab initio. The de facto guardian will have no authority to make any transactions that would bind the minor. However, the court pointed out that an act of a de facto guardian as the mother in this case can legally mortgage a minor’s property in cases of necessity under Hindu law, even if there was a legal guardian father. The fact that the father had signed the mortgage deed, and hence evidenced agreement to the transaction, had, in turn, supported the mortgage on the grounds of apparent authority. The court also referred to the decision delivered in Arunachala Reddi vs. Chidambara Reddi (1902) and held that where the mother of a minor acting as a de facto guard sells or mortgages the son’s property for legal purposes, the same shall be valid in law. This case illustrates that in cases of emergency, a de facto guardian, specifically a mother, may also have the power to protect the interests of a minor, notwithstanding the existence of a guardian duly appointed by will or otherwise. Ultimately, the court held the mortgage to be valid in respect of Rs. 900 requisite for the welfare of the minors.

No guardian for the minor’s undivided interest in joint family property

Section 12 of the Hindu Minority and Guardianship Act, 1956 states that, when a minor has a shared interest in family property that is managed by an adult family member, no guardian will be appointed for that minor’s share of the property. Accordingly, if a minor has a shared interest in joint family property, and an adult family member is managing the property, a guardian will not be appointed specifically for the minor’s share of that property. The reasoning behind this is that the property is already being managed by a responsible adult family member. However, the section also clarifies that this does not limit the High Court’s authority to appoint a guardian if it deems it necessary for the minor’s interest.

The welfare of minors is the paramount consideration

Section 13 of the Act provides that the welfare of minors is to have a paramount consideration. Section 13 of The Hindu Minority and Guardianship Act, 1956, focuses on the importance of the minor’s welfare in guardianship decisions. It states that:

When a court appoints or declares someone as the guardian of a Hindu minor, the most important factor to consider is the minor’s welfare. This Section further states that the welfare of the minor is the most critical factor in any court decision regarding the appointment of a guardian. If the court feels that someone’s guardianship would not be in the best interest of the minor, that person cannot be appointed as a guardian, regardless of what other laws might suggest.

In Sunil Kumar Chowdhary and Another vs. Sm. Satirani Chowdhary and Another (1969), the Calcutta High Court dealt with two main issues, judicial separation and child custody. Regarding child custody, the petitioner argued that their son, who lived with the respondent, was not receiving proper education and care.

However, the court observed that the child was well-settled in the reputable Don Bosco School and well-cared for by his mother. The court emphasised the principle outlined in Section 13 of the Hindu Minority and Guardianship Act, which prioritises the child’s welfare above all else. This provision overrules the father’s automatic right to guardianship under Section 19 of the Guardians and Wards Act. The court concluded that it was in the best interest of the child to remain with his mother and the court dismissed the petitioner’s application for custody of the child. Thereby, the court reinforced that the child’s welfare is the paramount consideration.

In Nirali Mehta vs. Surendrakumar Surana & Another (2013), the Bombay High Court addressed the legal and welfare considerations surrounding the custody and access rights of grandparents over a minor child when the natural guardian is alive and capable. In this case, the petitioner is the mother of a minor child named Eklavya. The petitioner and her husband were divorced by mutual consent. The husband gave up custody and visitation rights to Eklavya in exchange for the petitioner’s waiving child support and agreeing to maintain Eklavya. The grandparents (parents of the ex-husband) filed a petition seeking custody and access to the child.

The main issue involved in this case was whether the grandparents have the right to claim custody and access to the child when the mother is alive and acting as the natural and legal guardian.

The petitioner contended that she is the legal and natural guardian of the child. The father has given up his rights, and thus the grandparents do not have any legal standing to claim custody. On the other hand, the respondent contended that they have the right to seek custody and access to the child under Section 19 of the Guardian and Wards Act, 1890, and Section 13 of the Hindu Minority and Guardianship Act, 1956. They argued that it would be in the child’s welfare to have access to them.

The court ruled in favour of the petitioner. The court emphasised that in Section 13 of the Hindu Minority and Guardianship Act, the welfare of the minor is the paramount consideration in appointing or declaring any person as a guardian. The Court stated that only a legal guardian has the right to claim custody and access to a minor. The Court clarified that the welfare of the child does not mean giving custody or access to someone who cannot be legally appointed as a guardian. The Court noted that any person other than the parents can only be considered for guardianship in their absence and must show that it is for the child’s welfare. It was held that the grandparents do not have legal rights to custody or access to the child when the natural guardian, the mother in this case, is alive and capable of taking care of the child. The petition filed by the grandparents was dismissed.

Significant court rulings surrounding guardianship under Hindu Law

Paras Ram vs. State (1960)

The Allahabad High Court provided guardianship by affinity with a logical conclusion in Paras Ram vs. State (1960). In this case, the father-in-law of a minor widow had forcibly taken away the widow from her maternal home and got her married in return for money to a person against the widow’s wish. The issue that appeared before the Hon’ble High Court was whether the father-in-law in this present case could be held guilty for his actions.

The Court held that the father-in-law could not be held to be guilty as he was the lawful guardian of the minor widow. It has been the Act of 2006 (Child Marriage Prohibition Act) and the decision made in T. Sivakumar vs. Inspector of Police, Thrivallur Town Police Station (2011) that has brought a change in the law.

Rajalakshmi And Others. vs. Minor Ramachandran And Another (1966)

In Rajalakshmi And Ors. vs Minor Ramachandran And Another (1966), the plaintiffs were minor children of Arumuga Padayachi through his concubine Marimuthu Ammal. The properties in question were settled on them by Anjalai Ammal under a deed of settlement (Exhibit A-1). Anjalai Ammal settled properties on the minor plaintiffs, with Arumugha Padayachi mentioned as their guardian. The settlement imposed conditions and restrictions on alienation. Despite restrictions in the settlement, Arumugha Padayachi proceeded to mortgage and sell some of the properties without fulfilling the conditions set out in the deed. Legal disputes arose regarding the validity of these alienations under the Hindu Minority and Guardianship Act, of 1956.

The main issues are:

Whether the actions of Arumugha Padayachi in mortgaging and selling the properties were valid under the terms of the settlement deed and the Hindu Minority and Guardianship Act, of 1956.
Whether Arumugha Padayachi could be considered a legal guardian under the Act, or merely a de facto guardian.

Plaintiffs contended that Arumugha Padayachi was not a legal guardian under the Act, as the settlement deed did not formally appoint him as such, and he was not the natural guardian of the minors.

Respondent contended that Arumugha Padayachi was appointed as the guardian under Exhibit A-1 and thus had the authority to alienate the properties.

The court found that guardianship under the Hindu Minority and Guardianship Act, 1956 under Section 6 specifies that the natural guardian of an illegitimate boy is the mother, and thereafter the father. Section 11 of the Hindu Minority and Guardianship Act, 1956 invalidates any disposal of a minor’s property by a de facto guardian without court permission.

The court found that Arumugha Padayachi was not appointed as a guardian under the settlement deed in a legal capacity. His actions in alienating the properties were thus deemed void under the Hindu Minority and Guardianship Act, 1956, which required court sanction for such disposals. The court clarified that Arumugha Padayachi, not being a natural guardian, testamentary guardian, or appointed by the court, but he could only be considered a de facto guardian. Hence, his authority to dispose of the minor plaintiffs’ properties was restricted under Section 11 of the Hindu Minority and Guardianship Act. The court awarded mesne profits and directed specific payments to be made in relation to the alienations made by Arumugha Padayachi.

Lalta Prasad vs. Ganga Sahai (1973)

In Lalta Prasad vs. Ganga Sahai (1973), which appeared before the Rajasthan High Court was concerned with a revision application by the father of two minor boys above the age of five years against an order of the District Judge, Jaipur City, Jaipur, that had appointed their grandfather as their interim guardian under Section 12 of the Guardians and Wards Act, 1890. Section 6 of the Hindu Minority and Guardianship Act, 1956 considers the “father” as a natural guardian of his minor legitimate children. Further, Section 19 of the Guardians and Wards Act, 1890 states that a father cannot be deprived of the natural guardianship of his minor children unless he has been found to be unfit for the same. The petitioner, in this case, had contended that the learned District Judge had no jurisdiction to appoint the grandfather as interim guardian in view of Section 19(b) of the Act.

The High Court had observed that the provisions of Section 19 of the Guardians and Wards Act, 1890, and Section 13 of the Hindu Minority and Guardianship Act, 1956 must be interpreted together and harmonised by the courts under Section 2 of the Hindu Minority and Guardianship Act, 1956 which states that the Act of 1956 is to treat as a supplement to the Act of 1890. In light of the rigour of the prohibition contained in Clause (b) of Section 19 of the Guardians and Wards Act, 1890, the rigour of the prohibition contained in Clause (b) of Section 13 of the Hindu Minority and Guardianship Act, 1956 must be considered to have been greatly relaxed in the interest of the minor’s welfare. In light of this case, the Hon’ble High Court held that the welfare of the minor children was of paramount consideration, and therefore, the father’s right of guardianship was to be considered subordinate to the welfare of the children.

Sakharam vs. Shiv Deorao (1974)

The issue before the Bombay High Court in Sakharam vs. Shiv Deorao (1974) was concerned with the natural guardian’s power over the minor’s property. Observing that a guardian is supposed to do all those acts which are necessary for the minor’s interests and their proper benefit, the Court stated that the generality of this power will exclude all kinds of fraudulent, speculative, and unnecessary transactions. Considering that the powers provided to the guardian under Section 8 are wide powers, the Court upheld that the powers are meant to empower the guardian to act safely for the welfare of the concerned minor. The court went further to state that nothing provided under Section 8 of the Hindu Minority and Guardianship Act 1956 restricts the Karta’s power to alienate the minor coparcener’s interest in the joint family property whenever he has the power to do the same.

Sheila Umesh Tahiliani vs. Soli Phirozshaw Shroff And Ors. (1981)

The Bombay High Court while deciding on the case of Sheila Umesh Tahiliani vs. Soli Phirozshaw Shroff And Ors. (1981) took into consideration the mother’s right of guardianship and its extent under the Hindu Minority and Guardianship Act, 1956. The Petitioner had filed a petition for the custody of her minor son Malcolm under the Guardians and Wards Act of 1890. The Petitioner, who was formerly a Zoroastrian, married Kersi Soli Shroff according to the Zoroastrian religion’s rites and doctrines. Kersi Shroff died on the 18th of April, 1979, in Bombay under sad circumstances and the petitioner gave birth to a son on March 13, 1979, about a month before the death of the aforementioned Kersi, and his custody had been the subject matter of dispute in this case.

The Hon’ble High Court had observed that a mother’s right of guardianship does not get lost on her conversion to some other religion so long she has been able to provide comfort and a happy home to her child.

Suresh Babu vs. Madhu (1984)

In Suresh Babu vs Madhu (1984), the Madras High Court dealt with a custody dispute over a minor daughter named Meera alias Pincky. The case involves a wife (respondent) asking for custody of her young daughter, Meera, from her husband (appellant). She filed a petition in the District Court, Tiruchirappalli, under Section 25 of the Guardians and Wards Act, along with Section 6(a) of the Hindu Minority and Guardianship Act. The wife was faced with physical abuse from her husband. After their daughter Meera was born, the wife hoped things would get better, but her husband’s behaviour did not change. Eventually, he made her leave their home and go back to her parents’ house in Madras. The wife said she was forced to leave behind her jewellery and other things and that her husband’s father did not help her. She tried to make things better, but her husband did not listen. She sent a legal notice to her husband asking for custody of Meera, but he did not respond. She believes she is the best parent for Meera and that leaving her with her husband would be bad for Meera. Worried about her daughter’s well-being, the wife went to court to seek Meera’s custody.

The main issue in this case was,

Who should have custody of the child according to Hindu law?
Is the father fit to be the natural guardian of the child?
Does the mother have a statutory preference for custody, especially for children under five years old?

The appellant argued that under the Hindu Minority and Guardianship Act, the father is automatically the natural guardian of a child unless proven unfit. Since there has been no formal request to declare the father unfit or to appoint someone else as the guardian. Thus the respondent’s request to obtain custody of the child should be denied. Further contended according to Section 6 of the Hindu Minority and Guardianship Act, the father is inherently recognized as the primary guardian of a Hindu child. Only in cases involving children under five years old does the law give priority to the mother’s right to custody. The appellant further argued that the lower court did not adequately consider what would be best for the infant’s well-being. They further contended that the appellant comes from a wealthy family, and was capable of providing every necessary thing for the child’s upbringing. They contended that the appellant himself would be well-suited to care for the child. The appellant highlighted that the welfare of the child should not only focus on material comforts but also on emotional care and affection. Further contended that an application under Section 25 of the Guardians and Wards Act can only be filed by a legal guardian of the minor. The legal guardian must have had custody of the minor at some point, and this custody must have been taken away.

On the other hand, the respondent argued that under Section 4(2) of the Guardians and Wards Act and Section 4(b) of the Hindu Minority and Guardianship Act, 1956, the respondent qualifies as a “guardian” because she has had the care of the minor child. They contended that there is no conflict between these statutes, and therefore, the respondent is entitled to file an application under Section 25 of the Guardians and Wards Act. The respondent contends that the child was removed from her custody. They further contended Section 25 focuses on what is explicitly stated. If the law does not explicitly exclude someone or something from a provision, then that person or thing is assumed to be included under that provision. Thus, the respondent asserted her right to seek custody of the child based on her role as a guardian under these Acts.

The court, after listening to both parties’ arguments, interpreted that under Hindu law, the term “guardian” as defined in the Guardians and Wards Act and the Hindu Minority and Guardianship Act is broad enough to include not only legal guardians but also those who have actual care and custody of a minor. In this case, although the father is the natural and legal guardian, the respondent, who had physical custody of the child, also qualifies as a guardian under these Acts. The court emphasised that Section 25 of the Guardians and Wards Act applies to any guardian who has had custody of a minor removed from them. Since the respondent’s custody of the child was disrupted when she was sent away from her matrimonial home, the court found that she met the legal requirements to invoke Section 25 of the Guardianship Act. Therefore, the court upheld the lower court’s decision to restore custody of the infant to the respondent. The court ruled that her application for custody was maintainable under the law. The appellant’s objections were dismissed and the court affirmed the restoration of custody to the respondent.

Vijayalakshmi vs. The Inspector Of Police, Karur Police (1990)

In the Vijayalakshmi vs. The Inspector Of Police, Karur Police (1990), Vijayalakshmi, the petitioner, and her husband got married in 1982 and had two children. Due to alleged cruelty by her husband, the petitioner moved to her parents’ house in Karur in 1985. She filed a maintenance petition under Section 125 of the CrPC, and a court ordered her husband to pay maintenance for her and their children. However, her husband converted to Islam, remarried, and did not regularly pay maintenance. In June 1990, he entered Vijayalakshmi’s house in her absence and took their children.

The main issue was whether the court should direct the petitioner’s husband to return custody of the children to her.

The petitioner argued that the children were in her custody at her parent’s house, and her husband took them away without her consent. She sought their return based on her rights as a mother and custodian. In response, her husband claimed there was a prior compromise where the petitioner agreed not to enforce the maintenance order. He also asserted that the petitioner had deserted him.

The court looked into Section 6 of the Hindu Minority and Guardianship Act. Section 6 basically says that if a father used to be Hindu but converted to another religion, the mother automatically becomes the natural guardian of their minor children. The court pointed out that the father could not claim guardianship rights under Hindu law in such cases. The court held that the well-being of the children is the most important thing. So the court ordered the petitioner’s husband to give the children back to her custody.

Githa Hariharan vs. Reserve Bank of India (1999)

The Supreme Court of India, in the landmark case of Githa Hariharan vs. Reserve Bank of India (1999), decided on the validity of Section 6 of the Hindu Minority and Guardianship Act of 1956, which was challenged by the petitioner on the ground that the dignity of women is a right inherent under the Indian Constitution, which as a matter of fact stands negatived by Section 6 of the Act of 1956. The Apex Court was hearing a request for custody of the petitioner’s minor son, who was born through the petitioner’s and the first respondent’s legal marriage. It should be noted that a divorce case was already underway in the Delhi District Court, and the first respondent had asked for custody of their minor son in that case. The Petitioner, on the other hand, had filed a request for support for herself and her little son. Ms. Indira Jaisingh, who testified in support of the petitioner, argued that Section 6 of the Act severely disadvantaged women and discriminated against them when it comes to guardianship rights, obligations, and control over their own children.

The Honourable Supreme Court interpreted that the word ‘after’ under Section 6 must be given a meaning that would suit the requirement of the case as it related to the minor’s welfare, while also taking into account the fact that law courts prefer to keep legislation in place rather than declare it void. The word ‘after’ does not necessarily indicate after the father’s death; rather, it denotes an intention to attach the connotation of ‘in the absence of’, be it temporary or otherwise, absolute apathy of the father toward the child, or even inability of the father due to illness or another.

Navin Singh vs. Smt. Jyoti Parashar (2004)

In Navin Singh vs. Smt. Jyoti Parashar (2004), the Allahabad High Court dealt with several aspects concerning custody and guardianship under the Hindu Minority and Guardianship Act, 1956, and the Guardians and Wards Act 1890.

Smt. Jyoti Parashar, the respondent, married the petitioner in 1997 against her family’s wishes. They had a son named Nick Singh in 1998. Allegedly, the petitioner’s family was involved in illegal activities, and the respondent left him in 2003 due to mistreatment and threats to engage in illicit activities. She moved to Agra with their child and filed for custody under Section 25 of the Guardians and Wards Act, 1890, after Navin Singh took the child forcibly back to Maharashtra.

The main issue was who the rightful custodian of the child was.

The petitioner argued that Agra’s Family Court had no jurisdiction since the child was living in Maharashtra. The petitioner further claimed that, as the father and natural guardian under the Hindu Minority and Guardianship Act, custody could not be granted to the mother within the meaning of Section 6 of the Hindu Minority and Guardianship Act. He also contended that the respondent’s application under Section 25 of the Guardians and Wards Act, 1890, was not maintainable since he was the natural guardian.

The court held that the Agra Family Court had jurisdiction to hear the case since the child was residing with the respondent in Agra at the time of filing. While the petitioner was the natural guardian under Section 6 of the Hindu Minority and Guardianship Act, the court emphasised the child’s welfare was paramount and granted interim custody to the respondent, considering her better financial stability and living conditions. The court underscored that while the father held natural guardianship, custody decisions had to prioritise the welfare of the child. This principle aligned with precedents such as the Supreme Court’s ruling in Smt. Surinder Kaur Sandhu vs. Harbax Singh Sandhu (1984), in which the court emphasised that the child’s best interests override any automatic entitlement to custody based solely on guardianship status. Further, the court looked at the term “after” in Section 6(a) of the Hindu Minority and Guardianship Act. This section talked about who could be a child’s guardian. In common understanding, “after” might be understood to mean after someone had died. The court explained that here, “after” did not just mean after the father’s death. Instead, it meant “in the absence of.” So, if the father was not able to take care of the child for any reason, not just death, the mother could be the guardian. The main aim was to ensure that the child’s best interests were taken care of, regardless of whether the father was alive or not. The court thereby accepted the respondent’s application under Section 25 of the Guardians and Wards Act, 1890. It ruled that “guardians” in the Act included all guardians, not just natural guardians.

Gaurav Nagpal vs. Sumedha Nagpal (2008)

A minor’s ethical and moral welfare was considered an important factor under the Hindu Minority and Guardianship Act, 1956 by the honourable Supreme Court of India in Gaurav Nagpal vs. Sumedha Nagpal (2009). In the present case, the couple got married on October 14, 1996, and their first kid was born on November 15, 1997. The respondent further had abandoned the child on 8.8.1999, according to the Appellant, but she filed a Habeas Corpus petition with the Delhi High Court on 25.8.1999. The petition was dismissed by the High Court due to a lack of territorial jurisdiction. The respondent thereafter had filed a Special Leave Petition and a Writ Petition under Article 32 of the Constitution of India, 1950 in response to the High Court’s order dated 14.1.2000. The Appellant was granted interim custody of the 20-month-old child by this Court. At last, a contempt petition was filed by the respondent for violation of the terms by the Appellant. The Apex Court made the following observations as have been presented hereunder;

The well-being of the child is the most important factor for the Court to consider. However, the child’s well-being should not be judged solely in terms of money or physical comfort. The term “welfare” must be interpreted broadly. The child’s moral or religious well-being, as well as its bodily well-being, must be considered and affectionate ties cannot be overlooked.
The primary purpose of using habeas corpus in a child custody case is not to test the legality of confinement or restraint as contemplated by the ancient common law writ or by statute, but to provide a means for the court, in the exercise of its judicial discretion, to determine what is best for the child’s welfare, and the decision is reacquired.
In considering what will be for the welfare of the minor, the court shall have regard to the age, sex, and religion of the minor, the character and capacity of the proposed guardian and his nearness of kin to the minor, the wishes, if any, of a deceased parent, and any existing or previous relations of the proposed guardian with the minor or his property.

Deepti Bhandari vs. Nitin Bhandari (2011)

The issue before the Supreme Court of India in Deepti Bhandari vs. Nitin Bhandari (2011) was concerned with the visitation rights of parents. Taking note of the inconvenience being faced by the respondent and his family members, the Apex Court observed that visitation rights can be arranged by keeping in view the convenience of the parents of the child, and therefore it needs to be decided by the parents themselves. The interference of the courts unnecessarily was only complicating the matter.

T. Sivakumar vs. Inspector of Police, Thrivallur Town Police Station (2011)

The Madras High Court expressed strong dissent of the aspect of the law that recognizes husbands as the guardians of their minor wives in the 2011 case of T. Sivakumar vs. Inspector of Police, Thrivallur Town Police Station (2011). The two major issues that were brought before the Hon’ble High Court in the present case were;

Whether a marriage contracted by a person with a female of fewer than 18 years be said to be a valid marriage and the custody of the said girl be given to the husband (if he is not in custody)?
Whether a minor can be said to have reached the age of discretion and thereby walk away from the lawful guardianship of her parents and refuse to go in their custody?

