General Laws

CMA Laws and Ethics – Directors

Question 1. No. of directors
Answer:

Every public company shall have at least 3 directors every private company shall have at least 2 directors and every one-person company shall have at least 1 director under Section 149.

Question 2. Legal position of director
Answer:

Directors are trustees for the company i.e. the directors are persons selected to manage the affairs of the company for the benefit of the shareholders.

Question 3. Maximum Number of Directors
Answer:

The maximum number of directors is 15, which can be increased by passing a special Resolution.

Question 4. Woman director
Answer:

Certain prescribed class or classes of companies is required to have at least one woman director. This is a mandatory provision.

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Question 5. Resident of director
Answer:

Every company including one person company shall have at least one director who stays in India for not less than 182 days in the previous calendar year.

Question 6. Number of directorships
Answer:

The maximum limit on the total number of directorships has been fixed at 20 companies including a limit of 10 for public companies.

Question 7. Removed of director
Answer:

A director may be removed from the office by giving a special notice.

Question 8. Managerial remuneration
Answer:

The overall limit on managerial remuneration shall not exceed 11% of the net profits.

Question 9. More than one such director
Answer:

If there is more than one such director, remuneration shall not exceed 10% of the net profits of the company.

Question 10. Independent director
Answer:

An independent director of a company means a director other than a managing director a whole-time director or a nominee director.

Question 11.Independent director
Answer:

An independent director can be selected from a data bank containing names, addresses, and qualifications of persons who are eligible and willing to act as independent directors.

Question 12. Independent No. of director
Answer:

Every listed company shall have one-third independent directors.

Question 13. Section 149(8)
Answer:

Section 149(8) provides that the company and independent directors shall abide by the provisions specified in Schedule IV.

Question 14. Term of independent director
Answer:

An independent director shall hold office for a term of up to 5 consecutive years on the Board of a company.

Question 15. Resignation or removal of an independent director
Answer:

The resignation or removal of an independent director will be in the manner as is provided in Sections 168 & 169 of the act.

Question 16. Composition of the Board of Directors
Answer:

50% of the Board is to be independent if the Chairman is a promoter, otherwise 1 / 3rd of the Board is to be independently prescribed under Clause 49 of the Listing Agreement.

Note: Regulation .17(1) of the SEBI (LODR) Regulation 2015. SEBI has notified a new regulation named SEBI (Listing Obligations and Disclosure Requirements) Regulation, 2015 on 2nd September 2015. A time period of 90 days has been given for implementing the Regulations. However, two provisions of the regulations, which are facilitating in nature, are applicable with immediate effect. Other provisions of this new regulation have come into effect from 1st Dec. 2015.

The new regulation aims to consolidate and streamline the provisions of existing Listing Agreements for different segments of the capital market. However, for the sake of students’ help, we have provided the questions and answers under this chapter as per the old listing Agreement as well as the new regulation about the listing agreement.

Question 17. Nomination Committee
Answer:

The Nomination Committee shall lay down the evaluation criteria for the performance evaluation of independent directors.

Question 18. Director
Answer:

The director can participate in the Board Meeting through video conferencing or another audio-visual mode as may be prescribed.

Question 19. Notice of Board Meeting
Answer:

Notice of not less than seven days in writing is required to call a board meeting and notice of meeting to all directors shall be given, whether he is in India or outside India by hand delivery by post, or by electronic means.

Question 20. The participation of the director at the Board Meeting through video
Answer:

conferencing or by other electronic means shall be counted for Quorum.

Question 21. Audit Committee
Answer:

Every Listed Company and such other company as may be prescribed shall form an Audit Committee comprised of a minimum of 3 directors with a majority of the Independent Directors and the majority of members of the committee shall be persons with the ability to read and understand financial statements.

Question 22. Nomination and Remuneration Committee
Answer:

Every listed company and prescribed class or classes of companies shall constitute the Nomination and Remuneration Committee consisting of three or more non-executive directors out of which not less than one-half shall be independent directors.

Question 23. Inter-corporate investments
Answer:

Intercorporate investments are not to be made through more than 2 layers of investment companies.

Question 24. Meeting of Board
Answer:

In addition to the first meeting to be held within thirty days of the date! of incorporation, there shall be a minimum of four Board Meetings every! year and not more one hundred and twenty days shall intervene! between two consecutive Board Meetings.

In the case of One Person Company (OPC), a small company, and dormant company, at least one Board Meeting should be conducted in each half of the calendar year and the gap between two meetings should not be less than Ninety days.

Question 25.Matters not to be dealt with in a Meeting through Video Conferencing or other Audio Visual Means
Answer:

• The approval of the annual financial statements;
• The approval of the Board’s report;
• The approval of the prospectus;
• The Audit Committee Meetings for consideration of accounts; and
• The approval of the matter relating to amalgamation, merger, demerger, acquisition, and takeover.