While answering the issues and granting custody to the minor girl, the Court observed that it shall consider the minor girl’s paramount welfare, including her safety, notwithstanding the legal right of the person seeking custody and the grant of custody. The same shall not prejudice the parties’ legal rights to seek appropriate relief in the civil court. The Court went further to state that a law cannot be interpreted in a way that makes it either redundant or unworkable to defeat the very objective of the Act in concern. Therefore, an adult man who has married a female child thereby violating the Prohibition of Child Marriage Act shall not be the natural guardian of the girl child.

Shri Shivappa S/O Eerappa Meti vs. Sri Ramesh Shivaputrappa Jamadar (2020)

In Shri Shivappa S/O Eerappa Meti vs. Sri Ramesh Shivaputrappa Jamadar (2020), Shri Shivappa and Smt. Sharada Meti, (petitioners) were grandparents of two minor children. Ramesh Shivaputrappa Jamadar, (respondent) was the father of the children. Shweta, daughter of the petitioners, married the respondent on 25 May 2010. After marriage, Shweta was allegedly harassed by her husband and his parents for dowry. The harassment included physical and mental abuse and led to intervention by police and a women’s grievance redressal forum.

Shweta and Ramesh had two daughters, born on 3 June 2012 and 7 November 2014. Shweta died from electrocution on 25 August 2017 at her parents’ house. Post her death, Ramesh remarried within eight months and did not visit or care for the children.

Meanwhile, the respondent filed a case for the custody of the children under Sections 6 and 13 of the Hindu Minority and Guardianship Act, 1956, and Section 17 of the Guardians and Wards Act, 1890.

The primary issue in this case was the transfer of the custody case (G&W No. 4/2018) from the Principal Judge Family Court in Hubballi to the Family Court in Belagavi.

Petitioner claimed that the respondent has never been involved in the children’s lives and only filed for custody to harass them. They emphasised their health issues and the challenges of travelling to Hubballi for court proceedings.

Respondent’s Argument:

The respondent asserted his legal right as the natural father under Section 6 of the Hindu Minority and Guardianship Act, 1956. He had the right to have custody of his children.

The Karnataka High Court after hearing both parties’ contentions, allowed the petition and transferred the case (G&W No. 4/2018) from the Family Court in Hubballi to the Family Court in Belagavi. The court took into account the fact that the children have always lived with their grandparents in Belagavi, and the health conditions of the petitioners would make it difficult for them to travel to Hubballi. The court found it just and equitable to transfer the case to Belagavi. The court emphasised that the children’s welfare is paramount.

Umesh Kaithwas vs. Rajendra Borasi, (2024)

In Umesh Kaithwas vs. Rajendra Borasi (2024) Umesh Kaithwas, the petitioner, sought the custody of his son, Nirbhay, who had been living with his maternal grandparents, Rajendra Borasi the respondent, and Seema Borasi, since the death of his mother, Chanchal Kaithwas. Umesh and Chanchal married in 2019 and had a son, Nirbhay, in 2021. Tragically, Chanchal passed away in November 2022.

The petitioner is an employed and financially stable person. Petitioner contended that as Nirbhay’s father and natural guardian under Section 6 of the Hindu Minority and Guardianship Act, 1956, he should have custody to ensure his son’s wellbeing, education, and future. He claimed that the grandparents, due to their old age, illiteracy, and financial instability, could not provide the same level of care and support to the child. On the other hand, the respondents, Nirbhay’s grandparents, opposed the petition. They asserted that they had been taking good care of Nirbhay since his mother’s death.

The court referred to Section 6 of the Hindu Minority and Guardianship Act, 1956, and noted that the natural guardian of a Hindu minor is the father unless it is against the child’s welfare. Section 13 of the same Act emphasises that the child’s welfare is the paramount consideration in custody matters. The court also mentioned other cases, like Amol Ramesh Pawar vs. The State of Maharashtra (2014) and Shekhar Jagdish Prasad Tewari vs. The State of Maharashtra (2019). In these cases, the courts upheld the father’s right to custody unless it would harm the child. After thoroughly reviewing all the evidence and hearing arguments from both parties, the court came to the conclusion that Umesh, being the biological father and natural guardian of the child, should have custody of the child. The court recognised that Nirbhay, being very young, needed his father’s love and care. Additionally, the person making the request in this case is financially stable and capable of providing a better environment. The grandparents, although caring, did not have enough resources to meet Nirbhay’s long-term needs. Therefore, the court overturned the trial court’s decision and instructed the grandparents to give custody of Nirbhay to Umesh within ten days. However, the court also granted visitation rights to grandparents.

Gyanedra Pr. Tripathy vs. Sanjaya Kumar, (2024)

In Gyanedra Pr. Tripathy vs. Sanjaya Kumar (2024) revolves around land initially acquired by minors through their mother as their guardian in 1996. Subsequently, in 2001, another sale of this land took place, where the same minors’ mother sold the land to the defendant. The dispute arose because this sale did not have prior permission from the District Judge, as required by law under the Hindu Minority and Guardianship Act, 1956. The plaintiffs, now becoming adults, contended before the court that since they did not benefit from the sale and no possession was given to the defendant, the transaction should be considered invalid.

The central legal issue was whether the sale deed executed by the mother, acting as guardian, without obtaining prior permission from the District Judge was legally valid.

The petitioner contended that the sale was void because it violated the law’s requirement for court permission. According to Section 8(2) of the Hindu Minority and Guardianship Act, 1956, such permission is mandatory for any transaction involving minors’ immovable property to protect their rights. The petitioner also argued that since they did not receive any educational benefits or possession of the land, the sale was not in their best interest.

The defendant argued that the mother, as a guardian, had bought the land using her own funds for the educational benefit of her children. Therefore, she had the authority to sell it without additional permission. They claimed that possession had been delivered to the defendant, and the sale was valid under these circumstances.

The trial court agreed with the plaintiffs and declared the sale deed void because it lacked the necessary court permission under Section 8(2) of the Act. It ruled that the mother, despite being the guardian, did not have the legal authority to sell the minors’ property without fulfilling this requirement. When the matter reached the Orissa High Court, the court upheld this decision, by emphasising the protective intent of the law towards minors’ property rights. It dismissed the defendant’s appeal. Thereby, the court affirmed the injunction against interference with the plaintiff’s possession of the land.

Raj Kaur vs. State of Punjab and Others (2024)

In Raj Kaur vs. State of Punjab and Others (2024), Raj Kaur (petitioner) married Harjit Singh on 03.03.2011. They had two children, Vanakjot Kaur (born on 08.09.2012) and Ravinderjit Singh (born on 06.07.2014). The marriage was dissolved by divorce on 09.11.2022, and the petitioner retained custody of both children. After her divorce, the petitioner moved to her parental home with her children. Later, she moved to her elder sister’s (respondent No.4) home in Faridkot. In May 2023, the petitioner remarried Kashmir Singh and moved to her new matrimonial home with her son. She left Vanakjot Kaur with respondent No.4 to prepare for entrance exams for Jawahar Navodaya Vidyalaya School. During the Diwali break, when the petitioner went to visit Vanakjot Kaur, she found that the child had been taken by respondents No.3 & 4, and the school authorities refused to allow the petitioner to meet her daughter.

The main issue was whether the petitioner should restore Vanakjot Kaur’s custody.

The petitioner argued that under Section 6 of the Hindu Minority and Guardianship Act, 1956, she is the natural guardian of her daughter and should have the legal right to her custody.

Petitioner further argued that the welfare of the child would be best served under her care and further contended that her daughter was wrongfully taken away by respondents No.3 & 4.

The respondents argued that Vanakjot Kaur’s welfare was best served while staying with them. They claimed that they were taking good care of her and that she was preparing for her entrance exams without any harassment. They further contended that Vanakjot Kaur expressed her desire to stay with them, which should be respected.

The court in camera proceedings interacted with Vanakjot Kaur in private and noted that she was above average in prudence and expressed her willingness to stay with respondents No.3 & 4. The Court acknowledged that under Section 6 of the Hindu Minority and Guardianship Act, 1956, the petitioner is the natural mother and guardian. However, Section 13 of the same Act prioritises the welfare of the child. The Court decided that while the petitioner is the natural guardian, however the child’s desire and welfare must be considered. Therefore, the petition was disposed of, and the court allowed the petitioner to seek custody through appropriate legal channels. The court further ordered that respondents No.3, 4 & 5, including the school authorities, must not prohibit the petitioner from meeting her daughter, following the school’s rules and regulations.

Ashok Kumar vs. The Inspector General Of Registration (2024)

In Ashok Kumar vs. The Inspector General Of Registration (2024), a three-year-old boy, referred to as “A,” in the case was born on 28 November 2021 to “K” (mother) from an illicit relationship when “K” was a minor. “K” wanted to give her child up for adoption, and Ashok Kumar (petitioner) and his wife agreed to adopt “A.” They created an adoption deed and presented it for registration. The registration was refused because “K,” now an adult, was unmarried at the time of giving the child for adoption.

The main issues were:

Could an unmarried adult woman give her child up for adoption?
Was the consent of the biological father required if he was not involved in the child’s life?

The petitioner argued that the refusal to register the adoption deed was incorrect and relied on the Hindu Adoptions and Maintenance Act, 1956.

The respondent argued that the refusal was correct due to the absence of the biological father’s consent.

The court held that being unmarried did not disqualify a woman from giving her child for adoption. The law used the terms “father” and “mother,” not “husband” and “wife.” The court noted that according to Section 6 of the Hindu Minority and Guardianship Act, 1956, the mother was the natural guardian of an illegitimate child. Since the biological father was not identified and involved, his consent was not required. The mother, “K,” was deemed competent to give the child up for adoption. The reason for refusal was found to be invalid and based on a patriarchal mindset. It incorrectly assumed an unmarried woman could not give her child up for adoption. The court highlighted that the child’s welfare was paramount and also praised the petitioner and his wife for taking the child in adoption. The court set aside the refusal check slip and ordered the registering authority to register the adoption deed upon re-presentation, subjected to the usual formalities.

Conclusion

Guardianship is a relevant subject matter under Hindu law and the purpose behind the legislation that has been constructed for this subject matter is to take definite and proper care of the minor individuals. The majority of the cases that have been discussed in this article show an inclination towards the welfare of the minor as provided under Section 13 of the Hindu Minority and Guardianship Act, 1956.

The Law Commission of India has recently submitted its Report No. 257 on “Reforms in Guardianship and Custody Laws in India” to the Union Minister of Law and Justice. The report suggests several changes to existing laws with regard to the “welfare of the child” in custody and guardianship matters. The Commission believes that changing the law will ensure courts prioritise the child’s welfare and can help address this imbalance. This would protect the child’s future, regardless of changes in the family. Thus, the Judiciary has delivered several crucial decisions by considering the welfare of the child.

Frequently Asked Questions (FAQ’s)

Does the Hindu Minority and Guardianship Act have an overriding effect?

Yes, the Hindu Minority and Guardianship Act has an overriding effect. Section 5 of the Act, prescribes the overriding effect. Similarly, these provisions take precedence over previous laws and customs that might have governed similar matters before their enactment.

Who is considered a minor under this Act?

As per Section 4(a) of the Act, a person who is under eighteen years of age is considered a minor under this Act.

What is a de facto guardian?

A de facto guardian is someone who acts as a guardian in fact or in practice, even though they may not have been legally appointed as a guardian. They assume responsibility and make decisions for a minor or incapacitated person.

What does “void ab initio” mean?

“Void ab initio” refers to something being void from the beginning or invalid from the outset. It indicates that an act or contract is treated as if it never existed legally.

References

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Business organisational structures : a comparative analysis

By

Vanshika Kapoor

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July 28, 2024

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This article has been written by Janaki Ratna pursuing an Executive Certificate Course in Corporate Governance for Directors and CXOs from Skill Arbitrage.

This article has been edited and published by Shashwat Kaushik.

Table of Contents

What is BOS

Business organisation structure (BOS) is the hierarchy through which a company/firm or organisation wants to operate on day to day, short term and long term basis. This is to enable operations, planning, forecasting, stakeholder management, financial management, supplier management, employee management, and general administration that drive the overall functioning of the organisation towards its goals. In another way, organisation structure defines at what level tasks are performed, who each role reports to, where the ultimate authority lies, the relationships between various teams, functional/regional connections, where decisions are made and delegation levels within a company. It can start right from the level of the board or CEO, all the way down to the starting level/bands of the employee or role structure.

An organisation chart is a pictorial representation of the organisation structure. Organisational structure can be a true reflection of the company/organisation’s culture. Employee motivation and engagement are directly influenced by the structure due to the impact of decision-making, role definition, autonomy and speed of execution.

Factors influencing BOS

There is no one right organisational structure. Organisational structure can change with the dynamic needs of business and with expansions, mergers, diversification, etc. However, forming the right structure can lead to the success or failure of a business. Hence, it is very critical to have the right structure to make a company agile, effective and productive, leading to profitability. Businesses decide their organisational structure based on their mission/vision, principles and policies, which define control, ownership and liability. Strong drivers are business types that have objectives and goals depending on the business entity. They are also driven by whether they are in a regulated or unregulated type of business, as well as the tax treatments. At a high level, the factors impacting the choice of business organisation structure are broadly based on:

What the company does and its size
Business objectives/goals – short term/long term
Employees, stakeholders, products and its interrelationships and complexity
Technology penetration – nil to latest

High level types of BOS

Organisational structure can be highly mechanistic—centralised, specialised, regulated or organic with decentralised authority, minimum specialisation and a focus on performance rather than roles. They can also be seen as vertical or flat to define levels of various roles, or hierarchical or circular based on the size or group of leaders across teams. Traditional structures focus more on hierarchy & being rigid, whereas modern structures focus on collaboration, performance and efficiency.

Types of organisational structure

Based on the above, below are the types of organisational structure :

Type of Organisation	Traditional or Modern	Mechanistic/organic
Function or role based organisation	Traditional	Mechanistic
Product or Market Organisation	Traditional	Mechanistic
Process based Organisation	Traditional	Mechanistic
Flat Organisation	Modern	organic
Matrixed Organisation	Modern	Organic
Circular Organisation	Modern	Organic
Network Organisation	Modern	Organic
Hybrid Organisation	Modern	Organic

Comparative analysis

As we have seen, no one type is best for all businesses. While all the above have their advantages and disadvantages and will have to be chosen per the needs of the organisation. I have taken up product and function based comparative analysis here. Those are the most popular and widely used as they are proven structures, though traditional in nature. However, in recent times, we have seen organisations use a combination of them, which are known as modern structures.

Definitions

Product based organisational structure

Here, employees are grouped into usually self-contained divisions that are for the same product or services or customers they produce/deliver and cater to. Popular product based companies are Amazon (which falls under both product based and function categories), Adobe, Cisco, Walmart, Costco and Intel.

Pros

A product-based company focuses on delivering highest quality services for its customers rather than focusing inward.
It is used when the organisation has varied products/services/customers
Each structure or division, is self-sustaining. E.g. HR, stores, production elements, marketing, R&D, etc. However, some element of shared components can also exist
Each unit can be treated as a profit centre.
A unit or division can be shut down separately or independently of other products/services/customer groups.
Since these are typically smaller units or divisions, day to day management/administration are relatively easier for the managers.
Accountability and motivation of employees are higher as they see results faster and have more autonomy.
Customers see speed of services and evolution.
Further diversification of products or services can be achieved faster.

Cons

Duplication of resources exists.
Resource optimisation is hard to achieve, thereby making economies of scale highly impossible.
Costs are higher.
If not supervised properly, divisions can become isolated with less co-operation.
Easy to drift from “company’s interest is above division’s interest.”

Functional organisational structure

In this type, the entire organisation is divided based on the specialisation of their skills, expertise and work activities. Examples of the departments: HR, Marketing, production, etc. Starbucks, Amazon and Apple follow this structure effectively. When departments are organised by their skill set, it is easier for organisation; business owners focus on business goals and manager’s focus on teams’ deliverables.

Pros

Skill development is the highest.
Employees are motivated as their career path is clearly set and they can keep upskilling in the same specialisation.
Economies of scale are achieved.
Technical expertise lies within the same team and hence speed of resolution of issues is faster.
Centralised decision-making.
The hierarchy is clearly defined and flow of communication is within the group

Cons

Functions can start working in silos.
Territorial conflicts can arise.
Limited view of organisational goals/vision.
Resistance to drastic changes, particularly when it challenges “status quo” or “out of comfort zone.”
Imbalance between functions can cause distress.

Product based organisation vs function based organisation

	Functional	Product/Divisional
Meaning	Grouping based on the function – skills	Grouping based on products or services
Based on	Functional Specialisation	Products or Services
Other name	U Form or Unitary Form	M form or multidivisional
Company Type	Small, medium or single product based	Large and product diversed
Autonomy	Lies within the function	Lies with the division
Decision making	By the manager at the top of the functional hierarchy	By the manager at the top of the divisional hierarchy
Operating Cost	More economical	More Expensive
Specialisation	Same function	Different functions but same division
Location suitability	Single location based	Multi location
Managerial capabilities	Managers tend to be more technical	Managers have overall understanding of the business goals

Findings

For ease of comparison, we took only 2 business organisation structures. Each model is found to have its merits and demerits. Product based organisational structure is more suitable for organisations that are large and complex to manage. When there are more products or divisions to manage, product based organisation is a better fit. Function based suits small companies that are more stable in nature. Where activities are repeatable, functional structure works better. However, it is recommended to choose the best of both as needed.

Conclusion

Businesses in the process of strategizing their vision and goals should also focus on having the right organisational structure for them. If not designed properly, it can adversely impact their profits/goals. Each structure has its advantages and disadvantages, as seen above. Hence, it is imperative for organisations to understand their priorities and establish a structure that can help achieve their goals. The more agile they are, the faster they can adapt and grow. Hence, depending on the stage of the organisation, their goals and what they want to cultivate as the organisation’s culture, business organisation structures will have to be strategized and implemented.

References

Manufacturing agreements decoded : insider tips for successful contracts

By

Vanshika Kapoor

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July 28, 2024

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This article has been written by Mickhita Bansal pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho. This article explains what a manufacturing agreement is, the kinds of manufacturing contracts, the essentials of a valid contract and the prerequisites for a successful manufacturing agreement, the legal framework in India, the pros and cons of the agreement, and recent trends in contract manufacturing agreements.

This article has been published by Shashwat Kaushik.

Table of Contents

What is a manufacturing contract

A contract manufacturing agreement is an agreement between two parties (the manufacturing company and the contract manufacturer) where the manufacturing company entrusts the other party to meet the same standards as if the product were manufactured by the company itself. Certain standards are being set by the company as a pre-condition for a contract to work efficiently. These include:

Quality of the product
Quantity of the product
Details about the clients, service providers, and suppliers
Delivery terms
Purchase orders

The contract manufacturing agreement helps a contract manufacturer save time, energy and money by not making any design for the product but rather entering into an agreement with the brand and focusing on meeting the standards set by the company. This agreement helps both parties in some way. Example: The Apple brand enters into a manufacturing agreement with, say, XYZ company to sell the product in some other country but it will retain its ownership rights.

Kinds of contract manufacturing agreement

Private label manufacturing

This is the most preferred contract by the contract manufacturers, as it involves the delivery of the product as specified by the manufacturer company. It delivers a finished product as the design, quality, and marketing are all mentioned in the agreement.

End to end manufacturing

This is quite similar to private label manufacturing, as in this agreement all the specifications are mentioned but it differs in the context where the contract manufacturer has to focus highly on the quality of the product.

Individual component manufacturing

This type of agreement is where the manufacturing company needs specialised products but it is a very complex process as it involves more than 1 contract manufacturer. It involves the skills of different contract manufacturers, as the different parts will be manufactured by different people and then gathered together at the same place to consolidate them.

Labour or service subcontracting

This agreement is similar to individual component contracting, as many parties are involved. When the contractor manufacturer is unable to produce the whole of the product on its own, it hires certain small-scale industries to have certain parts of the product manufactured by them.

Essentials of a valid contract

A contract, as defined in Section 2(e) of the Indian Contract Act, 1872, is a legally enforceable agreement between two or more parties. Several crucial components must be present for a contract to be considered legally binding:

Offer: The initial proposal or promise made by one party to the other party outlining the terms and conditions of the agreement. The offer must be clear, specific, and communicated to the other party.
Acceptance by the parties: The other party’s unequivocal consent to the terms and conditions of the offer. Acceptance can be expressed through words, conduct, or a combination of both. It must be communicated to the party making the offer within a reasonable time frame.
Consideration: The exchange of something of value between the parties involved in the contract. Consideration can be in the form of money, goods, services, or a promise of future performance. It is essential for the formation of a legally binding contract.
Intention to create legal relationship: Both parties must have the mutual intention to enter into a legally binding contract. This intention can be inferred from the parties’ words, conduct, and the surrounding circumstances.
3C’s (Certainty, Commitment, and Communication):
- Certainty: The terms of the contract should be clear, precise, and unambiguous. Vague or uncertain terms may render the contract unenforceable.
- Commitment: Both parties must be committed to fulfilling their obligations as outlined in the contract.
- Communication: The terms of the contract must be communicated effectively between the parties. Miscommunication or misunderstandings can lead to disputes.

The presence of these five elements is essential for a contract to be legally binding and enforceable in a court of law. Without these elements, the agreement may not be considered a valid contract and may not be legally enforceable.

In addition to these, there are other essential conditions defined under section 10 of The Indian Contract Act, 1872:

Free consent of parties
Parties must be competent to contract
Lawful consideration and object
Not declared void by any law

Prerequisites for a successful contract manufacturing agreement

To make a contract legally binding, there are certain fundamentals to every contract manufacturing agreement. These are listed below;

Licencing agreement

A licencing agreement is an agreement between two parties (licensor and licensee) where the licensor allows the licensee to access his brand name to produce goods. But if a licensee goes beyond the allowed permissions, he can be sued at any time by the licensor. This agreement is very essential for a brand name that wants to allow a third party to have access to its trademarks.

Non-disclosure agreement (NDA)

It is also known as confidentiality agreement. It is a legal contract which outlines the confidential material or information that parties wish to disclose with each other but wish to restrict access to others. It is necessary when the contracts are entered into with my larger companies. Example: Pepsi’s production formula cannot be given access to the general public and hence whoever it enters into a contract with must sign a non-disclosure agreement.

Intellectual property rights

IPR is of utmost importance in manufacturing contracts. It focuses on specifying ownership so as to avoid infringement. It includes trademarks, copyrights, and patents. There must also be a specification regarding ownership of the new products being made in the process.

Quality assurance and inspection

As we know, the big brands have their own reputation and goodwill in society, which needs to be maintained by the contract manufacturer as well, and for this purpose, the manufacturing company must ascertain the quality of the product and the testing procedures on the product before its sale in the market.

Supply chain agreement

Supply chain agreements are essential documents that outline the terms and conditions of the relationship between the various parties involved in the manufacturing and distribution of a product. These agreements are designed to ensure that all parties are working together efficiently and effectively to deliver the product to the end customer in a timely and cost-effective manner.

One of the key elements of a supply chain agreement is the communication of expectations between the parties involved. This includes not only the manufacturer and the customer but also any other third parties who are involved in the packaging, management, and shipping of the products.

It is important to clearly define the roles and responsibilities of each party in the supply chain. This includes specifying who is responsible for the following:

Sourcing of materials and components
Manufacturing of the products
Packaging of the products
Management of inventory
Shipping of the products
Customer service

In addition to defining the roles and responsibilities of each party, the supply chain agreement should also include the following information:

The price of the products
The payment terms
The delivery terms
The warranty terms
The dispute resolution process

By clearly defining the expectations of all parties involved, a supply chain agreement can help to avoid misunderstandings and disputes. It can also help to improve communication and collaboration between the parties, which can lead to a more efficient and effective supply chain.

Pricing and payment terms

In every contract manufacturing agreement, there must be a specification of the pricing terms, i.e., the price of each manufactured product, the cost of the advertisement for sale, the cost of the raw material for manufacturing, and the salaries of every person involved in this process. It must also contain payment terms as to how much consideration is given to the contract and in what manner the payment will be made. There must also be a specification as to what currency must be used in the payment process and what will be the penalties for defaulting in payment.

Dispute resolution clause

In every contract, there must be a dispute resolution clause that states the resolution method (conciliation, mediation, arbitration, or court) to be used if any dispute arises between the parties and also the procedure that must be adopted for this process. The jurisdiction must also be mentioned when legal proceedings are adopted. Example: if A party is residing in Hyderabad and B in Mumbai, where will the parties go for legal proceedings?

Term and termination clause

In every contract, irrespective of its nature, there must be a term and termination clause. The term clause states when the contract will come to an end, the duration of the contract, and the renewal terms, if any. The termination clause means when and under what circumstances the contract will be terminated. The availability of remedies if the contract is terminated before the expected time.

Indemnity clause

The instances which will lead the defaulting party to indemnity must also be specified. Indemnity means loss caused by the non-defaulting party due to the occurrence of an act or omission by another party. The maximum amount for indemnification and the consequences of default must also be specified.

Besides these clauses, there are certain other clauses that are very important to be mentioned in a contract manufacturing agreement but that are similar to contracts too. Some of them are: Title, date of execution and effective date, details of parties, recitals, definitions and interpretation, obligations, consideration, mode of payment, representation and warranties, breach and consequences of breach, waiver, non-compete and non-solicit, assignment clause, severability. We will not be discussing these in this article as they are similar with respect to other contracts as well.

Legal framework in India

Though there is no specific mention of the manufacturing contract in any Indian law, its reference is contained in many laws. The laws that affect these contracts are:

The Indian Contract Act, 1872 serves as the cornerstone of contract law in India. Enacted on August 25, 1872, this Act provides a comprehensive framework for understanding the fundamental principles, elements, and enforceability of contracts.

Agreement vs. contract:
- An agreement refers to a broader concept involving a meeting of minds between two or more parties, resulting in a consensus on a particular matter.
- A contract, on the other hand, is a legally binding agreement that creates enforceable rights and obligations between the parties involved.
Definition of a contract:
- According to Section 2(h) of the Indian Contract Act, 1872, a contract is “an agreement enforceable by law.”
- This definition encompasses the essential elements of a contract: agreement, enforceability, and legal obligation.
Essential conditions for a valid contract:
- Offer and acceptance: A contract is formed when one party (the offeror) makes an offer to another party (the offeree), and the offeree accepts the offer unconditionally and without modifications.
- Consideration: Consideration refers to the price or value exchanged between the parties in return for the promises made in the contract. It must be of value and must not be illusory.
- Competency to contract: The parties entering into a contract must be legally competent to do so. This includes being of legal age, sound mind, and not under any legal disability.
- Free Consent: Consent to enter into a contract must be freely given and not obtained through coercion, undue influence, fraud, misrepresentation, or mistake.
Parties competent for a contract:
- Individuals: Natural persons who have attained the age of majority (18 years in India) and are of sound mind are competent to enter into contracts.
- Minors: Minors (individuals below the age of majority) generally lack the capacity to enter into legally binding contracts. However, certain exceptions exist, such as contracts for necessaries (basic necessities like food, clothing, and shelter) and contracts of employment.
- Persons of unsound mind: Individuals who are mentally unsound or have been declared legally incompetent by a court of law cannot enter into valid contracts.
- Corporations and other legal entities: Corporations, companies, and other legal entities can enter into contracts through their authorized representatives.

Customs Act, 1962

The Customs Act, 1962, is comprehensive legislation that governs the import and export of goods in India. It provides a framework for the assessment and collection of customs duties, as well as the regulation of various aspects of international trade.

The Act sets out the procedures for the clearance of goods through customs, including the documentation required, the examination of goods, and the assessment of customs duties. It also provides for the imposition of penalties for violations of the Act, such as smuggling and misdeclaration of goods.

The Customs Act, 1962, is administered by the Central Board of Indirect Taxes and Customs (CBIC), which is a department of the Ministry of Finance. The CBIC is responsible for formulating and implementing policies related to customs, as well as for the enforcement of the Customs Act.

The Act has been amended several times since its enactment in 1962, in order to keep up with changes in international trade and to address new challenges, such as the rise of e-commerce.

The Customs Act, 1962, is an important piece of legislation that plays a vital role in regulating international trade in India. It ensures that goods are imported and exported in accordance with the law and that customs duties are collected efficiently and effectively.

In addition to the provisions mentioned above, the Customs Act, 1962, also includes a number of other important features, such as:

The establishment of a Customs Tariff Commission, which is responsible for recommending changes to the customs tariff.
The creation of a Customs House Agents Association, which is a self-regulatory body for customs house agents.
The establishment of a Customs Appellate Tribunal, which hears appeals against decisions made by the customs authorities.
The Act also provides for the establishment of a Customs Intelligence Unit, which is responsible for investigating customs-related crimes, such as smuggling and counterfeiting.

The Customs Act, 1962, is a complex piece of legislation that has a significant impact on international trade in India. It is important for businesses and individuals involved in import and export to be familiar with the provisions of the Act in order to ensure compliance and avoid penalties.

The Specific Relief Act, 1963

The Specific Relief Act, 1963, is a crucial piece of legislation in India that governs the remedies available for breach of contract. It recognises two primary categories of remedies: specific relief and preventive relief.

Specific relief aims to enforce the precise terms of the contract as agreed upon by the parties. Under specific relief, the court may order specific performance of the contract. This means that the party who breached the contract must fulfil their obligations as outlined in the agreement. For instance, if a seller fails to deliver goods as promised, the court may order them to deliver those specific goods to the buyer.

Preventive relief, on the other hand, seeks to prevent a breach of contract or mitigate its consequences. The most common form of preventive relief is an injunction. An injunction is a court order that prohibits a party from doing or continuing to do something that would violate the terms of the contract. For example, if a buyer attempts to cancel a contract without justification, the court may issue an injunction restraining them from doing so.

In addition to specific performance and injunctions, the Specific Relief Act also provides for the remedy of rescission. Recission is the process of cancelling a contract and restoring the parties to their pre-contractual positions. This remedy is available when a breach of contract has occurred and the innocent party wishes to terminate the agreement.

The Specific Relief Act is a comprehensive law that provides a framework for resolving disputes arising from breaches of contract. It ensures that parties to a contract have legal recourse to protect their rights and interests in the event of a breach.

Pros and cons of contract manufacturing agreement

It saves various kinds of costs that businesses incur when they need to start their business from the start. Like the raw materials cost.
It saves the energy which is needed by any new product to form its design and introduce it to the market.
The need to involve more and more labour will decrease as the process will be automated by the brand itself to produce goods on a large scale.
Different expertise can be acquired by involving people from different fields. Once you have the idea of the product, different people with specialised skills can be involved to have knowledge regarding the process.
The product can be advertised and sold in a larger picture by involving companies from areas allocated at a distance from the manufacturing company.

When we discuss the benefits of the contract, there are certain drawbacks too, which cannot be avoided. Some of them are stated below:

Meanwhile the products are being manufactured by the contract manufacturer, there can be new inventions but the drawback is that ownership of this new customised product will be retained by the manufacturing company.
There is a risk in getting into these agreements, as there can be leakage if information is confidential to the manufacturer.
The control of the other party over the quality of the product is equal to zero.
The other party will always remain under the control of the manufacturing company and be bound by the rules and regulations framed by the company.
There can be some language barriers that will not affect the manufacturing company but the other party, as the company can sue it anytime for any breach of condition.

Recent trends in contract manufacturing agreement

Female Health Company v. Hll Lifecare Limited (High Court of Kerala, LAWS(KER)-2017-2-95)

The petitioner is a well registered company in UK and the respondent is the exclusive manufacturer, distributor and marketer in the prescribed area for FCI. On May 29, 2008, the parties entered into a manufacturing agreement for manufacturing FC2. The petitioner granted him the required trade licence for product manufacture but the issue arose when the respondent was actually manufacturing a natural rubber latex version of FC2 for which the petitioner asked for an interim injunction to restrain the respondent from manufacturing and distributing the product. The court dismissed the petitioner’s application stating that the respondent had been manufacturing and selling their products for over 4 years peacefully. Also, there was no satisfactory explanation as to whether the products manufactured were similar.

S.K. Jain v. State of Haryana, (2009) 4 SCC 357

In the landmark case of S.K. Jain vs. State of Haryana (2009), the Supreme Court of India grappled with the validity of contractual pre-deposit requirements in arbitration proceedings. At the heart of the dispute was the question of whether courts could alter or modify such contractual stipulations or whether their role was limited to interpreting them as written.

The appellant, S.K. Jain, entered into a contract with the state of Haryana for the construction of a bridge. The contract stipulated that any disputes arising from the agreement would be resolved through arbitration. However, it also contained a clause requiring the appellant to make a pre-deposit of a significant sum of money as a precondition for initiating arbitration.

Aggrieved by this provision, the appellant approached the court, arguing that the pre-deposit requirement was unfair, arbitrary, and contrary to the doctrine of fairness and public policy. He contended that such a condition would effectively deny him access to arbitration, a fundamental right guaranteed under Article 19(1)(g) of the Indian Constitution.

The Supreme Court carefully considered the appellant’s arguments and examined the nature of arbitration as a dispute resolution mechanism. It recognised that arbitration is a matter of contract and that parties are free to negotiate and agree upon the terms and conditions of their arbitration agreement, including the inclusion of pre-deposit requirements.

However, the court emphasised that the sanctity of contracts should not be used to perpetuate injustice or deprive parties of their fundamental rights. It held that while courts cannot rewrite or alter the terms of a contract, they have a duty to interpret the contract in a manner that upholds principles of fairness and justice.

In the present case, the court found that the pre-deposit condition was not inherently unfair or oppressive. It reasoned that the requirement aimed to ensure that frivolous or vexatious claims were not brought before the arbitral tribunal, thereby protecting the respondent from unnecessary litigation expenses and delays. Additionally, the court noted that the appellant had not demonstrated that he would be unable to comply with the pre-deposit requirement.

The court further observed that the doctrine of fairness, as relied upon by the appellant, was not an abstract principle that could be invoked to override the terms of a valid contract. Instead, fairness must be considered within the context of the specific factual matrix and the applicable legal principles.

Ultimately, the Supreme Court upheld the validity of the pre-deposit requirement, concluding that it did not violate the appellant’s fundamental rights or principles of public policy. The court’s decision underscored the importance of respecting the sanctity of contracts while ensuring that contractual provisions are interpreted and applied in a fair and just manner.

Griffon Laboratories Pvt. Ltd. v. Commissioner of Income Tax, Income Tax Appellate Tribunal (ITAT), 1978

The assessee is a well established pharmaceutical company. During the assessment proceedings, the assessee was treated as a manufacturing company and was taxed as per the taxing laws. The Tribunal stated that the assessee was not a manufacturing company and was just involved in the distribution and marketing of the products on the basis that the company did not possess any machinery for manufacturing the products. But the High Court of Calcutta stated that here the Tribunal made an error in making its decision and hence it was reversed against the assessee.

M/s Impact Metal Limited v. MSR India Ltd, (decision by the High Court in 2016)

The parties were in a contract manufacturing agreement where they shared their trade secrets, designs of the products and specifications. The issue arose when the first party alluded to the second party about infringement of intellectual property and misappropriation of trade secrets and whether this dispute could be referred to arbitral proceedings. The district court stated that when there is any intellectual property rights infringement, the dispute cannot be referred to arbitration for resolution. But the high court reversed its decision and held that when there is an arbitration clause in the agreement, then the dispute can be referred to arbitration.

Conclusion

It is always advisable to involve a legal practitioner while drafting a contract manufacturing agreement, as there are many conditions that common people cannot know and the legal practitioner can give practical knowledge about.

References

Jagannathan Pillai vs. Kunjithapadam Pillai (1987)

By

Rachit Garg

-

July 28, 2024

0

This article is written by Trisha Prasad. The article analyses a crucial Supreme Court judgement that was delivered in the case of Jagannathan Pillai vs. Kunjithapadam Pillai (AIR 197 SC 1493) which played an important role in interpreting the meaning, scope and purpose of Section 14(1) of the Hindu Succession Act,1956. This article discusses the significance of the judgement ensuring uniformity in the application of the Section as well as reiterating the rights of a widowed Hindu woman in relation to the inheritance of her husband’s property.

Table of Contents

Introduction

The Supreme Court in this case of Jagannathan Pillai vs. Kunjithapadam Pillai (1987), interpreted the meaning of Section 14(1) of the Hindu Succession Act,1956 to ensure a uniform application of the law, irrespective of the jurisdiction within which any case arose or suit property is situated. This case primarily focused on the conversion or transformation of a widow’s limited rights or ownership over property that she inherited from her deceased husband to full ownership over that property under Hindu law. The Apex Court specifically analysed and determined whether the widow in this case would become the full owner of the property after its reconveyance subsequent to the commencement of the Hindu Succession Act,1956. The judgement also addressed the concept of reversioners and the impact of the Hindu Succession Act on the rights of reversioners.

Details of the case

Parties

Appellant: Jagannathan Pillai
Respondent: Kunjithapadam Pillai

Case no.

Civil Appeal No. 1196 of 1973

Equivalent citations

AIR 1987 SC 1493, 1987 SCR (2) 1070, 1987 (2) SCC 572

Court

The Supreme Court of India

Bench

Justice M.P Thakkar and Justice B.C Ray

Decided on

21st April, 1987

Facts of the case

In this case a widowed Hindu female had acquired her husband’s property after the latter’s death. This acquisition took place before the Hindu Succession Act came into force on 17th June 1956. This transaction hence took place in accordance with the concept of a “widow’s estate” under traditional Hindu laws also known as Shastric laws.

The widow continued to have possession of the said property until she transferred the same to another person (referred to as the alienee) by executing a registered sale or gift deed in favour of the alienee. Further, after the commencement of the Hindu Succession Act, the alienee re-transferred the property to the widow. This transaction, in effect, reversed the first transaction and restored the widow’s rights in the concerned property.

The question brought before the court by the parties was in relation to the status of ownership of the widow after the reversal of the first transaction or reconveyance of the property.

It is pertinent to note that, if a widow had inherited property in similar circumstances in Orissa or Andhra Pradesh, she would be considered as “limited owner” of the property. At the same time, if the property was inherited in Madras, Punjab, Bombay or Gujarat, she would be considered as an “Absolute owner” of the property. This appeal was filed by the appellant against the decision of the Madras High Court where the appellant had attempted to present that the view propounded by the High Courts of Orissa and Andhra Pradesh have to be considered positively while opposed to the views taken by the High Courts of Madras, Punjab, Bombay and Gujarat. The appellant had failed to uphold this contention in the Madras High Court.

Issues raised

Whether, after reconveyance of the property subsequent to the commencement of the Hindu Succession Act, 1956, the widow will become a full owner of the concerned property as per Section 14(1) of the Act.

Laws/concepts involved in this case

Widow Property under Hindu Law

Prior to the Hindu Succession Act

Prior to the enactment of the Hindu Succession Act, as per traditional Hindu Law, a widow had limited ownership over her deceased husband’s property. This was referred to as the widow’s estate or property. The widow had limited rights and possession over the property as she was only allowed to enjoy the property during her lifetime and not alienate or sell the same. In simple words, widows were treated as “life tenants” of their deceased husband’s property. After the death of the widow, the property would in practice revert to the heirs of her deceased husband.

Reversionary Heirs

Under traditional Hindu law, a widow only has limited ownership over her deceased husband’s estate. After the lifetime of the widow, the property will revert to the next heirs of her deceased husband as if he had lived up and died at the time of her death. These persons are referred to as reversionary heirs or reversioners. The legal heirs of the husband, in the order of succession, will be considered as reversioners. In simple words, a Hindu woman or widow, under traditional Hindu law, had the right to only enjoy the possession and ownership of her deceased husband’s property during her lifetime without alienating it and after her death, the property will still be considered as part of her deceased husband’s property and not her own estate. Hence, the property will be reverted to or inherited by her husband’s reversioners and not her own legal heirs.

Post-Hindu Succession Act

After the Hindu Succession Act was enacted and came into force in 1956, widows were entitled to inherit both self-acquired and ancestral property of their deceased husbands. Unlike the situation that persisted before the Act, widows are granted full ownership rights over the property that they received or inherited after the death of their husband by virtue of Section 14 of the Act. The Section further stated that any property that the woman acquired either before or after the commencement of the Act will be considered as her own property as long as the relevant instrument of transfer does not expressly restrict or limit the woman’s ownership and right.

Hindu Succession Act, 1956

Section 14 is one of the few sections of the Act that have a retrospective applicability.

Section 14(1) of the Hindu Succession Act specifically states that any property that is acquired by a Hindu woman either before the commencement of the Act or after will vest full ownership in that woman and not a limited ownership.

The explanation of this Sub-Section further clarifies that “property” as mentioned in the Sub-section refers to both movable and immovable property that may be acquired by a Hindu woman by any possible legal means including:

Inheritance: Any property that is received by the woman from a deceased relative, either pursuant to the laws of succession or on the basis of the deceased person’s will.
Partition: Any share in property received by a woman after the division of a jointly owned property, usually a family or ancestral property.
Gift from either a relative or any other known person irrespective of whether it was before or after her marriage (if married)
In the form of or in place of maintenance: Any share or portion of property or assets received by a woman either as a part of a plan of maintenance or instead of regular monetary payment for maintenance.
Self- Acquired Property as a result of the woman’s skill and efforts
Purchase of property by the woman
Property held by the woman as Stridhan immediately before the Act came into force.

Section 14(2) provides exceptions to the application of Sub-section (1). According to this Subsection, Section 14(1) will not apply to any property acquired by way of gift, will, the decree of a court or any other instrument if the terms of such gift, will, decree or instrument expressly transfers restricted or limited ownership to the widow. This means that irrespective of how the property is acquired, if the terms of the transfer or acquisition of property specify that the woman will have restricted or limited ownership over the property, the provisions of Sub-section (1) will not apply.

Spes Successionis

Spes successionis is a Latin term that translates to “hope to succeed.” It simply refers to the hope or expectation of succeeding or inheriting a property in the future. It is a right that only becomes legally enforceable when the succession actually happens or when there is no doubt that the succession will happen. This right is contingent on the status of any potential heir of the owner of the property.

For example, if X transfers property to Y on the condition that if Y does not have any legal heirs at the time of his death, the said property will be inherited by A. A, in this case, expects to inherit the property in the future. A’s chance to inherit the property will be contingent to whether Y will have legal heirs in the future or not.

Rule of nemo dat quod non habet

While this Latin term has not been expressly mentioned in the present case, the concept of the principle has been discussed. ‘Nemo dat quod non habet’ is a Latin term that translates to “no one gives what he does not have. This rule is generally associated with the transfer of property and interest in or possession of property. This rule essentially means that a person cannot transfer a better title in a property than what they themselves possess. For example, if someone has only limited ownership over a property, they cannot transfer the property to another person, granting full ownership to the transferee.

Relevant judgements referred to in the case

Gummalapura Taggina Matada Kotturu Swami vs. Setra Veeravva and Ors. (1958)

The Apex Court in Gummalapura Taggina Matada Kutturuswami vs. Setra Veeravva and Ors. (1958), discussed the scope of Section 14 of the Hindu Succession Act and the meaning of the term “possessed by a female Hindu” was analysed. The facts of the case were that one Kari Veerappa died, leaving behind a will that mentioned details of his estate and permitted his wife (widow) Setra Veeravva to adopt a son for the continuance of the family. The will expressly stated that she would be permitted to adopt as many times as necessary (in case of unsuccessful adoptions) as long as the boy being adopted is approved by the five trustees (persons who became trustees after the death of the widow) appointed by Kari Veerappa. The widow, Veeravva attempted to adopt twice, in 1939 (unsuccessful adoption) and 1943. The petitioner, who claimed to be a reversioner of the deceased, Veerappa, filed this case, seeking a declaration that the second adoption was invalid. Though the primary issue in the case raised by the petitioner was in relation to the validity of the adoption, the possession, ownership and alienation of the concerned property was also discussed in relation to Section 14 of the Hindu Succession Act. The primary objection put forth by the respondent, Veeravva was that as per Section 14 of the Hindu Succession Act, irrespective of whether the adoption was valid or not, Veeravva became the full owner of her deceased husband’s estate.

The Apex Court in this matter interpreted the meaning of “property possessed by a female Hindu” under Section 14 to include even constructive possession. The Court was of the opinion that even if the adoption was invalid, Veeravva had become the full owner of Veerappa’s estate after the enactment of the Hindu Succession Act. On the other hand, even if the adoption was valid and the adopted son was in actual possession of the property, it must be deemed that Veeravva had constructive possession over the property.

Ganesh Mahanta and Ors. vs. Sukria Bewa and Ors. (1963)

In the case of Ganesh Mahanta and Ors. vs. Sukria Bewa and Ors. (1963) that was brought before the High Court of Orissa by the plaintiffs, claiming shares in the partition of a property that was inherited by a widow, on the death of her husband. She had inherited these properties as a limited owner prior to the commencement of the Hindu Succession Act. The widow subsequently transferred the property by way of a registered gift deed to one of the defendants in 1946. A suit was filed before the Munsif Court against this transaction. The court declared that the transaction would not be binding on the reversionary heirs beyond the widow’s lifetime. Subsequently, in 1957, a portion of the property was transferred to the widow. There was a third transaction in the same year through which the widow transferred the same property to two other defendants. A partition suit was then instituted after the widow passed away in 1958. The defendant’s claim in this issue was in tune with the fact that the widow in question gained full ownership over the property after the Hindu Succession Act came into effect and that the third transaction in 1957 was valid and vested full title to the property in the two defendants.

The High Court, however, held that, considering the fact that the widow had limited ownership while making the first transaction, all of the subsequent transactions of the same property would only give the transferee limited ownership. This meant that, when the property was retransferred to the widow after the commencement of the Hindu Marriage Act, she only attained limited ownership over the same. The court justified this on the principle that anyone transferring any property in favour of another person cannot transfer any title higher than what they enjoyed. The provision of the Hindu Succession Act (Section 14(1)) was overlooked by the court in this judgement.

Teja Singh and Anr vs. Jagat Singh and Ors (1963)

This decision in the case of Teja Singh and Anr vs. Jagat Singh and Ors (1963), was delivered by the High Court of Punjab in 1963. Uttam Devi, the widow of the last male owner of the concerned land inherited the same after her husband’s death. The widow, in 1938 gifted the inherited property to two persons, Daulat Singh and Charna. Prior to the enactment of the Hindu Succession Act, a suit was filed by the reversioners of the last male owner of the property, claiming that Uttam Devi had only limited ownership over the property. The Court at that time ruled in favour of the reversioners, passing a declaratory decree to that effect. In 1959, Daulat Singh transferred the same property, in the form of a gift, back to Uttam Devi. Subsequently, in 1959, Uttam Devi sold the property that was gifted back to her. The contention of the petitioners was that despite the fact that the widow lost possession over the concerned property after she executed the gift deed in 1938, she regained possession over a partition of the property as a result of the gift made by Daulat Singh. Thereby, by virtue of Section 14 of the Hindu Succession Act, the widow, Uttam Devi gained complete ownership over the concerned property, allowing her to sell the property. According to the petitioner, this would in effect mean that the reversioners cannot take benefit of the declaratory decree that was earlier passed in their favour. The respondents on the other hand, argued that the widow lost possession over the property in 1938 and could not acquire lawful possession of the property through the gift back in 1959 especially due to the fact that the declaratory decree that was passed in favour of the reversioners, intervened between 1938 and 1959, the dates of the first gift and the gift back date respectively.

The Court held that the widow, Uttam Devi had gained lawful possession over the portion of the property that was gifted back to her by Daulat Singh and she had become the absolute owner of the property by virtue of Section 14 of the Hindu Succession Act. The declaratory decree was not to be treated as a decree giving title to the reversioners.

Bai Champa and Ors. vs. Chandrakanta Hiralal Dahyabhai Sodagar and Ors. (1973)

In Bai Champ and Ors. vs. Chandrakanta Hiralal Banyabhai Sodagar and Ors. (1973), brought before the High Court of Gujarat, the Court upheld the decision of the lower court that the widow was the full owner of the concerned property pursuant to Section 14 of the Hindu Succession Act. The facts of the suit are that the owner Lalbhai Chunnilal died in the year 1915, leaving behind his widow, Bai Mukta. His brother too died in the year 1959, leaving behind his widow, Bai Champa, a son and two daughters. Subsequently, Bai Mukta died in 1963. However, during her lifetime, she had inherited property after the death of her husband and sold some of the inherited property. Some of the properties were also given to the respondents through Bai Mukta’s will. The plaintiffs filed this case, claiming the ownership of the properties was vested in them by virtue of their status as reversioners of Lalbhai Chunnilal. The Court observed that the widow, Bai Mukta was in possession of the properties when the Hindu Succession Act came into force and by virtue of Section 14(1) of the Act, she has gained full ownership over the properties.

Judgement in Jagannathan Pillai vs. Kunjithapadam Pillai (1987)

Purpose of Section 14(1)

The Supreme Court was of the opinion that the purpose of enacting Section 14(1) of the Hindu Succession Act was to protect the interest of women. In the context of a widow’s property, the purpose of the section is to make a widow the full or absolute owner of a property that she would have otherwise had limited rights over, irrespective of whether the property was acquired before or after the commencement of the Hindu Succession Act. The court stated that Section 14(1) comes into the picture when the rights of a Hindu widow to a specific property are questioned. In such a situation, it is sufficient for the concerned widow to prove that she had acquired the said property and was, as on that date, in legal possession of the property.

Specific interpretation of Section 14(1)

In order to understand the application of the Section, the court specifically interpreted certain terms and phrases that form an important part of the Section. According to the Court, the term “possessed” does not merely refer to a physical possession over the property. The term refers to the acquisition of some rights, title or interest in the property. Hence, in the context of Section 14(1), a legal possession or constructive possession is sufficient and physical possession over the property is not essential for the application of the section.

The Court further reiterated the meaning and purpose of the phrase, ‘Whether acquired before or after the commencement of this Act.’ It was observed that the phrase clarifies that any property that a Hindu female possesses, regardless of when it was actually acquired, will be held by her as a full or absolute owner. The Act aimed to remove any discrimination between property that was possessed by a Hindu woman at the time of commencement of the Act or when the right over the property was called into question that may have otherwise existed based on whether it was acquired before or after the commencement of the Act.

Ownership of property and rights of the reversioners

In this instant matter, the Court held that, despite temporarily losing possession over the property in 1938, the widow regained or acquired possession over the property when it was transferred back to her by way of a gift by Daulat Singh. The transaction by which Daulat Singh had earlier gained interest in the property was reversed after the same was gifted back to the widow. This is referred to as reconveyance and the widow was restored to the position that persisted before the now reversed transaction took place. The court held that the widow’s limited ownership over the property was converted into full ownership by virtue of Section 14(1) of the Hindu Succession Act. The widow had sufficient possession over the property and had acquired an interest in the property as required under Section 14(1).

In relation to the rights of the reversioners, the court held that since the property was transferred back to the widow and the initial transaction was reversed, the rights of the reversioners who merely had spes successionis in the property was not affected. The court further observed that the rights of the reversioners would have been affected if Daulat Singh (the donee) had transferred the said property to a third person. In such a situation, it would be correct to apply the principle that one cannot transfer a title higher than the title that he holds in relation to the property. This principle was, however, not applicable in the instant matter.

Analysis of the case

The judgement delivered by the Supreme Court in Jagannathan Pillai vs. Kunjithapadam Pillai (1987) was a significant milestone in not only reinforcing the property rights of Hindu Women but also a major contributor to policies, legislations and various other efforts taken towards the broader subject of gender equality in India.

The primary focus of this judgement was to interpret the application of Section 14(1) which intends to give full ownership over the property of a woman that is in her constructive, legal or physical possession, irrespective of whether the property was acquired before or after the commencement of the Hindu Succession Act. The Court aptly provided comprehensive interpretations of various terms and phrases including “Possessed” and “whether acquired before or after the commencement of this Act ” which form an important basis for the uniform and effective application of Section 14(1) of the Hindu Succession Act. Traditionally, the Hindu law only permitted widows to have limited ownership over any property that they had inherited from their husbands. However, the introduction of the Hindu Succession Act as well as the interpretation of this judgement transformed this limited ownership to full ownership, allowing widows to have control and complete authority over their inherited property.

The court rightly compared the position of law adopted by various High Courts in India in order to emphasise the need for uniform interpretation and application of the law with the aim of fulfilling the purpose and legislative intent that underscores the Section. The Supreme Court highlighted the discrepancies in the application and interpretation of the law and laid down the foundation for a consistent approach.

This judgement plays a pivotal role in ensuring that discrimination in property rights is eliminated by emphasising that the date of acquisition of the property is not the sole basis for determining ownership.

Conclusion

The judgement delivered by the Supreme Court in the case of Jagannathan Pillai vs. Kunjithapadam Pillai played an important role in interpreting and reiterating the purpose, meaning and scope of Section 14(1) of the Hindu Succession Act. The judgement sought to ensure a uniform application of the said Section throughout India. The Supreme Court clarified that the purpose of the provision is to secure the rights of Hindu women as full owners of properties that they had acquired either before or after the commencement of the Hindu Succession Act. This judgement protects the rights and interests of a widow and reinforces the objective of the Act to elevate the property rights of Hindu women in India.

Frequently Asked Questions (FAQs)

Can a widow transfer or alienate the property that she inherits from her husband?

Yes, after the commencement of the Act of 1956, a widow who has gained full ownership over the property that she inherits from her deceased husband, has the right to sell, lease, transfer, gift or dispose off the property in any manner that is legal and as she deems fit.

How did the Hindu Succession Act, 1956 affect the concept of reversioners?

The Hindu Succession Act (1956) has significantly diminished the rights of reversioners of any deceased person. Traditionally, reversioners of a deceased husband would inherit the property after the death of the widow. However, after the commencement of the Act of 1956, a widow gains full ownership over the property that she inherits from her husband. Consequently, the property will be inherited by the heirs of the widow and not by the reversioners of the deceased husband.

What types of property are covered under Section 14(1) of the Hindu Succession Act, 1956?

Section 14(1) of the Hindu Succession Act,1956 is applicable to any property, both movable and immovable, that are acquired by a Hindu woman:

By inheritance which includes both self-acquired property and ancestral property
By purchase
By partition
By gift
Through skill or effort
In lieu of maintenance
In the form of Stridhana
By any other lawful means

References

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Musa Miya Muhamad Shaffi vs. Kadar Bax Khaj Bax (1928)

By

Rachit Garg

-

July 28, 2024

0

This article has been written by Soumyadutta Shyam. This article deals with the case of Musa Miya Muhamad Shaffi vs. Kadar Bax Khaj Bax (1928). This case deals with the subject of Gift or Hiba under Muslim law. This article discusses the facts of the case, the issues raised before the court, the arguments presented by both parties, the legal aspects involved in the case, the judgement of the case, and the analysis of the case.

Table of Contents

Introduction

The gift is the transfer of certain existing property either movable or immovable, made voluntarily and without consideration by the transferor i.e., the donor to the transferee i.e., donee. Such transactions are usually made out of love and affection. Gifts of immovable property in India are governed by Sections 122–129 of the Transfer of Property Act,1882. Although, Section 129 of the Act sets out that the sections of the Act regarding gifts, shall not apply to gifts of property made under Muslim law. This means gifts made under Muslim law are excluded from the operation of provisions of Chapter VIII of the Transfer of Property Act,1882 which deals with gifts of property. The essential requisites of a valid gift, also called “Hiba” under Muslim law are – declaration, acceptance, and delivery of possession. An adult Muslim of sound mind is at liberty to make a gift of their movable or immovable property in favour of the donee, provided that such gift is made in the presence of witnesses by a public declaration.

A gift of property under Muslim law is called “Hiba” or “Hadiya”. The gift is made through a declaration expressing the donor’s intention to make the gift. This case deals with the legality of a gift made by the grandfather to his grandchildren under Muslim law.

Details of the case

Appellant – Musa Miya Muhamad Shaffi & Anr

Respondent – Kadar Bax Khaj Bax (deceased)

Date of Judgement – 21.02.1928

Citation – (1928) 30 BOMLR 766

Judge – Justice Sir Lancelot Sanderson

Facts of the case

The suit in this case was originally filed on January 6th, 1919, by Kadar Bax Khaj Bax, claiming a share of the properties left by Abdul Rasul, his deceased brother. The plaintiff (a Sunni Muslim) was an heir of Abdul Rasul, he asserted that he was entitled to a 3/8th share of the properties of his deceased brother Abdul Rasul. He alleged that Abdul Rasul died, leaving behind him, as his heirs, a widow Sahebjan (1st defendant, now deceased), a daughter named Rahimatbi (2nd defendant), and his brother (plaintiff). Under Muslim law, the widow was supposed to get 1/8th share, the daughter 1/2 share, and the plaintiff 3/8th share. The plaintiff claimed that the widow, the daughter, and their tenants were in possession of the property in issue.

Mahamad Shaffi usually lived with Abdul Rasul, though he had properties at another place. He was father of the defendants no.18 and 19 i.e., grandsons of Abdul Rasul. Mahamad Shaffi, Rahimatbi, and their two children resided at the house of Abdul Rasul and were supported by him.

Abdul Rasul went on a pilgrimage to Mecca. The appellants claimed that on 1.10.1910, Abdul invited many people to dinner and declared that he was going to Mecca and that he gifted his property to his grandsons as also they were the owners. In a letter addressed to Mahamad Shaffi, Abdul Rasul stated, “Now both the children, Essen Mian and Moosa Mian, are the owners of my property”. Abdul was in Mecca for three months. After he returned, Abdul Rasul continued with the management of the estate.

The Subordinate Court came to the conclusion that there was no lawful gift made for the defendants. Although, it was observed that the letter sent by Abdul Rasul to Mahamad Shaffi indicated the desire of Abdul Rasul for his grandsons should inherit his property after he passed away. It was ruled that the will was void under Muslim law since more than 1/3rd of the property of Abdul Rasul was bestowed to the grandsons.

Subsequently, both the defendants no.18 and 19 and the plaintiff preferred an appeal to the High Court against the Subordinate Judge’s decision. The High Court dismissed the appeal filed by the defendants no.18 and 19 and partly allowed the plaintiff’s appeal. The High Court declared that the plaintiff was entitled to partition of 3/8th of the share in Abdul Rasul’s property.

Afterwards, Musa Miya and Isa Miya, who were defendants no.18 and 19 made an appeal to the Privy Council against the judgement of the High Court of Bombay.

Issues before the Court

The main issues for consideration in this case are mentioned below:-

Whether a lawful gift was made for the defendants or not?
Whether the requisites for the application of the norm relating to a mother giving a gift to her minor son were present in this instance or not?

Arguments by the parties

Appellants

The appellants by their joint written statement refused that Abdul Rasul’s heirs had any authority to reclaim any portion of the estate. They also agreed with the pleas raised by their mother and grandmother. They asserted that even after the gift was made they kept on living with their grandfather, who took care of the properties bestowed upon them. They said that their grandfather assumed that the possession was for the minor grandsons and that the gift was lawful in accordance to Muslim law. They said that the letter sent by Abdul Rasul to their father was a valid will.

It was further contended on behalf of the appellants that owing to the circumstances in this case and the relation between Abdul Rasul and his grandsons, the gift was accomplished without any transfer of possession, in conformance with Muslim law.

Respondents

The wife along with the daughter submitted a joint written statement mentioning that in 1910, Abdul Rasul bestowed all his possessions to his grandsons through an oral gift. This was intimated to their father, Mahamad Shaffi through a letter. It was also mentioned that the grandsons lived with their grandfather, Abdul Rasul since infancy. It was further mentioned that in 1911, Abdul Rasul addressed a second letter to Mahamad Shaffi in which it was stated that the grandsons should be the owners of the property after Abdul Rasul’s death. On account of the oral gift and the will, the grandsons became the owners of Abdul Rasul’s estate. The grandsons through their father were in control of the estate.

Legal aspects involved in Musa Miya Muhamad Shaffi vs. Kadar Bax Khaj Bax (1928)

Section 129 of the Transfer of Property Act, 1882: Saving of donations mortis causa and Mohammedan law

Section 129 excludes gifts of property made by Muslims from the operation of the provisions of the Act, insofar as they are inconsistent with the principles of Muslim law. Under Muslim law, a gift of an immovable property may be made orally by just delivery and possession. Similarly, the rules relating to the revocation of a gift in Muslim law are totally distinct from those under Section 126. In such cases, none of the provisions of this Act will be applicable. But as long as the rules under this Act are based on equity and reason and do not contradict Muslim law, they will be applicable.

Gift under Muslim law: Hiba

In Muslim law, the concept of gift or “Hiba” is based on the values of compassion and economic redistribution. Gift under Muslim law, is a voluntary transfer of property from the donor to the donee without consideration. A property can be gifted while the donor is still living or can be executed through a will (known as “Hiba bil Wasaya ”) to be carried out after the donor’s death.

The concept of gift or “Hiba” is legal and recognised under Muslim law. It is, however, subject to certain restrictions. The donor must be of sound mind and have ownership rights over the property that is being gifted. The donee must accept the property voluntarily, without coercion. Gift once made irrevocably transfers ownership of the property to the donee.

Declaration of gift by the donor signifies the intention to make a gift. The declaration should be made in clear terms. Both declaration and acceptance can be made verbally. It can also be done in written form. When it is done through a written instrument, however, it is called “Hibanama.” It is not mandatory to register the “Hibanama.”

As a gift or “Hiba” is regarded as a bilateral transfer under Muslim law, the donor must make the transfer and the donee must accept the gift. If the donee is a minor or a person of unsound mind the gift can be accepted on their behalf by their guardian such as father, paternal grandfather, etc.

In Md. Hesabuddin & Ors vs. Md. Hesaruddin & Ors (1983), it was observed that the correct stance of law under Muslim law has three requirements for a lawful gift:-

declaration of the gift by the donor i.e “Ijab”
acceptance of the gift by the donee i.e, “Qabul”
delivery of possession i.e, “Qabda”.

It is, thus, held that the indication of the desire of the donor to make the gift, the acceptance of the gift either impliedly or expressly, and taking possession of the property transferred by the gift are the important requirements for making a lawful gift under Muslim law.

In Mst. Noorjahan vs. Muftkhar Dad Khan (1969), the court said that, under Muslim law, a recital in the gift deed that possession has been delivered to the donee leads to a supposition only of such delivery and this supposition may be refuted by those contending the gift. One of the three requisites of a gift under Muslim law is the delivery of possession of the subject-matter of the gift by the donor to the donee. Registering the gift deed will not remedy the lack of delivery of possession nor the mutation of names is a viable replacement for delivery of possession. However, the delivery required is not in all cases physical delivery. A symbolic delivery may be valid. In this case, the donor had desired to make the gift and the donee also wanted to accept the gift. The gift was made through a registered instrument and it was delivered to the donee. Thus, it was a valid gift.

The delivery of possession is conditional on the character of the property. The manner of delivery can be either actual or constructive.

When the subject-matter of the gift is materially transferred to the donee, it is actual delivery. Actual delivery of possession is made when the gift is tangible in nature. Actual delivery is generally made where the gift is movable.

Immovable and intangible property is delivered through constructive or symbolic delivery.

Judgement in Musa Miya Muhamad Shaffi vs. Kadar Bax Khaj Bax (1928)

The High Court rejected the appeal made by the defendants no. 18 and 19 and granted the plaintiffs appeal to the effect that in replacement for the decree made by the Trial Court, the High Court proclaimed that the plaintiff was authorised to avail partition of 3/8th share in the property of the deceased, Abdul Rasul. However, certain properties were exempted.

The Privy Council was of the view, that it can be presumed for the object of this appeal that the donor did declare to his friends on 1st October 1910 that he had gifted his property to his grandsons.

The Privy Council opined that there was no lawful gift made to defendants no.18 and 19. The letters which were relied on by the Subordinate Judge did not comprise the will of the donor. It was also observed that the prerequisites for the application of the rule relating to a mother making a gift to her minor sons were absent in this instance since the father of the minors was still alive and was in a situation to exert his authority as a parent. The Council affirmed the share decided by the High Court to the plaintiff. Hence, the appeal was dismissed.

Rationale behind the Judgement

The Privy Council said that the matter must be determined in conformance with Muslim law and the Transfer of Property Act, 1882 shall not apply.

The Judges depended on the interpretation of Macnaghten’s “Principles and Precedents of Mohammedan Law” to decide the questions of law in this case. The rules relating to gifts stated therein are as follows:-

Gift denotes the bestowing of property devoid of consideration.
Acceptance and possession, by the donee as well as relinquishment by the donor.
It is essential that the gift should be followed by delivery of possession and the occupancy should take place forthwith or at a later time at the preference of the owner.
A gift must not be implied. It must be express and unambiguous.
In the event an immovable property is gifted by a wife to a husband and a property bestowed by a father to a child, are the departures from the abovementioned rule.
Formal delivery is not essential for a gift to a trustee who has the guardianship of the property conveyed.

The grandsons of Abdul Rasul, were minors when the supposed gift was made. The pertinent issue in this appeal was if the details of the case brought it into the aforementioned exception. The appeal must be determined on the fact that there was no delivery of possession of the estate by the donor to his grandsons and that there was no relinquishment of possession by the donor in respect of the estate before his demise.

No evidence was adduced that could indicate that Abdul Rasul regarded himself as the trustee of the property at this point. The High Court ruled that there was no actual delivery, though the desire to gift the property was expressed. The gift was not complete, since there was no delivery of possession.

Additionally, there was no mutation of the names or execution of a deed.

The Council was unable to find merit in the argument Abdul Rasul was a guardian with the exception, that a gift could be made without delivery of possession or relinquishment of control over the property.

The conditions for making a valid gift could not be noticed in this instance. The father of the children was alive and was residing with his wife and children in the home of Abdul Rasul, and was in a situation to exercise his rights and authority as a guardian, and to take possession of the estate on behalf of his children.

Analysis of the case

In this case, the Privy Council examined the validity of the gift of immovable property made by a grandfather to his grandchildren under Muslim law. Here, the Council discussed the requirements of a valid gift or “Hiba” under Muslim law.

Here, Abdul Rasul declared that he gifted his properties to his grandchildren, Essen Mian and Moosa Mian. In a letter addressed to Mahamad Shaffi (father of Essen Mian and Moosa Mian), Abdul Rasul stated that his grandsons should have his property after his death.

The Subordinate Court ruled that there was no lawful gift in this case. However, the court observed that the letters indicated that there was a desire on the part of the donor to bestow his property to his grandsons. It was further ruled that the grandsons were entitled to a 3/4th share in the property of Abdul Rasul.

The High Court rejected the claim of the grandsons. The grandsons were allowed to avail partition of 3/8th share in the property of Abdul Rasul.

The Privy Council laid down that no lawful gift was made to the grandsons by Abdul Rasul to Mahamad Shaffi did not comprise the will of Abdul Rasul. There was no actual delivery by Abdul Rasul of the gift of the estate to his grandsons. Therefore, the gift of property was complete.

In this case, the Privy Council relied on the decision of Abidunnisa Khatoon vs. Amirunnisa Khatoon (15 B.L.R 67) to come to the conclusion regarding the validity of the gift in this case. In this case, the validity of the gift was argued before the Court for the reason that the gift of “Musha ” or an undivided partition was unlawful according to Muslim law. The norms are explained by Hedaya in the following way:- First, complete possession is an essential condition in case of a gift, and secondly, since it would be a burden on the donor, i.e., to make a division. It was observed in this case that when there is a real intention to make a gift, the requirement would be fulfilled, and will presume the subsequent holding of the property to be on behalf of the minor.

In the present case, the father of the donees, i.e, Mahamad Shaffi was alive and was in a position to take possession of the property on behalf of the minor donees, however, he did not accept the possession, thus, defeating one of the requirements of a lawful gift under Muslim law.

The appellants relied on Hedaya and quoted the following paragraph:-

“If a father makes a gift of something to his infant son, the infant by virtue of the gift becomes proprietor of the same provider, etc. The same rule holds when a mother gives something to her infant son whom she maintains and of whom the father is dead and no guardian is provided, and so also with respect to the gift of any other person maintaining a child under these circumstances.”

The Privy Council, however, rejected the argument of the appellants. It was ruled that the requirements for the application of the rule relating to a mother making a gift to her minor sons were absent in this case since the father of the minor was still present and was in a situation to exert his authority as a guardian.

The Council relied on Macnaghten’s “Principles and Precedents of Mohammedan Law” to decide what are essential requirements of gift under Muslim law. One of the requirements is – “It is necessary that a gift should be accompanied by delivery of possession and that seisin should take effect immediately or at a subsequent period at the desire of the donor.”

The issue before the Council in this case was, without any delivery of possession, was the gift made by Abdul Rasul lawful under Muslim law. The requirement of delivery of possession for a lawful gift was absent in this case. Therefore, the gift made in this case was void.

Cases that relied upon the judgement given in Musa Miya Muhamad Shaffi vs. Kadar Bax Khaj Bax (1928)

This case dealt with the important concept of gift or “Hiba” under Muslim law. This decision was subsequently cited and discussed in a number of important cases.

In Ibrahim Bivi & Ors vs. K.M.M Pakkir Mohideen Rowther (1968), it was contended by the appellants that according to Muslim law, just the father and the grandfather were the guardians of a minor. But, it should be kept in mind that under Muslim law, there was no objection to a minor himself getting possession of the property and as the minor, in this case, resided with the settlor and the settlee had expressed a clear intention to part with the possession of the property, the settlee should be deemed to have obtained possession. Regarding the judgement of Musa Miya Muhamad Shaffi vs. Kadar Bax Khaj Bax, the court said that the decision was not against this position. In the situation of a gift of a house, it is not important that the donor should vacate the premises to make the gift valid. If the donor and donee reside in the same house, that is adequate to show that possession has been transferred. In the case of a minor, the donor can either constitute himself as the guardian or appoint someone else as the guardian of the minor’s property.

In Gulamhussain Kutubuddin Maner vs. Abdulrashid Abdulrajak Maner (2000), the court said that it was not contended that the father of a minor was alive during the making of the gift. The issue that emerged is if the father is still alive, can a mother be designated as guardian of her minor son and accept the gift for him? In Musa Miya Muhamad Shaffi vs. Kadar Bax Khaj Bax (1928), it was ruled that the gift by the grandfather to his grandsons, while the father was alive, without delivery of possession was invalid.

In Valia Peedikakkandi Ummaand & Ors vs. Pathakkalan Naravanath Kumhamuand & Ors (1963), the Supreme Court defined gift or “Hiba” as bestowing of a right of property in a particular property without an exchange or “ewaz”. The respondent cited the judgement of Musa Miya Muhamad Shaffi vs. Kadar Bax Khaj Bax (1928), where a gift by a grandfather to his grandsons when the father was alive, without delivery of possession, it was held to be void. The case involved a gift to minors whose father was alive. This is different from those cases where there is no guardian of the property to accept the gift and the minor is under custody either of the mother or any other relative. In these cases, the welfare of the minor and the fulfilment of the gift for the welfare is the only concern. The Apex Court noted that there was good basis for these postulations both in the old and contemporary books of Muslim law and in many cases. The Court opined that the gift in this instance was a valid gift. The donor was alive at the time of the gift in the house of his mother-in-law and was quite ill, but not “marz-ul-maut”. His minor wife who reached the age of competence and was capable under Muslim law to receive the gift, was residing at her mother’s house with her husband. The desire to make the gift was obvious and evident since it was made through a deed that was registered and given by the donor to his mother-in-law and received for the minor. There can be no issue that there was a desire to give ownership on the part of the donor and to convey the property to the donee. If the donor had given the deed to his wife, the gift would have been executed under Muslim law and it is not possible to hold that by giving the deed to his mother-in-law, under whose care his wife and he stayed did not complete the gift. Therefore, based on both texts and authorities such a gift must be valid. Thus, the Supreme Court allowed the appeal.

Conclusion

This case was appealed by Musa Miya and Isa Miya against the decision of the High Court. Originally, the suit was presented by Kadar Bax, asserting a share in the property of Abdul Rasul. Abdul Rasul died leaving his widow, a daughter, and a brother, all were supposed to get a share in his property. Before his death, Abdul Rasul made a declaration that he wanted to give his property as a gift to his grandsons. Subsequently, he addressed letters to the donee’s father, where he confirmed his desire to bestow his property to his grandsons.

The Subordinate court decided that there was no lawful gift in favour of the defendants (i.e., the grandsons). It was observed that the letter sent by Abdul Rasul to Mahamad Shaffi indicated the desire of Abdul Rasul that his grandsons should get his property after he passed away. It was decided that the will was void under Muslim law since more than 1/3rd of the property of Abdul Rasul was bestowed to the grandsons.

The Privy Council concluded that there was no lawful gift made to the grandsons. The letters sent by Abdul Rasul to Mahamad Shaffi were not the will of Abdul Rasul. It further said that the essentials for the application of the rule relating to a mother making a gift to her minor sons were absent here since the father of the minors was still living.

Thus, this case is immensely important to understand the concept of gift or “Hiba” under Muslim law. Bona fide intention on the part of the donor and delivery of possession is of extreme importance as evident from this case.

Frequently Asked Questions (FAQ)

What is “Hiba-il-iwaz”?

“Hiba-il-iwaz” denotes a gift in return for an exchange or consideration. In such a case the donor transfers the property in return for a consideration. The sufficiency of consideration is not significant in such a case.

What is “Hiba-bil-Wasaya”?

“Hiba-bil-Wasaya” denotes a gift of property made through a will.

References

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Job enlargement vs. job enhancement: an overview

By

Vanshika Kapoor

-

July 27, 2024

0

This article has been written by Priyanka pursuing an Executive Certificate Course in Corporate Governance for Directors and CXOs from Skill Arbitrage.

This article has been edited and published by Shashwat Kaushik.

Table of Contents

Introduction

The success of any organisation is largely dependent on its human capital and the kind of synergy it creates. HR personnel are coming up with many strategies to engage employees and tap their potential to the fullest. There may be many reasons for a disengaged employee but the routine type of monotonous job is one of the major reasons that cannot be overlooked. The boredom of the job decreases performance if this issue is not handled appropriately at the right time. Their job may be rewarding in terms of monetary benefits, but they still look for enjoyable, engaging and satisfying jobs. Along with salary and good perks, every employee wishes and likes to be challenged, valued and appreciated. Employees look for challenging tasks where they can find themselves more valued and contributing. This sense of value and pride in their work makes employees consistent performers.

Organisations are hunting for strategies to deal with this situation. The strategy of job enlargement and job enrichment can help human resource personnel to a great extent if implemented thoughtfully.

Defining job enlargement vs. job enrichment

Job enlargement and job enrichment are both used to enhance the engagement, motivation and productivity of employees. In job enlargement, employees’ activities are expanded within the same role. A variety of activities and responsibilities are added to an employee’s profile. To make it simpler and clearer, let’s take the example of an employee who is in the talent acquisition team, where his activities are limited to screening and shortlisting certain levels of candidates for specific locations only, but if he is given the responsibilities of more locations, then job enlargement is done by adding additional responsibilities to a role within the same level. By expanding his activities, he would find his job more engaging and less monotonous. Thus, employees have less time for monotony and boredom.

Whereas in job enrichment, a candidate’s job is redesigned by incorporating higher-level responsibilities with more challenging tasks. Different skill sets may also be required to perform the expected tasks. To be precise, let’s elaborate with the same set of examples of a recruiter’s job. If, along with screening and shortlisting, certain responsibilities like conducting interviews, assessing candidates, and negotiating job offers are added to his profile, then that employee is being benefited by job enrichment. Job enrichment makes the work more meaningful.

Basically, job enlargement involves horizontal expansion by adding tasks at the same skill level, whereas job enrichment involves vertical growth of the job by redesigning the job with wider skill sets, responsibilities and autonomy.

The additional tasks in job enlargement are usually similar to the existing ones with the increased volume of work, but in job enrichment, the added tasks are typically more complex, requiring higher-level skills, creativity and decision-making.

The goal of job enlargement is to make the job more interesting and challenging by alleviating monotony and boredom, whereas the goal of job enrichment is to provide employees with a sense of achievement and personal growth.

Advantages of job enlargement & job enrichment

Both strategies are beneficial for employers and employees. An employer gains more productive employees who contribute to achieving the organisation’s overall goals, and at the same time, an employee gains skills, confidence and overall satisfaction in the job. Let’s have a quick overview of the benefits of the strategy.

Better employee engagement

We, as employers, allow employees to be successful and engaged by implementing a system of job enrichment or enlargement. When employees have more challenging responsibilities and have more control over their tasks, they feel engaged and committed to their work. To take on challenging responsibilities, they push themselves to hone their skills.

Enhanced productivity

An engaged employee works with more efficiency and effectiveness by utilising their time, resources, and skills to achieve organisational goals. With the same resources, he delivers and contributes more to the organisation. Simultaneously, a productive employee paves the way for his own development and career growth.

Employee empowerment

When employees have a meaningful job where they feel valued and appreciated, they feel empowered and have enhanced self-esteem. With a variety of responsibilities and enlarged jobs, management also leads to the assignment of authority, empowering employees to take command of day-to-day routine issues. With more empowerment, the employee puts more effort into doing a good job. They understand their purpose and are willing to take on the role of protagonist because they know what is expected of them.

Succession planning

When employees work in their assigned roles, leaders have the opportunity to observe and evaluate their potential. It is a way of identifying leadership pipelines. Human resources personnel could have a very vigilant eye to identify and prepare successors for their key roles. While succession planning, it is very important to identify those candidates who are aligned with the vision, mission and culture of the company because such aligned candidates can contribute more to achieving the company’s goals. Since they are clear about the objective and intent of the organisation, they put up their efforts with their whole hearts.

Employee retention

One of the major reasons for employee attrition is the monotony and lack of opportunities in the existing job, which, if prevented by job enlargement or job enrichment, increases the scope of arresting unhealthy attrition. When employees are satisfied with their existing jobs, they are less likely to resign and move for another, better job.

Cost-effectiveness

Employees are given more tasks either by job enlargement or job enrichment, and in both cases, Human Resource personnel have an opportunity to focus on their goal of cost-effectiveness. It is a far more effective way of achieving the same desired output with less number of resources. To satisfy the need for more manpower and skills, the company puts efforts into recruiting new people, which is costlier than engaging the resources from within the organisation. Efforts over new recruitment not only require more time and energy but there are also steep chances of exceeding their manpower budget. Hence, the application of these strategies can minimise the overall cost of manpower.

Drawbacks of these strategies

These are very effective strategies but there are a few drawbacks that cannot be overlooked. There are set of complexities in its own way that may be as follows:

Efficiency and quality concerns

Employees may be curious and excited about challenging tasks, but the ability to handle those additional tasks without compromising quality becomes a prime concern. There is always a risk of quality deterioration.

Another possible drawback that demands the attention of human resources personnel is that employees get engaged in multiple activities and tend to lose focus on their specialisation. Lack of specialisation results in decreased effectiveness and quality. Handling everything and not being able to specialise in any field could be worse for the company at critical and demanding moments.

Job creep

Besides the benefit of the enhanced motivational level of employees, it is a fact that employees are required to perform many activities at a time with the expected additional tasks. Once the employee passes the curiosity stage, these additional tasks can eventually lead to stress and burnout. Employees may feel burdened with the additional workload, and later on, they may start realising that their job is overwhelming and unrealistic. All efforts that are put in to engage employees may go in vain.

Effective implementation of strategies

Before implementing any of these strategies, certain factors must be well assessed; otherwise, instead of good results, they may have adverse results. Careful design, planning, communication and management are required for successful implementation; otherwise, it may backfire, leading to frustration and disruption.

Strategies need to be applied after due deliberation since there may be many employees who may have resistance to accepting additional responsibilities as they are satisfied in their own shell or comfort zone. Putting efforts into such employees may not be beneficial for the organisation and employees.
A training plan should always be in place before applying the strategies because employees may not be able to cope with the complexities and pressures of the job. They must be prepared with the desired skill set by imparting the required training.
An effectiveness feedback mechanism should be identified and should be part of the strategy to check the pulse of the effectiveness of the overall programme. By holding regular feedback sessions, employees should be well informed about their performance. Constructive guidance should be given for the improvement of their performance. The more feedback employees receive, the more they tend to take the initiative to improve their performance.
To ensure that employees are engaged and motivated by their current jobs, HR leaders must design intervention plans, such as reward and recognition schemes, motivational sessions, variable pay restructuring, etc.
Along with feedback sessions, surveys should also be conducted to collect the regular opinions of employees and find their satisfaction levels. After knowing the likes and dislikes of the employees, an action plan needs to be prepared for corrective actions. For example, it is good to know which part of the job is redundant and unproductive so that appropriate action can be taken to save energy for other productive activities.

Choosing the right approach

Choosing the right approach between job enlargement and job enrichment requires careful consideration of organisational goals and employee needs. Each approach should be effectively aligned. Context and objectives should be evaluated in advance before implementing these strategies. The company that focuses on quality, services or innovation might benefit from job enrichment, whereas the company that focuses on cost reduction, manufacturing volume, or operational efficiency might benefit from job enlargement.

The nature or type of work performed in the company should also be assessed while implementing these strategies. In workplaces where the tasks are routine and repetitive, the better-suited strategy is job enlargement. In contrast, job enrichment is preferred when the tasks are complex and require more autonomy. A manufacturing company may benefit from job enlargement, whereas an IT company may benefit from job enrichment.

Besides evaluating organisational needs, we should also understand employees’ needs and align with their requirements. We should gather input from employees by conducting surveys and interviews to understand what employees find motivating and what areas they feel need improvement. In cases where employees express a desire for more meaningful work with different challenges and development opportunities, job enrichment may be a better choice. If employees show an aspiration for leadership roles, then job enrichment may be a better choice. There may be certain requirements where both strategies may be combined in a hybrid approach. Initially, a variety of tasks are included in the role of an employee by enlarging the job and later on, the job can be enriched by giving that role more autonomy and delegating power.

Conclusion

Job enlargement and job enhancement are effective strategies for enhancing the engagement and motivation of employees in an organisation. With many benefits, these strategies also carry a few drawbacks; hence, organisations should implement them very meticulously. Considering the potential of these strategies, organisations should give more weight to the benefits than the drawbacks. Strategies should be designed in a way that is best befitting the circumstances and requirements of the workplace.

References

Indian Constitution and protection of tribal rights

By

Vanshika Kapoor

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July 27, 2024

0

This article has been written by Rozy Parveen pursuing a Diploma in International Contract Negotiation, Drafting and Enforcement from LawSikho.

This article has been edited and published by Shashwat Kaushik.

Table of Contents

Introduction

This article addresses the protection of tribal rights, highlighting that scheduled tribes and other traditional dwellers have the right to own and reside on their forest land. Either individually or collectively, for habitation. Any member of a schedule tribe or other traditional forest dwellers has the right to use the land for self cultivation to support their livelihood. Article 46 of the constitution emphasises the state’s responsibility to safeguard the educational and economic interests of the marginalised sections of society, particularly the scheduled castes and scheduled tribes, protecting them from social injustice and exploitation. Article 335 emphasises the importance of considering the claims of scheduled castes and scheduled tribes in appointments in government service and posts, ensuring efficiency in administration while uploading their rights.

In India, the majority of tribal communities are collectively recognised as scheduled tribes under Article 342. India observed a highly diverse tribal population, with each tribe exhibiting its own unique characteristics and requirements, thus demanding different approaches. For example, the way life and conditions experienced by indigenous people in central or western India starkly differ from those of tribes in northeast India and the Andaman Islands. The scheduled tribes encompass a range of officially marginalised communities with a historical legacy of disadvantage in India. These designations are acknowledged within the Constitution of India, categorising different groups accordingly. Dr. B.R. Ambedkar, as a member of the drafting committee, played a pivotal role in formulating the Constitution of India in 1950. He was well aware of political, social, and economic disparities rooted in historical events. They recognised the severe and troubling condition faced by the scheduled tribes, who had been marginalised and kept away from mainstream national matters for a considerable period. To address the entrenched caste system in society, specific reservations were advocated for scheduled tribes, given their historical treatment as untouchables in ancient India. The constitution of India acknowledges the distinct status of tribal communities and ensures the safeguarding of their rights and interests through a variety of provisions.

Who are tribes in India

In India, some of the most recognised tribes include the glands, bhils, santhal , munda, khasi, garo, angami, bhutia, chenchu, kodaba and the great Andamanese tribes. Among these tribes bhils tribes stand out as the largest in India.

A tribe comprises individuals who have commonalities in religion, history, language, or culture. Each tribe is unique and will often have its own practices, many of which differ from those of other tribes. In India, there are 705 ethnic groups officially recognised as scheduled. In central India, the scheduled tribes are usually referred to as adivasis, which literally means indigenous people.

Constitutional safeguard for tribal rights

Educational and cultural safeguards

According to Article 15(4) of the Indian Constitution, the state retains the authority to enact special measures for the progress of socially and educationally disadvantaged groups or for a scheduled caste or scheduled tribe. This provision is a vital tool in ensuring equality for all citizens, irrespective of their social or economic background. It allows the government to take affirmative action to address historical injustices and create a more level playing field for all.

The socially and educationally disadvantaged groups referred to in Article 15(4) are those that have historically faced discrimination and marginalisation due to factors such as caste, race, gender, or disability. These groups may have limited access to education, employment, and other opportunities, making it difficult for them to improve their lives and achieve their full potential.

The scheduled castes and scheduled tribes are two specific groups that are recognised as being particularly vulnerable to discrimination and social exclusion. The scheduled castes are a group of historically oppressed people who were once considered to be “untouchable” by the caste system. The scheduled tribes are a group of indigenous people who have traditionally lived in remote and marginalised areas.

Article 15(4) empowers the state to take special measures to address the unique challenges faced by these groups. These measures may include providing reservations in education and employment, offering financial assistance, and implementing targeted development programmes. The aim of these measures is to promote the social and educational advancement of these groups and to ensure that they have equal opportunities to participate in society.

It is important to note that Article 15(4) does not allow for discrimination against other groups. The state must ensure that special measures are implemented in a fair and just manner, and that they do not result in the exclusion or marginalisation of any other group.

Article 15(4) is a key provision in the Indian Constitution that promotes equality and social justice. It allows the government to take necessary steps to address historical injustices and create a more inclusive society for all.

Article 29 deals with the protection of the interests of minorities, Any group of citizens residing within the territory of India or any of its regions possessing a unique language, script or culture, shall possess the right to preserve their distinct identity. Furthermore, no individual faces refusal of admission into any educational institution supported by the state or funded by state resources based on factors such as religion, race, caste, language, or any combination thereof. In the case of St. Stephen’s College vs. University of Delhi (1991), the Supreme Court addressed whether minority educational institutions are permitted to allocate seats for students belonging to their own community. The court determined that minority institutions possess the authority to enrol students from their own community, as long as the admission procedures maintain fairness and transparency.

Article 46 promotes the educational and economic interests of scheduled castes, scheduled tribes and other weaker sections, It mandates that the state must diligently utilise its authority to advance the educational and economic welfare of marginalised segments of society, encompassing both scheduled tribes and scheduled castes. The Supreme Court’s decision in the landmark case of Indira Sawhney vs. Union of India, also known as the Mandal case, had a profound impact on the reservation system in India. In this case, the Supreme Court set a crucial limit on reservations for backward classes, establishing that they should not exceed 50% of total seats in educational institutions and government jobs. This limit was intended to strike a balance between the need for affirmative action for historically disadvantaged groups and the principle of meritocracy.

However, subsequent developments led to a significant revision of this 50% limit. In 2019, the 103rd Amendment to the Constitution of India was passed, which broadened the scope of reservations to include economically weaker sections (EWS) of society. This amendment effectively increased the overall reservation limit to 60%, including 10% for EWS and 50% for backward classes.

The 103rd Amendment aimed to address concerns that the existing reservation system was not adequately benefiting certain marginalised sections of society. By including EWS in the reservation ambit, the amendment sought to provide opportunities for individuals from economically disadvantaged backgrounds, irrespective of their caste or community.

The implications of this expanded reservation limit have been widely debated. Supporters argue that it promotes social justice and inclusivity by ensuring that historically marginalised groups have access to educational and employment opportunities. They contend that the EWS quota is a necessary step towards addressing economic disparities and creating a level playing field.

Opponents, on the other hand, raise concerns about the potential dilution of merit and the impact on the efficiency of institutions. They argue that reservations should be based solely on social and educational backwardness and that economic criteria alone should not be a determining factor.

The Supreme Court is currently examining the validity of the 103rd Amendment in a series of petitions. The Court’s decision in these cases will have far-reaching consequences for the reservation system in India and will determine the future contours of affirmative action policies in the country.

Article 350(A) facilitates instruction in the mother tongue at the primary stage, and every state and local authority within it should strive to offer sufficient educational resources in the mother tongue to children from linguistic minority communities at the primary education level.

Economic safeguard

Article 244 of the Indian Constitution deals with the administration of scheduled areas and tribal areas in India. The Fifth Schedule to the Constitution governs the administration and oversight of scheduled areas and scheduled tribes in all states except Assam, Meghalaya, Tripura, and Mizoram. The Sixth Schedule, on the other hand, specifically pertains to the administration of tribal areas within the states of Assam, Meghalaya, Tripura, and Mizoram.

Fifth Schedule:

The Fifth Schedule provides for the creation of Tribal Advisory Councils (TACs) in states with scheduled areas.
These councils are intended to advise the state governors on matters pertaining to the welfare and development of scheduled tribes.
The TACs consist of representatives of scheduled tribes, members of the state legislature, and other experts.
The Fifth Schedule also empowers the state governors to make regulations for the administration of scheduled areas.
These regulations can cover a wide range of topics, such as land use, forest management, and education.

Sixth Schedule:

The Sixth Schedule provides for the creation of Autonomous District Councils (ADCs) in tribal areas within the states of Assam, Meghalaya, Tripura, and Mizoram.
These councils are responsible for the administration of their respective areas.
The ADCs have legislative, executive, and judicial powers.
They can make laws on a variety of subjects, such as land use, forest management, and education.
The ADCs are also responsible for the implementation of welfare and development programs for scheduled tribes in their areas.

The Fifth and Sixth Schedules to the Indian Constitution play an important role in protecting the rights and interests of scheduled tribes in India. They provide a framework for the administration of scheduled areas and tribal areas, and they ensure that scheduled tribes have a voice in the decision-making process.

Article 275 grants from the union to certain states, empowers the parliament to enact legislation to allocate specific amounts from the consolidated fund of India annually as grants-in-aid to states deemed in need of assistance, with varying amounts potentially designated for different states. It mandates the disbursement of such sums as determined by parliament to states requiring aid, in the form of funds and periodic allocations as deemed necessary. The primary objective of this article is to enhance the welfare of scheduled tribes within the concerned states or to elevate the administration standards of scheduled areas.

Political safeguard

Article 330– Reservation of seats for scheduled caste and scheduled tribes in the house of the people, seats in the house of people must be allocated for scheduled caste and scheduled tribes, a step aimed at fostering the broader integration of these communities into the nation’s progress and development.

Article 334– Reservation of seats and special representation to cease after a certain period, the Indian Constitution was introduced to confront the historical social and economic hardships experienced by a particular community by mandating the reservation of seats and nomination of members from these groups in the Lok Sabha and state legislative assemblies. Originally intended as a temporary measure, the reservation provision was scheduled to lapse after ten years from the constitution’s commencement.

Legal framework for tribal welfare

Scheduled Tribes and Other Traditional Forest Dwellers Act of 2006

The Scheduled Tribes and Other Traditional Forest Dwellers Act of 2006 (also known as the Forest Rights Act) is a landmark piece of legislation in India that recognises the rights of forest-dwelling communities to their traditional lands and resources. The Act acknowledges that forest-dwelling communities have a long history of sustainably managing and conserving forest resources, and that their rights should be respected and protected.

The Act grants several important rights to forest-dwelling communities, including the right to occupy and reside in forest land, the right to access and collect forest produce, the right to protect and regenerate community forest resources, and the right to participate in the management of forest resources. The Act also establishes a process for recognising and settling the rights of forest-dwelling communities and for resolving disputes over forest land and resources.

The Forest Rights Act is a significant step towards addressing the historical injustice faced by forest-dwelling communities in India. The Act recognises the rights of these communities to their traditional lands and resources, and it provides a framework for ensuring that their rights are respected and protected. The Act is also a recognition of the important role that forest-dwelling communities play in conserving and managing forest resources.

The implementation of the Forest Rights Act has been challenging, but it has also led to significant progress in securing the rights of forest-dwelling communities. As of 2021, over 4 million hectares of forest land have been recognised as community forest resources under the Act, and over 2 million individual and community titles have been issued. The Act has also helped to strengthen the capacity of forest-dwelling communities to manage their own resources and to participate in decision-making processes that affect their lives and livelihoods.

The Forest Rights Act is a landmark piece of legislation that has the potential to transform the lives of forest-dwelling communities in India. The Act recognises the rights of these communities to their traditional lands and resources, and it provides a framework for ensuring that their rights are respected and protected. The Act is also a recognition of the important role that forest-dwelling communities play in conserving and managing forest resources.

Section 3(1)(h) of the Scheduled Tribes and Other Traditional Forest Dwelling (Recognition of Forest Rights) Act of 2006, specifically recognises the rights of forest dwelling scheduled tribes and other traditional forest dwellers to settle and convert forest villages, old habitations, unsurveyed villages, and other forested areas, regardless of their official recording or notification status, into revenue villages across all forest lands.

Scheduled Caste and Scheduled Tribe (Prevention of Atrocities) Act of 1989

Article 342(1) and Article 266 (25) of the Indian Constitution define scheduled castes and scheduled tribes in the state and union territories as a distinct category, subject to declaration by the president. This designation acknowledges the historical marginalization and discrimination faced by these communities and aims to provide them with special protection and safeguards.

The primary aim of the Scheduled Castes and Scheduled Tribes (Prevention of Atrocities) Act, 1989, is to curb crimes against scheduled castes and scheduled tribes. The act recognises that these communities continue to face unique challenges and vulnerabilities due to their social and economic circumstances. It aims to address these issues by providing a comprehensive legal framework for the prevention, investigation, and punishment of crimes against scheduled castes and scheduled tribes.

One of the key provisions of the act is the establishment of special courts and exclusive special courts for the trial of individuals accused of such offences. These courts are designed to ensure the speedy and effective disposal of cases related to crimes against scheduled castes and scheduled tribes. The act also mandates the appointment of special public prosecutors to represent the victims in these cases.

In addition to the establishment of special courts, the act also contains several other provisions aimed at preventing and addressing crimes against scheduled castes and scheduled tribes. These include measures such as sensitization and training of public officials, mandatory reporting of such crimes, and the establishment of vigilance and monitoring committees at various levels.

The Scheduled Castes and Scheduled Tribes (Prevention of Atrocities) Act, 1989, is a significant piece of legislation that seeks to protect the rights and dignity of scheduled castes and scheduled tribes and combat the scourge of caste-based discrimination and atrocities. The act also allocates funds for their rehabilitation, covering travel and maintenance expenses, with designated officers tasked with ensuring its effective implementation. Moreover, it endeavours to prevent dalits from entering society and safeguard their rights, especially in instances where crimes threaten their social, economic, democratic, and political freedoms. Furthermore, the act endeavours to prevent deprivation and provide support to marginalised communities to mitigate such circumstances.

Problems of tribal in India

India’s indigenous tribes rank among the most marginalised segments of society, grappling with a myriad of challenges stemming from centuries of exploitation and discrimination. The government has made efforts to improve their condition but there is still a long way to go. This article will examine some of the greatest challenges the tribes face.

Resources exploitation

The forests in central India, particularly in Madhya Pradesh and Chhattisgarh, have historically provided traditional livelihoods for indigenous Adivasi communities residing there. In recent years, these forests have witnessed escalating conflict and the exploitation of resources. For instance, in a tounge forest region of central India, a private company awarded 500 concessions in the 1980s has significantly expanded its operation to encompass over 14000 acres today. This expansion has entailed clear-cutting forests.

Unemployment

In the heart of India’s belt, industry and mining thrive, yet a substantial segment of the indigenous populace still finds themselves on the fringes of contemporary job opportunities. Despite the ongoing industrial surge, many native residents struggle to secure stable, fairly remunerated positions. According to the development report for 2023, a significant portion of the population remains entrenched in poverty.

Religious problem

Tribals believe in natural things like trees, fire, rivers, and the sky. They worship with these, but if we talk about normal people who are not tribes, they believe in statues, Allah and all. Tribal communities adopt western cultural practices in numerous aspects of their social interactions.

Social problem

In tribal communities, child marriage is very common in every tribe. Child marriage prevalence remains among tribes in states like Bihar and Andhra Pradesh, despite being constitutionally prohibited and leading to numerous negative outcomes. Tribes still partake in activities such as infanticide, homicide, animal sacrifices, black magic, and wife swapping, all of which are problematic in Indian tribal communities.

Health problem

In Indian tribes, lots of health issues exist. Due to a lack of expertise, doctors, hospitals, and nurses, these people die before their time or women engage in so many diseases. The estimated infant mortality rate (IMR) among tribal populations ranges from 44 to 47 per 1000 live births. Medical insurance coverage, such as the Swasthya Bima Yojna (SBY), is limited to scheduled tribes, leaving scheduled tribes without sufficient protection against catastrophic and acute illness.

Suggestions

The Indian Constitution, as previously stated, has granted numerous rights to tribes through various articles, empowering both the state and central governments to work for their welfare. Additionally, there are two acts specifically related to tribes, as mentioned earlier. However, despite these legal provisions, the implementation of these laws in tribal villages remains inadequate.

Crucial facilities such as accessible healthcare, infrastructure development, educational opportunities, employment avenues, cultural preservation initiatives, land rights recognition, social welfare programmes, empowerment initiatives, legal aid, advocacy, and genuine partnerships and collaboration are often lacking in tribal communities.

Unfortunately, many tribes continue to live in impoverished conditions. The failure to effectively implement these laws and provide essential services has resulted in significant challenges for tribal communities. Without proper healthcare facilities, the health and well-being of tribal members are compromised, leading to higher rates of preventable illnesses and lower life expectancies.

Inadequate infrastructure development, including roads, bridges, and other essential transportation networks, hampers connectivity and access to markets, education, and healthcare centres. Educational opportunities are often limited, hindering the personal and professional growth of tribal youth. Employment opportunities are scarce, leaving many tribal members struggling to find sustainable livelihoods.

Cultural preservation initiatives are crucial for maintaining the unique traditions, languages, and customs of tribes. However, the lack of support for these initiatives threatens the survival of tribal cultural heritage. Land rights recognition is another critical issue, as many tribes face disputes and encroachment on their traditional lands, affecting their livelihoods and cultural practices.

Social welfare programmes, such as food assistance, housing aid, and skill development programmes, are essential for improving the living conditions of tribal communities. Empowerment initiatives, including training programmes and leadership development opportunities, are vital for building the capacity of tribal members to participate actively in decision-making processes that impact their lives.

Legal aid and advocacy services are necessary to protect the rights of tribal communities and ensure they have access to justice. Genuine partnerships and collaboration between governments, tribal communities, and other stakeholders are essential for developing sustainable solutions that address the specific needs and aspirations of tribes.

Addressing these issues and implementing the laws effectively requires a concerted effort from governments, civil society organisations, and tribal communities themselves. By working together, we can create a more just and equitable society that upholds the rights and well-being of all, including the tribal populations of India. The government should introduce effective schemes specially designed for them, which can prove to be beneficial, and the government should pay special attention to the lives of tribes so that they can progress in life and live a life like common people.

Conclusion

Hence, the recognition of scheduled tribes in India under Article 342 of the Constitution of India signifies a crucial acknowledgement of the diverse tribal populations with unique cultural, historical and socio, economic backgrounds. Through constitutional provisions like Article 15(4), Article 29, and Article 46, the Indian Government has committed to safeguarding the educational, cultural, and economic interests of these marginalised communities. The constitutional framework aims to address the historical disadvantages faced by scheduled tribes. Ensuring their inclusion in the advancement of the nation’s social fabric.

References

Devi Das Gopal Krishnan vs. State of Punjab (1967)

By

Vanshika Kapoor

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July 27, 2024

0

This article is written by Janani Parvathy J. It analyses in detail, the facts, questions of law, arguments of parties and the judgement by the court in the case of Devi Das Gopal Krishnan vs. State of Punjab (1967). The article further analyses the validity of purchase taxes imposed by the State.

This article has been published by Shashwat Kaushik.

Table of Contents

Introduction

Devi Das Gopal Krishnan and Ors vs. State of Punjab (1967), is a landmark civil law case relating to sales and purchase taxes. Set in the 1960’s, the case holds importance for approving the validity of purchase taxes. Traditionally, goods and services were taxed at multiple stages i.e., from the raw material until the final product stage. The Punjab government, in 1958, amended the Punjab General Sales Tax Act, 1948, introducing a purchase tax on the sale of goods and services. The validity of the purchase tax on iron, cotton, and oil seeds were questioned before the Supreme Court in this case.

Entry 54 of the State list empowers the State to impose taxes on the purchase and sale of goods. The right to tax imposition of States is restricted by Article 286. Article 286 restricts the State from imposing taxes on inter-state trade of goods and services and mandates President’s approval of taxation of essential goods and services. The Punjab General Sales Tax Act, 1948 follows the Madras Sales Tax Act,1939 as one of the oldest state tax legislations in India. Inspired by the Punjab government, several other states began imposing purchase taxes on goods and services soon.

Details of the case

Case name: Devi Das Gopal Krishnan and Ors. vs. State of Punjab and Ors.

Equivalent Citation: 1967 AIR 1895, 1967 SCR (3) 557, AIR 1967 SUPREME COURT 1895

Court: Supreme Court of India

Appellant: Devi Das Gopal Krishnan and Ors.

Respondent: State of Punjab and Ors.

Judgement Date: 10 April, 1967

Facts of the case

There were three appellants in the present case, each having approached the court through Petitions 526, 527, and 529 of 1964, respectively. All the appellants are owners of an oil mill at Moga, Punjab where oil is extracted from the seeds and the residue is sold as oil cakes. In addition to the already leviable sales tax, the Punjab Sales Tax (Amending Act), 1958, imposed a purchase tax of 2% on oil. The appellants refused to pay the purchase tax levied on oil seeds. Subsequently, the Excise and Taxation Officer, Ferozepur, threatened to initiate legal proceedings. The appellants responded to this by approaching the Punjab High Court through a writ petition, questioning the validity of the amendment. The division bench of the High Court dismissed the appeals by the oil sellers.
In this case, Civil Appeals, No. 39 to 43 of 1965 were filed by owners of a rolling steel business in Gobindgarh. The appellants purchased steel ingots and steel scraps and converted them into rolled steel. The Amendment Act imposed a 2% purchase tax on steel scrap and steel ingots. The appellants challenged this before the High Court, seeking a restrainment on the imposition of the tax. Likewise, the judgement in the case of oil, the division bench of the High Court approved the imposition of the tax.
Further, Appeals No. 81 and 540 of 1965 were made before the High Court. The appellants of this petition were trustees of Birla Education Trust and the owners of a textile mill in Bhiwani. The appellants purchased cotton from several dealers for manufacturing clothes. Subsequently, on 11th March 1962 the District Taxation Officer, Hissar requested the appellants to pay purchase taxes. As a response, the trustees filed a writ petition before the High Court. The High Court ruled in conformity to the previous decisions by it in this case.
The appellants of the above three cases appealed to the Supreme Court challenging the purchase tax levied on oil seeds, iron, and cotton respectively. The Supreme Court clubbed these appeals, as they had the same issues. Specifically, they challenged Section 5 of the Punjab Sales Tax Act of 1948 and its subsequent amendment. Section 5 of the Punjab Sales Tax Act had empowered the government to impose purchase taxes on goods, further the amendment had restricted the tax limit to 2 %. The High Court of Punjab had already held earlier that Section 5 was void.

Issues raised in the case

Whether Section 5 of the Punjab Sales Tax Act, 1948 was void?
Whether the amendment could give life to the Section, in case it is void?

Arguments of the parties

Appellants

Mr. M.C Setalvad represented the owners of the oil mill. The Supreme Court highlighted the arguments of Mr. M.C. Setalvad as they felt that it summarised the arguments of the other appeals as well adequately.
The counsel argued that Section 5 of East Punjab General Sales Tax Act, 1948 was found void because it excessively empowered the provincial government to make laws with respect to taxation of goods . The counsel pointed out that since Section 5 was the charging legislation i.e., the Section which levied the tax, and was declared void by High Court, therefore, the complete Act was null. The counsel further argued that any subsequent amendment through Act 19 of 1952 to a void legislation shall also be void.
Further, the counsel argued that ‘purchase’ taxes introduced by 1958 Act was unconstitutional. They argued that it was contrary to the taxable unit i.e., ‘sale’ as defined under Entry 52 of 7th Schedule (State list) and was similar to an ‘excise’ duty imposed under the veil of purchase tax. Therefore, the counsel argued that the taxes imposed by the Act did not really resemble a purchase tax and therefore was invalid.
Further, the counsel also highlighted the discriminatory nature of taxes levied. They pointed out that while purchase tax were imposed on manufacturers, dealers were exempted from it
The counsel then argued that the amended Section 2(ff) violated Sections 14 and 15 of the Central Sales Tax Act, 1956 which prohibited taxation at multiple stages of production but, in the present case, taxes were imposed at production and sale stages. Additionally, the counsel argued that the oil mill owners did not produce/manufacture oil seeds but only made oil.

Respondent

The counsel for the respondent relied on the Corporation of Calcutta vs. Liberty Cinema (1964). The counsel relied on the Liberty Cinema case to point out that the state could impose taxes if necessary for the performance of their statutory duty. The counsel argued that similar to the Liberty Cinema case, even in the present case, the state was empowered to impose taxes.
The counsel for the state argued that under Article 162 of the Constitution, the executive had power over all matters under the jurisdiction of the state Legislature and that taxation was among them. The counsel argued that the state legislature had the power to raise money for the performance of its statutory duty. They relied on the Doctrine of Constitutional and Statutory needs to point out that the executive body of the state was empowered to fix and impose taxes. Therefore, the counsel reasoned that on reasonable necessity, the state was entitled to impose additional taxes even in the present case.
The counsel further cited several precedents to substantiate their case. The counsel cited State of Madras vs. Gannon Dunkerly & Co., (Madras) Ltd (1958), to highlight that the State was statutorily empowered to fix taxes.
Further, the respondents argued that the state possessed power to fix the tax rates also. They argued that although prima facie the Legislature has not delegated the power to fix tax rates to the State, but that the same could be inferred through constitutional provisions.

Laws involved in Devi Das Gopal Krishnan vs. State of Punjab (1967)

Provisions of Punjab General Sales Tax Act

Section 5 of Punjab General Sales Tax Act, 1948

This Section empowers the State to decide the rate of taxes imposed on goods and services. According to the original Section, no bar on the rate of taxes that could be imposed existed. Therefore, the Section was held void for granting excessive power to the legislature by the Punjab High Court previously.

Section 5 of the Amendment Act, 1952

This Section amended Section 5 of the 1948 Act. It imposed a limit on the taxes that could be imposed by the State. A limit of 2% taxes on sale and purchase of goods and services was imposed by this amendment.

Section 4 and 6 of the Punjab General Sales Tax Act,1948

Section 4 of the Punjab Sales Tax Act details the responsibility of the dealers and retailers to pay sales tax. The Section mandates that tax is payable within thirty days when the turnover of the dealer exceeds the taxable amount. Further, the Section specifies the taxable quantum of turnover for different business dealers, including ‘other dealers’ under which the appellants in this case might fall under. Section 6 of the Punjab General Sales Tax 1948 enlists goods exempted from taxes. The section specifies that goods under Schedule B cannot be taxed, and if the state intended they must provide a prior notice of a minimum 20 days.

Provisions of the Indian Constitution

Article 14 of the Constitution

Article 14 explains the ‘right to equality’. The Article contains two parts. The first part lays down that equality before the law should be practised. It specifies that the State cannot discriminate against citizens based on caste, religion or any other parameters and that all citizens must be treated alike before the law. The second part specifies that all citizens, irrespective of class, race, caste or other differences, must follow and are governed by the same law. Subsequently, by some precedents, the scope of Article 14 was increased. Article 14 protects citizens from arbitrary, biased and harmful decisions of the State. Further, the principle of positive discrimination was laid down and approved as a necessary exception under this Article. In the present case, the counsel for petitioners had argued that Article 14 was being violated by the taxes imposed through the Act as it was selectively applicable. However, the Supreme Court rejected this argument.

Article 162 of the Constitution

Article 162 specifies the scope of executive power of the State. The Article specifies that executive power of the State government is limited to the jurisdiction as specified by the Constitution or by the State legislature. The executive power of the State is limited to the items on the State list as specified in the Seventh Schedule. Article 162 was important in understanding the demarcation of the powers between the Centre and the State. The Supreme Court analysed Article 162 to check the validity of imposition of purchase taxes.

Article 286 of the Constitution

This Article deals with the restrictions on tax impositions by the State. Clause one prevents the State from imposing taxes on goods exported, imported and on goods outside the jurisdiction of the State. However, through Article 286(2), the State legislature can make principles regarding the type of goods specified under clause one. Further, clause three also empowers the State to impose taxes on inter-trade goods provided the tax is of importance to the state. Article 286 plays a significant role in understanding the powers and jurisdiction of the state with respect to taxation matters.

Judgement in Devi Das Gopal Krishnan vs. State of Punjab (1967)

The Supreme Court analysed the validity of Section 5 of the Punjab Sales Tax Act, and its amendment. The court analysed the doctrine of statutory necessity, the principle of delegation and analysed whether the executive body of the state had powers to fix taxes. The Supreme Court dismissed the appeal and held in favour of the state, empowering them to impose taxes. The court observed that the state could impose reasonable taxes for its maintenance.

Rationale behind the judgement

Before the actual judgement of this case, the court highlighted the background of Section 5 of the Punjab Sales Tax Act. The Supreme Court analysed Section 5 of the Punjab Sales Tax Act,1948 and its amendment (Act 19 of 1958). Section 5 of the Punjab Sales Tax Act, 1948 empowered the State to impose sales and purchase taxes on goods of any dealer. Subsequently, the Second Amendment of 1958 of Section 5, allowed imposing taxes of maximum 2%.
The Punjab High Court held that the initial Section 5 of the Punjab Sales Tax Act was void. However, the court also observed that the amendment to the Section gave it new life. The questions before the court were regarding the validity of Section 5 and the significance of its amendment.
The Supreme Court observed that although the law on this subject was already well settled, some clarifications were still needed. The court analysed the case of Corporation of Calcutta vs. Liberty Cinema (1964). In this case, the taxes imposed over a cinema house and the delegation of tax collection to another statutory authority were disputed. The court held in the Liberty Cinema case that municipalities and state governments were entitled to impose additional taxes provided monetary assistance was needed by the state to perform its statutory duty.
The Supreme Court observed that if the Liberty Cinema case was considered a precedent which laid down that tax collection could be delegated from the state to another statutory body, then it implied that the statutory authority also possessed the power to fix taxes. However, the court held to the contrary that when statutory purposes were mentioned in a provision, it does not automatically entitle the statutory authority to fix and levy taxes but, it instead varied based on the terms of the provision.

Validity of Section 5 of Punjab Sales Tax Act,1948

Further, the court analysed the next argument of the respondents. The respondents claimed that for the smooth functioning of its constitutional duties, the state was entitled to impose taxes. The Supreme Court rejected this argument.
The Supreme Court observed that the judgement in the Corporation of Calcutta vs. Liberty Cinema was limited to the provisions of the Calcutta Municipal Act and cannot be extended to the Punjab Sales Act. Further, the court observed that the Sales Tax Act does not specify that the state is empowered to fix tax rates.
Further, the Court held that State of Madras vs. Gannon Dunkerley and Co (1958) also disproved the respondents’ argument. The Supreme Court differentiated the Gannon Dunkerley case, stating it was irrelevant to the present case as it did not revolve around the fixation of tax rates. Additionally, the Court referred to Vasantlal Maganbhai sanjanwala vs. The State of Bombay (1960) and Union of India vs. Messrs. Bhana Mal Gulzari Mal (1959).
Further, the court observed that while Section 5 of the Punjab Sales Act, 1948 granted extraordinary taxation powers to the state, no separate provision allowing delegation of power existed. Therefore, the court dismissed the argument of the state that the taxation power could be delegated. Further, no statutory provision existed, conferring the rights of tax fixation to the state. Therefore, the court observed that in the absence of a particular statute or guideline, Section 5 of the Punjab Sales Tax Act, 1948 was void.

Charging Section

Further, the court sought to answer the second argument of the appellants. The appellant argued that Sections 4, 5 and 6 of the Punjab Central Sales Tax Act,1948 were interrelated and that if Section 5 was void, then Sections 4 and 6 were also void. Further, they contended that if the charging Section itself was void then the whole Act was also void. The court analysed Sections 4 and 6 to determine an answer.
The court observed that Section 4 of the Punjab General Sales Tax Act,1948 was a charging Section, Section 5 authorised fixation of taxes and Section 6 exempted some goods from taxes. Section 6 specified that goods listed under Schedule B were exempted from taxes. The question of whether Section 4 would become void if Section 5 was declared void, the court observed, would depend on two sub-questions. First, was whether Section 5 was a charging Section and second, if Section 4 was alone the charging Section and was under Section 5, whether Section 4 was now void.
The court analysed Kesoram Industries and Cotton Mills Ltd. vs. Commissioner of Wealth-tax, (Central), Calcutta (1965). In Kesoram Industries case, Section 3 of the Income Tax was analysed and it was observed that Section 3 of the Income Tax Act,1961 was a charging Section and the Finance Acts were references for fixations of the taxes.
The Supreme Court observed several similarities between the Income Tax Act and the Punjab Sales Tax Act. The court observed that both the Acts properly differentiate quantification and changeability of taxes. The only difference between these Acts was that while the Punjab Sales Tax Act specifically provided for the fixation of taxes under Section 5, the Income Tax does not do so.
Further, the court observed that the Income Tax Act existed independent of the Finance Act and that non-quantification of tax does not erase the liability to pay. Further, the court pointed out Section 67B, which states that until a new Act was passed, the provisions of the Finance Act would be applicable. Subsequently, the court analysed another case, B. Shama Rao vs. The Union Territory of Pondicherry (1967), which analysed the validity of some Sections of the Madras General Sales Tax Act, 1989. The Supreme Court observed that the present case was different from the Madras General Sales Tax Act 1959. In the Shama Rao case, the Sections in question were found void because they were irrelevant without the charging Section.
The Supreme Court found that, unlike the Madras General Sales Tax Act case, in the present case, the charging section was unaltered and only the Section related to fixation of taxes was altered. Therefore, the court held that Section 4 will not become void because Section 5 was held void.

Amendment to the Section 5

The next question before the court was whether an amendment to Section 5 would also be void because the Section was non est (i.e., void from the beginning). The amendment to Section 5 introduced the phrase ‘not exceeding 2%’. The court observed that the amendment only added a maximum limit to taxes imposed, but did not discuss anything about the authority who can fix the tax. Further, the Court observed that the amendment did not clearly specify an authority for tax fixation, but since it related to sales tax, the government could be given the discretion.
The court further observed that the Government could not be granted power to arbitrarily decide rates. However, it reasoned that a tax of 1-2% was insignificant and therefore, the Court held that such an amendment was valid.

Section 2(ff)

The next contention of the counsel was that Section 2(ff), inserted through an amendment was void. Section 2(ff) defines ‘purchase’ as the buying of goods, specified under Schedule C for a valuable consideration. The appellants argued that the definition of purchase was more comprehensive than the definition of sale under this Act and therefore, the legislature cannot legislate upon both sale and purchase of goods. The Court analysed the definition of a sale as given by State of Madras vs.Gannon Dunkerley & Co. (Madras) Ltd, Sales-tax Officer vs. Budh Prakash (1964) and George Oakes vs. State of Madras (1961).
Along with the inferences from the above-mentioned cases, the Supreme Court interpreted ‘purchase’ and ‘sale’. Purchase was defined as an acquisition of goods for a consideration, not under a mortgage or debt. Sale, the Court observed, was a transfer of property for some consideration.
Further, the Court observed that ‘sale’ and ‘purchase’ were two sides of the same coin, they both contained the same elements. The Court further observed that the purchase was only a different aspect of the sale and that the transaction was the same. The Court focused on two terms, it found different, ‘acquisition’ and ‘sale’. After analysis of the Section 2(ff), the Court concluded that ‘acquisition’ or purchase under it, only meant ‘transfer’ or sale.
While interpreting the next term ‘price’, the Court analysed Section 2(ff), Section 2(h) and the Sales Tax Act. The Court then concluded that price broadly referred to monetary consideration. Therefore, since the court found no irregularity in the definition under Section 2(ff), the Court held that the Section was not void.

Violation of Article 14

The next argument was that Section 2(ff) of the Punjab General Sales Tax violated equality under Article 14. The appellants had argued that the same goods, if purchased by a manufacturer were to be taxed, and not taxed if purchased by someone else. The Supreme Court rejected this argument and observed that there was a difference between the goods brought by the manufacturer and the goods brought by other dealers. The Court pointed out that manufacturers buy raw materials, which need to be taxed separately. Therefore, the Court observed that a reasonable distinction existed in different taxation.

Purchase Tax, not an Excise duty

The next argument of the appellants was that the definition under Section 2(ff) only refers to the purchase of goods for the manufacture of goods and services. Therefore, the appellants argued that the tax was an excise duty which went beyond the jurisdiction of the State. To answer this issue, the Court had to analyse whether the tax was imposed over the sale or purchase of the goods. The Court observed that an excise duty must be imposed on the manufacture of goods, as it was held in, Shinde Brothers vs. The Deputy Commissioner (1966).
Further, the Court observed that the purpose for which the taxes were imposed was relevant only for the fixing of the taxes, and nothing more. Therefore, the court held that the tax was a purchase levy and not an excise duty.

Multiple taxes

The counsel for the appellants argued that the 2% tax imposed by the state government violated Section 15 of the Central Sales Tax Act, 1956. Section 15 of the Central Sales Tax Act, 1956 imposes a restriction on the state not to impose taxes at several levels. However, the court rejected this argument by stating that goods sold and goods purchased were different, and therefore they were two distinct taxes and were valid individually.
The next argument of the appellants was that the tax was imposed only on goods that are manufactured. The appellants had argued that taxes were to be imposed on only oil seeds and not oil, as oil seeds were used to produce oils. The court observed that the Act differentiated between processing and manufacturing. The appellants had relied on the case of Union of India vs. Delhi Cloth & General Mills (1962). However, the court rejected the arguments of the appellant and ruled to the contrary. Therefore, the court held that the taxes on oils were valid.

Civil Appeals No. 39 to 43

The next argument of the appellants was that the conversion of steel into iron does not amount to the manufacturing of goods. However, the court observed that steel undergoes several changes on its conversion to iron and therefore, the process amounted to manufacturing.

Section 15 of the Central Sales Tax Act, 1958

The court then analysed the amendment to Section 15 of the Central Sales Tax Act. The court observed that Section 15 before the amendment, only described the stage at which the tax was imposed, and the Section after the amendment, only limited the stages at which it could be levied. The court next analysed M/s Modi Spinning & Weaving Mills Co. Ltd. vs. Commissioner of Income-tax, Punjab & Anr (1964) where the purpose of Article 286(3) was analysed and it was held that Article 286 modified the charging sections of the Central Sales Tax Act in accordance with the law of the Parliament. Before the amendment in October 1958, the Central Sales Tax Act, the tax could be only imposed on goods manufactured within the state and after, the Amendment Act 31 to the Central Sales Taxes Act, 1958, the taxation power of the State was restricted to being chargeable only on one stage. The Court observed that the Punjab General Sales Tax Act,1948 was influenced by the Central Sales Tax Act, and amended the taxation procedure. Before, under the Punjab Act, taxes used to be imposed only on goods purchased for manufacturing within the State but after the amendment, taxes can be imposed at the sale stage. The court therefore observed that the amendment to Section 5 of the Punjab General Sales Tax Act,1948 was in line with Section 15 of the Central Sales Tax Act,1958 and courtconcluded that the amendment was not unconstitutional.

Deciding on the additional arguments

The counsel for the appellants had raised a few additional contentions. First, was that the state, by the imposition of 2% taxes, exceeded the jurisdiction granted under the Seventh Schedule of the Constitution. The second contention was that tax was levied on cotton on multiple stages. The third contention was that the state irrationally, and arbitrarily imposed taxes on oil-seeds, resins, and cotton. The Supreme Court disregarded all three contentions and stated that they were either already dealt with or were irrelevant. Hence, the Court dismissed the appeals and held that the amendment and the imposition of 2% taxes were valid.

Relevant judgements referred in Devi Das Gopal Krishnan vs. State of Punjab (1967)

The Supreme Court analysed several precedents in this case.

State of Madras vs. Gannon Dunkerley & Co., Ltd (1959)

The Gannon Dunkerly case analysed the validity of Section 6(2) of the Madras Sales Act, 1939. Section 6(1) of the Madras Sales Act specifies that tax cannot be imposed on goods under the Schedule of the Madras Sales Act, 1939. Further, Section 6(2) allowed the state to amend the Schedule through a notification. Section 6(2) of the Act was challenged because it gave overriding power to the state tax goods by amending the Schedule.The Madras High Court observed that the transfer of powers of tax collection and taxable persons to a statutory authority was constitutionally valid.
The Supreme Court observed that the Gannon Dunkerly case was irrelevant to the present case, as it does not address the delegation of fixation of taxes. Further, the Court found it unnecessary to analyse the Gannon case in detail because the law was already established by the Liberty Cinema case.

Vasantlal Maganbhai sanjawala vs.The State of Bombay (1960).

The Court was analysing the validity of Section 6(2) of the Bombay Tenancy and Agricultural Lands Act, 1948, which empowered the State to decide the rent payable by tenants. The Court held the Section was an exercise of the State’s legislative power. This case analysed the ambit of excessive legislation.
The Supreme Court in the present case was also analysing the question of whether the State could impose additional taxes. The Supreme analysed the Vasantlal case because it related to the issue of the present case.

Union of India vs.Messrs. Bhana Mal Gulzari Mal (1962).

In this case, excessive delegation on steel goods was questioned. The Court found the delegation of powers valid as it was only an extension of Sections 3 and 4 of the State Act. The question analysed in this case was whether the State was empowered to fix the maximum price of steel and it was answered in the affirmative.
The issue in the present case was also whether unlimited taxation power could be given to the State Legislature. The issue was whether a limit to the taxes that could be imposed was in question. The Court answered the above question affirmatively.

Kesoram Industries and Cotton Mills Ltd. vs.Commissioner of Wealth-tax, (Central), Calcutta (1965)

The Court in the Kesoram Industries case, was analysing the charging Section with respect to Income Tax. The court held in that case that the charging Section for Income tax was Section 3 of the Indian Income Tax Act, 1933. The Appellants in that case argued that liability to pay never occurred before quantifying it. However, the argument was dismissed.
The Supreme Court correlated the Income Tax Act and the present Punjab Sales Tax Act and observed that non-quantification of the tax will not destroy the liability to pay.

Analysis of Devi Das Gopal Krishnan vs. State of Punjab (1967)

In this case, the validity of the 2% purchase taxes imposed by the Punjab government was challenged. The court upheld the statutory power of the state to impose taxes through legislation. This case has some important aspects. They are:

Successive-stage taxation: A major issue in this case was whether taxes could be levied at the production and sale stage. The Court answered in the affirmative and held that both purchase and sales tax could be imposed on a product. The court observed that the nature of the product at the raw-material stage and the finished goods at the sale stage were distinct and therefore, successive stage taxation was held valid.
Delegation of taxation power: Another question that came up in this case was whether the power of taxation could be delegated to another statutory authority by the state or centre. The court held in the affirmative that delegation of power of taxation could be made to another statutory body like the municipality, but the same had to be mentioned by the state in the statute. If not mentioned, then the power could be assumed to be designated to the state.
Amendment to a Section declared void: A pivotal question before the court was whether a Section already declared void could be amended. The court held in the affirmative. It observed that, in this case, the amendment was only fixing a limit for the purchase tax, and therefore was inconsequential. The same would also differ on a case-to-case basis.
Doctrine of Severability: The doctrine of Severability states that when a particular Section of the statute becomes void, the whole Act does not become void. Applying the same logic, the court in the present case observed that if Section 5 of the 1948 Act was declared void, it does not mean that the entire Act was void or its subsequent amendment was also void.

This judgement may not be applicable in the present time, because of the introduction of the GST (Goods and Services Tax) system. GST revolutionised the system of taxes, it brought an end to successive and multiple taxes and replaced several existing taxes with one destination-based tax called ‘GST’. However, the judgement shall continue to guide decisions on the statutory power of the executive to fix and collect taxes.

Conclusion

In conclusion, the Devi Das case is extremely significant in understanding the validity of purchase taxes imposed by the State. This case analyses the extent of State jurisdiction in imposing taxes. Specifically, the Section 5 of the Punjab Sales Tax Act is under question. Further, this case also analyses the impact of amendment to a void legislation. The case provides several insights into the jurisdiction and powers of the State government. It also laid down that taxes could be imposed by the State if necessary for proper functioning and maintenance of the State.

Frequently Asked Questions (FAQs)

Who can impose taxes?

The Article 265 of the Constitution specified that only an ‘authority of law’ i.e, the State or Central legislature can impose taxes. Further, any other statutory authority to whom the legislature has delegated such responsibility can impose taxes.

What is GST?

GST or Goods and Services Tax was introduced in 2017, through the 101’st amendment. It is a destination-based tax, completely payable by the final consumer. It is imposed by the Centre and States.

References

Section 161 of Companies Act, 2013

By

Vanshika Kapoor

-

July 27, 2024

0

This article has been written by Mudit Gupta. The article deals with all the necessary details pertaining to Section 161 of the Companies Act, 2013, dealing with the appointment of additional directors, alternate directors, and nominee directors, their responsibilities and procedure of appointment. The article also deals with the appointment of director in case of casual vacancy.

This article has been published by Shashwat Kaushik.

Table of Contents

Introduction

Fundamentally, companies are given a separate entity status in India but their operation and growth are completely dependent on how various stakeholders work in the organisation. All the key decisions of a company are taken by the board of directors, who are appointed in the general meeting. These directors are the key decision-makers in the company. Apart from the normal board of directors, the Companies Act, 2013 provides for the appointment of additional directors, alternate directors or nominee directors. The provision for appointment of these directors is provided in Section 161 of the Companies Act, 2013. In this article, this provision will be discussed in detail along with the role and responsibilities of such directors. The article further discusses the procedure for appointment of these directors. All these details will provide a great understanding about the appointment and importance of these directors.

Directors appointed under Section 161 of Companies Act, 2013

Directors are one of the most important parts of a company. They are responsible for the decision making of a company, as they are its key signatories. They are also responsible for efficient corporate governance within the company. This part of the article will provide a clear understanding of the types of directors appointed under Section 161 and their role in corporate governance in India.

When we talk about corporate governance in India, the appointment of additional directors, alternate directors, and nominee directors plays a very important role in ensuring operational continuity and strategic management within companies without any sort of hindrance. The appointment of an additional director is done to gain specialised expertise or fill interim vacancies, thereby enhancing the board’s diversity and skill set. Appointment of alternate directors is done with the specific aim of ensuring uninterrupted decision-making processes by getting directors who act as substitutes for primary directors during their absence for some reason. Nominee directors are appointed to provide a clear representation of the interests of specific stakeholders, such as shareholders or financial institutions, thus, safeguarding their investments and ensuring their viewpoints are considered in board deliberations. The appointment of these directors as per Section 161 of the Companies Act, 2013 plays a critical role in increasing the board’s competence by enhancing transparency and accountability in corporate decision-making within the company.

Additional director

Contrary to the appointment of normal directors, additional directors are appointed by the board of directors and their appointment is governed by the AOA and Section 161(1) of the Companies Act, 2013. This provision gives the Board of Directors the power to appoint additional directors between Annual General Meetings (AGMs), with the condition that the same is provided in the Articles of Association (AOA) and the total number of directors appointed shall not exceed the maximum number fixed by the AOA. The appointed additional directors shall hold office until the next AGM, where their appointment is regularised by shareholders. This flexibility gives companies an option to swiftly address the skill gaps in the organisation or emergent needs in board expertise and hence ensures accurate and timely decision-making and operational efficiency while adhering to statutory requirements. In a scenario where a general meeting is not held, the office shall be vacated by the Additional Director on the last day on which the AGM was to be held. The appointment of an additional director can be made by both private and public companies. A person cannot be appointed as an additional director if he/she fails to get appointed as a director in a general meeting. Such appointments shall be made in accordance with the AOA of the company as it is provided in the Companies Act, 2013.

Consequences of irregular appointment of an additional director

The appointment of an additional director is made with a motive to get a specialised person on the board of directors of the company. In a scenario where the additional director is appointed as the managing director, he/she will also cease to hold the managing director’s office if his/her appointment is not ratified at the next general meeting. In case his/her appointment is ratified, he/she will be appointed as the managing director as per Section 196 of the Companies Act, 2013.

In cases where the company or any person of the company is in violation of the provisions of Chapter XI dealing with the appointment and qualification of directors under the Companies Act, 2013, for which no penalty has been provided, there is a penalty of Rs. 50,000 for each of the officers of the company and the company itself. In case of continuous failure, a penalty of Rs. 500 per day is to be levied for a maximum limit of Rs. 3,00,000 for the company and Rs. 1,00,000 for the officers. Section 205 of the Companies Act, 2013 provides that the responsibility of the company secretary is to make sure that the company complies with all the statutory and regulatory requirements. Hence, the company secretary shall advise the board of directors to comply with all the statutes. The same was also pronounced in an adjudication order passed by the Registrar of Companies, Karnataka, Bengaluru for violation of provisions of Section 161 of the Companies Act 2013 by M/s. Chaitanya India Fin Credit Private Limited.

Alternate director

As per Section 161(2) of the Companies Act, 2013, the Board of Directors have the power to appoint an alternate director to act in the absence for not less than three months of the original director, if same is authorised by its articles or by a resolution passed by the company in a general meeting. An alternate director can be appointed by both the public and private companies. As per the Companies Act, 2013, authorisation by the articles or a resolution passed by the company in a general meeting is necessary for the appointment of an alternate director by the Board of Directors of a company. A person holding an alternate directorship for any other director in the company or holding a directorship in the same company shall not be appointed as the alternate director. The criteria of independence must be satisfied by the alternate director if it is proposed that the alternate director should be appointed as an independent director. The right to appoint an alternate director vests in the hands of the board of directors. The original director has no right to appoint an alternate director.

The alternate director shall not hold the office for a period of time longer than that permissible for the director in whose place he has been appointed. The alternate director shall immediately cease to hold his office if the original director ceases to be a director because of death or vacation of office under Section 167. The office shall be vacated by the alternate director when the original director, in whose place he has been appointed, returns. Section 152(7)(b) that deals with the automatic reappointment of a director shall apply only to the original director, and not to the alternate director if the term of the original director expires before he/she rejoins the company.

Nominee director

An individual nominated by an institution, including banks and financial institutions, for appointment as the director on the board of companies where such institutions have some ‘interest’ is known as a nominee director. The ‘interest’ can either be in the form of financial assistance such as loans or an investment in shares. Strategic investments like these may have a direct effect on the profitability of the nominator and therefore, to facilitate monitoring of the operations and business of the investee company, the appointment of a nominee director becomes essential. The appointment of a nominee director is made as per Section 161(3) of the Companies Act, 2013. A nominee director is “nominated” by a nominator. All the rights concerning appointment, removal, and the terms and conditions of appointment form part of the agreement entered into with the company by such investor, creditor, or other stakeholders and are in the hands of the nominator. This type of director acts as a ‘watchdog’ and participates in decision-making. The director has the responsibility of maintaining confidentiality about the affairs of the company. This type of director can also be appointed by the state or central government. Also, the director should have a Director Identification Number (DIN).

Need for Section 161 of Companies Act, 2013

After getting an understanding of all types of directors appointed under Section 161 of the Companies Act, 2013 and their role in corporate governance, it is imperative to understand the need for such a provision. The Companies Act, 1956 provided for the appointment of alternate directors but there was no provision for the appointment of additional directors or nominee directors. With the passage of time, a need for both types of directors was felt by legislators and policymakers and hence, provisions for the appointment of both types of directors were introduced in the Companies Act, 2013. Now, let’s understand the purpose of all 3 types of directors appointed as per Section 161.

A situation may arise where the board of directors of the company intends to appoint a person to the board; however, it might not be possible to convene a general meeting to seek the approval of the members. Then, in that case, they can appoint a person as an additional director of the company until the next annual general meeting. This gives the company a quick solution for getting a person with expertise in the area on board.

The main purpose of the appointment of an alternate director is to get a person on board in place of an existing director when he/she is not available for a minimum period of 3 months. This helps the board make quick decisions with clear representation, and hence, enhances the transparency of the corporate governance system of the company.

The main purpose of the appointment of the nominee director is to safeguard the interests of the nominator without conflicting with his/ her fiduciary duty as a director. This gives the nominator, who is either a creditor, investor, or any other stakeholder, a clear representation on the board of the company, ensures that their rights are taken care of by the company, and creates transparency and trustworthiness in corporate governance.

Procedure for appointment of a director under Section 161 of Companies Act, 2013

Now that we have a clear understanding of the types of directors appointed under Section 161 and the need for such a provision, understanding the procedure for their appointment is very much necessary. This part of the article deals with the procedure for the appointment of all 3 types of directors appointed under this provision.

Appointment of additional director

The procedure for the appointment of the additional director is as follows:

Board resolution: At a duly convened board meeting, the board of directors must approve the appointment of an additional director. The board resolution for the appointment must contain the reason for the appointment, the nature of the appointed person’s expertise and qualifications that justify his/her appointment.
Adherence with the AOA: The AOA should provide for such an appointment to be made by the board and the limit on maximum number of directors fixed by the AOA shall not be breached after the appointment of the director.
Intimation to the Registrar: Within 30 days of the appointment, the company must ratify the same to the Registrar of Companies (RoC) by filing Form DIR-12 along with necessary fees and relevant documents, which include details of the director appointed and the board resolution passed.
Ratification by the shareholders: The appointment of the additional director is provisional until it is ratified at the AGM by the shareholders. If the appointment is ratified, then the director holds the directorship; otherwise, if it is not ratified, then the appointed director has to leave the position.
Tenure: An additional director holds office until the next AGM of the company or till the date on which a regular director is appointed, whichever is earlier. If the appointment is not regularised by the shareholders at the AGM, the director needs to vacate the office.
Disclosure: The appointment of the additional director shall be disclosed to the shareholders in the board’s report at the AGM. This ensures transparency in corporate governance.

Appointment of alternate director

The procedure for the appointment of the alternate director is as follows:

Board Resolution: At a duly convened board meeting, the board of directors must approve the appointment of an alternate director. The board resolution passed must also specify the duration for which the director is appointed and in whose place he/she is appointed.
Consent of the alternate director: The person appointed should give his/her consent to act as an alternate director and should also provide a declaration that he/she is not disqualified to act as a director.
Intimation to the registrar: The company must file Form DIR-12 with the Registrar of Companies (RoC) along with necessary fees and relevant documents, including the consent of the alternate director and board resolution passed for the appointment within 30 days of the appointment.
Vacation of office: Unless otherwise resolved by the board, the office shall be vacated by the alternate director if and when the original director returns to India or is able to resume his or her duties as a director of the company.
Tenure: The tenure of the alternate director is dependent on the director whose office has been assumed and as soon as he/she is able to assume the office, the tenure of the alternate director is over.
Disclosure: The appointment of the alternate director shall be disclosed to the shareholders in the board’s report at the AGM. This ensures transparency in corporate governance.

Appointment of nominee director

The procedure for the appointment of the nominee director is as follows:

Nomination by the stakeholder: A nominee director is typically nominated by a specific stakeholder, such as a shareholder, financial institution, or any other entity as permitted under the company’s AOA or a shareholder agreement. He/she is appointed with the aim of providing clear representation of the stakeholders on the board of the company.
Board resolution: At a duly convened board meeting, the board of directors must approve the appointment of a nominee director. The board resolution passed specifies the name of the nominee director, the entity nominating them and the reason for their appointment.
Intimation to the registrar: The company must file Form DIR-12 with the Registrar of Companies (RoC) along with necessary fees and relevant documents, including the details of the nominee director and the board resolution passed for the appointment.
Disclosure: The appointment of the alternate director shall be disclosed to the shareholders in the board’s report at the AGM. This ensures transparency in corporate governance.
Tenure: The tenure of the nominee director is dependent on the agreement between the stakeholder and the company.

Responsibilities of directors appointed under Section 161 of Companies Act, 2013

Now that we have a clear understanding of the appointment procedure for directors appointed, let’s discuss the responsibilities of the directors appointed under Section 161.

Responsibilities of additional director

An additional director appointed as per the Companies Act, 2013 has similar responsibilities as an independent director. These directors are onboarded on the board because of their specialised knowledge; hence, their main role is to provide suggestions to the board based on their knowledge for the benefit of the company. While their appointment is provisional until ratified by shareholders at the next AGM, they are obligated to act in the best interests of the company, uphold fiduciary duties, and comply with statutory obligations. For example, if a company decides to put its foot in a new technical industry that requires a high level of knowledge and precision, the appointment of an additional director who is an expert in the industry to help the company navigate through the unknown territory helps the company grow effectively and efficiently.

These are some of the key responsibilities that are to be performed by the additional directors.

Responsibilities of alternate director

The alternate director is appointed primarily with a motive to fill the shoes of a regular independent director during their in their absence, and hence, during their role as a replacement of the original director, their key responsibilities are similar to those of the independent directors, which include attending board meetings, participating in the decision-making and ensuring continuity in governance. An alternate director must act in accordance with the company’s best interests, exercise fiduciary duties, and adhere to legal and regulatory requirements. The role of an alternate director is very crucial, as it helps in maintaining continuity in corporate governance and ensures that the decision-making is not hindered due to the absence of key directors. As per Section 184(2) of the Companies Act, 2013, an alternate director is duty bound to disclose his interest, if any, in a particular transaction to prevent a situation of conflict of interest. Also, it must also be noticed that alternate directors can only take inputs from the independent director in situations where he/she joins to fill a vacancy for a particular time period he/she is under a duty to act as an independent director. Appointment of alternate director as independent director is not violative of any provision of the Companies Act, 2013 but such an appointment is made only in cases of non-availability of the then director.

In the case of Oriental Metal Pressing (P) Ltd. vs. Bhaskar Kashinath Thakoor (1960), it was held that the alternate director is not expected to act according to the instructions of the original independent director. The appointment of an alternate director is not an assignment of office.

Responsibilities of nominee director

Nominee directors are the directors who are appointed to represent the stakeholders on the board of the company. Such a director has several roles and responsibilities, including adequate disclosure of interest, reporting to the nominator and protection of the interests of the company in its entirety. While their primary responsibility is to advocate for the interests of the nominating entity, they should also act in an impartial, transparent and legal-bound manner so that they ensure that the decisions benefit the company and uphold corporate governance as well. One of the key responsibilities performed by them is maintaining clear communication with both, the nominating entity and the company. As per Section 149(6) of the Companies Act, 2013, a nominee director is not considered an independent director. Hence, they do not have responsibilities similar to those of an independent director. Their most important responsibility is to act as a bridge between the nominator and the company and protect the best interests of both. In the case of Harkness vs. Commonwealth Bank of Australia Ltd. (1993), it was held that the duty of confidentiality is of greater importance than the duty towards the nominator.

These are some of the key responsibilities that are to be performed by the nominee directors.

Appointment of directors in case of casual vacancies

If any vacancy for the office of a director is caused by the death or resignation of a director appointed by the shareholders in a general meeting, before the expiry of his term, the board of directors has the power to appoint a person as director to fill the vacancy. The vacancy of a director caused by death or resignation before the term of his/her office shall be filled by the Board at a meeting and shall be approved subsequently in the next general meeting, subject to the articles of the company. The provisions relating to the appointment of a director to fill casual vacancies are provided under Section 161(4) of the Companies Act 2013. By default, the casual vacancy in the office of a director has to be filled by the Board at a meeting. Prior explicit authorisation is not required for the appointment of a director in a scenario like this. If the AOA are silent regarding this issue, the Board has the inherent power to appoint a person to fill up the vacancy. In the case of a public company, such an appointment cannot be made by a resolution of circulation and can only be made by a meeting of the Board of Directors. The interpretation of the language of Section 161(4) suggests that only the offices of the directors appointed at a general meeting can be filled by the provisions mentioned under Section 161(4) and the provision is not applicable to any other type of director. For example, if any vacancy arises for the office of an additional or alternate director, the provision provided under Section 161(4) cannot apply and hence such a vacancy cannot be filled by applying the provisions of Section 161(4) of the Companies Act, 2013.

Procedure for appointment of directors in case of casual vacancy

The procedure for the appointment of directors in cases of casual vacancies is as follows:

Obtaining consent and declaration: Obtaining the consent under Form DIR-2, declaration in Form DIR-8 and a disclosure of interest in Form MBP-1.
Nomination and remuneration committee: The constitution of a Nomination and Remuneration Committee (NRC) and a Stakeholders Relationship Committee (SRC) is provided under Section 178 of the Companies Act, 2013. In the case of a listed company, the NRC shall be constituted of three more non-executive directors, out of whom half should be independent directors and should be appointed by the board of directors.
Board meeting: At a duly convened board meeting, the board of directors must approve the appointment of a director in case of a casual vacancy as per Sections 161(4) and 173 along with Secretarial Standards-I.
Time bound disclosures: As per Regulations 30 and 46(3), a company must submit the disclosures to the stock exchange on which it is listed. As per Regulation 7(1) of SEBI (PIT) Regulations, 2015, in the case of listed companies, within 7 days of the appointment of the director, disclosures must be obtained in Form-B.
Intimation to the registrar: The company must file Form DIR-12 with the RoC along with necessary fees and relevant documents.
Update statutory register: Necessary updates in Form MBP-4 are to be made in the directors and KMP registers and register of contracts or arrangements in which directors are interested.
Disclosure: The appointment of the director in the event of a casual vacancy shall be disclosed to the shareholders in the board’s report at the AGM. This ensures transparency in corporate governance.
Duration: The appointed director shall hold office only up to the term of the director in whose place he is appointed.

Key considerations

The main points that are to be considered for the applicability of Section 161(4) are as follows:

The provisions of this section do not apply to private companies.
Directors nominated in the general meeting are the only ones who can replace the director in case of a casual vacancy.
The retirement of a director through rotation shall not be considered a casual vacancy.
A director for a casual vacancy cannot be appointed by circulation. They have to be appointed by board resolution.

Conclusion

The appointment of an additional director, alternate director and nominee director is a very crucial part of the corporate governance structure of India, as it acts as a pillar by providing flexibility in the directorial appointments. These appointments reduce the dependency on AGM for such appointments, which saves time and resources for the company and also enhances swiftness and trustworthiness in the system. While reducing the dependency on the AGM, the transparency of the system is not compromised, as the appointments are done as per the AOA of the company. A clear understanding of the appointment, role, and responsibilities of these directors is necessary to understand the corporate governance landscape in India.

The Companies Act, 1956, had provisions about the appointment of alternate directors but didn’t have any provision regarding the appointment of an additional director or a nominee director. The Companies Act, 2013 realised the need for such provisions and filled the void by introducing them.

The article attempted to cover all the necessary details and provisions related to Section 161 of the Companies Act, 2013. This provision helps in better strategic management and decision-making for the company in the dynamic business and economic conditions of today’s time.

Frequently Asked Questions (FAQ)

What is the interconnection of Section 161 and Section 152(2) of the Companies Act?

Section 161 of the Companies Act, 2013 allows for the appointment of additional directors by the board between annual general meetings. However, Section 152(2) stipulates that all directors, including additional directors, must ultimately be appointed or reappointed by shareholders at AGMs. Thus, Section 161 provides a mechanism for interim appointments, while Section 152(2) ensures final approval and ratification by shareholders for all appointments and reappointments of the directors of the company.

Can a person be an alternate director of two companies?

Yes. There is no bar on the number of companies in which a person can be an alternate director.

Can the appointment of an additional director be made by the board through a circulation resolution?

Yes, except in the case of a director who is proposed to be appointed to fill up a casual vacancy for which the decision can be taken by the Board only at its meeting, there is nothing in the Act that restrains this appointment. Secretarial Standard 1 (SS1) also, does not consider this appointment to be irregular.

Can an independent director be appointed by the board in the category of an additional director?

Yes. There is no law contrary to the appointment of an independent director in the category of an additional director.

References

All about HR risk management and productivity

By

Vanshika Kapoor

-

July 26, 2024

0

This article has been written by Tejashree Solanki pursuing a Personal Branding Program for Corporate Leaders from Skill Arbitrage.

This article has been edited and published by Shashwat Kaushik.

Table of Contents

Introduction

Human resources are the most important function in any organisation. Employees, workforce, manpower, labour, and personnel are the main characters in the development of any organisation as soon as business operations commence. However, there are certain risks involved in the motivated functioning of these resources. There are several factors that might affect it, starting from recruitment to the time the resource is released. The resources need some kind of motivation in order to be productive, which helps in the business profitability and scaling of operations. Human resource risk management and productivity go hand in hand. Managing human resource risks for increased productivity becomes crucial for any business organisation.

What is HR risk management

HR risk management plays a pivotal role in the business operations of any organisation. Due to the evolving nature of business operations and diverse workforce, there is an increasing demand for HR risk management in any organisation. Risk management in HR starts at the very beginning of running any business. In today’s evolving times, employees pose a huge risk to the operations of the company. Analysing risks and preventing their occurrence are the major roles of human resource management. Risk management is a structured framework to mitigate risks aimed at achieving organisational goals. It helps in increasing management efficiency to prevent or minimise risks by reducing operational costs and increasing productivity, which increases company profits and helps in company success.

What is productivity

In simple language, productivity is the amount of work done by any employee in any business setup. It is the output generated by an employee by working a number of hours in an organisation. Productivity depends on the number of factors that can relate to an employee’s behaviour. Employees must be motivated to be more accountable and responsible in order to take proactive ownership, which will increase employee productivity. The productivity of an employee is directly proportional to the profits of any business. Any business depends on how much the employee is willing to work for it to run smoothly. Inversely, less productivity is the effect of the employees will to work. Demotivated employees tend to work less as compared to motivated employees.

Factors affecting productivity

Talent acquisition

Talent acquisition is a methodological approach that helps in identifying, hiring and recruiting people to achieve long term organisational goals. Acquiring the right employee is of utmost importance for any organisation. Recruitment is the process of identifying, screening, interviewing, selecting, hiring and onboarding candidates to achieve organisational goals. Modern talent acquisition encompasses both the process of hiring and the strategies that elevate hiring outcomes. Attracting the right candidates. Building a strong employer brand, creating a positive candidate experience. Identifying the most important skills and selecting candidates accordingly. Failing to source the right candidate can affect productivity as the candidate may leave the company in the short term or failing to analyse the right skills can result in less productivity as the candidate may have to be trained, which results in a loss of time and effort.

Work culture

Work culture can largely affect the productivity of an employee. It is like the health of the company. A motivated, independent work culture can make employees take ownership and responsibilities in any organisation. Negative work causes increased turnover, lack of clarity, office gossip, absence of core values, etc., affecting the productivity of the organisation as a whole. Making it a conducive organisation to work with where the employee can be heard can boost the morale of the employee. Work culture should boost accountability, responsibility and ownership at any given instance in order to maximise employee productivity. Transparency among the teams and the management can help the employees take ownership and result in a more productive workforce.

Work environment

The work environment is specifically the physical space where the employee performs their duties on a daily basis. A work environment is a combination of following: Physical environment, social and cultural aspects. The office layout and amenities like desk space, lighting, location, temperature, cafeteria, cleanliness, concierge, restrooms and many more are included in the physical environment. A positive physical environment can help improve employee wellbeing, job satisfaction, mental health and productivity. Cultural and social aspects include DEI, building meaningful relationships with colleagues, making employees feel like family and aligning employee behaviour with company values. Company values must be a part of everyday behaviour. Careful nurturing of people of different ages, races, ethnicities, abilities, disabilities, genders, religions, cultures, and sexual orientations will help build a trusted bond between teams and create a sense of respect, collaboration and trust, which will help increase productivity.

Compensation

In simple terms, compensation is the monetary benefit offered to any employee in exchange for their services. In today’s dynamic market, the compensation provided to employees must be competitive. Formulating a compensation strategy is an important activity for all organisations, including startups. Employee productivity is increased by offering lucrative financial benefits to employees. However, the compensation strategy must be affordable, structured, and reasonably competitive in alignment with the company’s goals. Providing direct and indirect compensation like competitive salaries, annual incentives, ESOPs, child care, health insurance, retirement contributions, paid time off, etc. can boost enthusiasm in employees, which will contribute to a more productive workforce.

Prospective growth

An employee joining any organisation will have aspirations of professional growth, both financially and career wise. With a compensation strategy in place, the organisation should also encourage career growth among employees. This will help to attain job satisfaction, which will enhance productivity. Companies can provide mentorship programmes for the growth and development of their employees. Learning new tasks can help in developing new skills, which will help the employees contribute to new projects. Organisations can conduct leadership development programmes, regular training programmes, career development services, give tuition reimbursements or delegate additional responsibilities to employees. This will foster a sense of belonging and increase productivity.

Leadership

Management practices: Leadership practices across organisations have always made news throughout the history of mankind. Great leadership and management practices have consistently yielded rewards. Organisations should carefully nurture good leaders and set best management practices in line with the goals of the company to boost employee productivity. Positive leadership practices like respecting employee perspective, delegating authority, creating a collaborative vision to attain company goals, clear communication, flexibility, and providing training and guidance can maximise output, enhancing productivity

Company processes

Company processes are a set of collective tasks and activities performed by people to achieve business goals. A well curated and flexible process can ensure an enhanced work rate and increase productivity to achieve targets. Clear communication between teams and an easy approval method can enhance efficiency in the tasks performed by the employees, contributing to favourable results and reaching milestones.

Work life balance

Work life balance has significantly gained momentum in the past decade. Keeping employees happy and engaged is a challenge for all organisations. Happy workplaces attract good employees. Oxford Economic suggests, “Replacing an employee costs on average around £30,000 and it takes up to 28 weeks to get them up to speed.” Hence, it is crucial for organisations to keep their existing employees stress-free in order to retain them. A healthy work-life balance enhances work productivity and takes care of the mental wellbeing of an employee outside of work. Organisations can offer balanced work hours to improve employees mental health and boost productivity. Organisations can roll out offers like a more flexible workplace by providing an opportunity to work from home or gym options on the company premises for long hours of work, having a flexible leave policy that can help employees have a healthy work life balance, and taking ownership of the fulfilment of tasks, resulting in greater productivity.

Mergers and takeovers

Mergers and takeovers can affect the productivity of employees in many ways. Employees can feel stressed and uncertain about their future roles. This can lead to decreased productivity. Mergers can often bring together employees of different organisational cultures, which can result in conflicts and misunderstandings, resulting in less productivity. Work flow is disrupted as mergers can cause realignment of teams, changes in processes and so on, affecting productivity. A change in leadership may lead to a shift in priorities, communication styles and management approaches, leading to dynamic productivity. Employees tend to leave organisations in such cases, which will lead to losing out on the best talent, creating a negative impact on productivity.

HR interventions in HR risk management

HR plays a very crucial role in boosting productivity of the employees in any organisation. HR intervention in the above factors affecting productivity can help in mitigating or avoiding them. Strategic planning to identify HR risks, access them and prioritise the action plan is crucial. Talent forecasting, prioritising niche skills, considering employee referral programmes, and offering m monetary rewards for new candidates can help in finding new candidates faster. Providing a collaborative and supportive work culture, a road map to conflict management, and employee engagement initiatives will definitely reduce time and efforts to keep the candidates productive. A healthy work culture will boost self motivation to work, indirectly improving productivity and promptly attaining company goals. Creating an environment where the employees feel heard can significantly augment the morale at the workplace, making it a more favourable place to work. Market research for competitive compensation and formulating strategies like performance based rewards and recognition will motivate employees to work wholeheartedly, thereby increasing their self inspiration in employees to work. An employee development plan to advance their careers by providing timely training, providing cross functional training and implementing it throughout can boost productivity. Designing and implementing work life balance solutions to retain employees for the long term can help achieve company milestones at a greater pace. Continuous monitoring of policies and processes for continuous improvement and reframing them can benefit the organisation in achieving long term goals.

Limitations

There can be well defined policies and procedures to mitigate HR risks. However, there will always be limitations in managing HR risks. Factors like insufficient data or partial information, unpredictability, expectation of normality, physiological biases, non- coordination, inadequate foresite or overprioritisation of risks can be limiting factors in mitigating HR risks.

Conclusion

Although strategic planning and forecasting can lead to minimising risks and increasing productivity, to achieve company goals, there will always be defects and gaps hindering human resource risk management and productivity. In modern times, the management of human resource risks will be more diversified and exhaustive in nature, needing extensive effort for continuous improvement