Question 6.The quorum for Board Meeting
Answer:

One-third of the total strength or two directors, whichever is higher, shall be the quorum for a meeting.

• To determine the quorum, the participation by a director through Video Conferencing or other audio-visual means shall also be counted.
• If at any time the number of interested directors exceeds or is equal to two-thirds of the total strength of the Board of Directors, the number of directors who are not interested and present at the meeting, being not less than two shall be the quorum during such time.

Question 27.Audit Committee
Answer:

The requirement of the constitution of the Audit Committee has been limited to:

1. Every listed Public Companies; or
2. The following class of companies
   1. All public companies with a paid-up capital of $ 10 crores or more;
   2. All public companies having a turnover of $ 100 crores or more;
   3. all public companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding 50 crores or more.

Question 28.Corporate Social Responsibility Committee
Answer:

The Section applies to the following classes of companies during any financial year:

1. Companies having a Net Worth of $ 500 crores or more;
2. Companies having a turnover of $ 1,000 crores or more;
3. Companies having a Net Profit of $ 5 crores or more.

Amendment made by Companies (Amendment) Act, 2017 Revised Section 135(1): “Every company having a net worth of rupees five hundred crores or more, or turnover of rupees one thousand crores or more, or a net profit of rupees five crores or more during the immediately preceding financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be independent.

• Provided that where a company is not required to appoint an independent director under sub-section (4) of Section 149, it shall have in its Corporate Social Responsibility Committee two or more directors.”
• Revised Section 135(3)(a): “(a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company in areas or subject, specified in Schedule VII.”
• Revised Explanation to Section 135(5): “For This purpose this section “net profit” shall not include such sums as may be prescribed, and shall be calculated by the provisions of Section 198.”

Question 29. Prohibitions and Restrictions Regarding Political Contributions
Answer:

• The non-government company or the company that has been in existence for less than three financial years may contribute any amount directly or indirectly to any political party.
• Further, the limit of contribution to political parties is 7.5% of the average net profits during the three immediately preceding financial years.

Note: Section 154 of the Finance Act, 2017 amends Section 182 of the Companies Act, 2013. As per the amendment, the limit on the maximum amount that can be contributed by a company to a political party has been removed.

Question 30. Key Managerial Personnel
Answer:

• Under Section 2(51) a Key Managerial Personnel is defined as the Chief Executive Officer or Managing Director or the manager, a Company Secretary or the time director, and the Chief Financial Officer in) relation to a company.

Amendment made by Companies (Amendment) Act, 2017 Revised Section 2(51):-

“Key managerial personnel” in a company, means

• • The Chief Executive Officer the managing director or the| manager
  • The Company Secretary
  • The whole-time Director
  • The Chief Financial Officer
  • Such other officers, not more than one level below the directors) who is in whole-time employment, designated as key) managerial personnel by the Board; and
  • Such other officer as may be prescribed”
• Every listed Company has a paid-up share capital of 10 crore or) more and is compulsorily required to have key managerial personnel.
• The whole time key managerial personnel is to be appointed by the Board) and shall not hold office in more than one company however he is) permitted to hold such other office with the permission of the Board of the) company.

Question 31. Penalty for not Appointing Mandatory
Answer:

Every director or key managerial personnel who is in default shall be liable to a penalty that may extend to $ 50,000 and a further fine which may) be extended to $ 1,000 for every day during which the default continues.

As per the Companies (Amendment) Act,

2019 Section 203 of the Companies Act, 2013 makes provisions for mandatory) appointment of certain Key Managerial personnel like MD or CEO,) Company Secretary and CFO.

• If any company makes any default in complying with the provisions of section 203, such company shall be liable to a penalty of five lakh rupees) and every director and key managerial personnel of the company who is in)
• Default shall be liable to a penalty of fifty thousand rupees and where the default is a continuing one, with a further penalty of one thousand rupees! for each day after the first during which such default continues but not exceeding five lakh rupees – Section 203(5) of the Companies Act, 2013) amended vide the Companies (Amendment) Act, 2019.
• In section 203 of the principal Act, for sub-section (5), the following sub-section shall be substituted, namely :
• “(5) If any company makes any default in complying with the provisions oil this section, such company shall be liable to a penalty of five lakh rupees, and every director and key managerial personnel of the company who is in default shall” be liable to a penalty of fifty thousand rupees and where the default is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such default continues but not exceeding five lakh rupees.”

Question 32. Section 203
Answer:

The Company Secretary has been covered under the same section of KMP therefore Section 203.

Rule 8A Appointment of Company Secretaries in companies not) covered under rule 8 A company other than a company covered under rule 8 which has a paid-up share capital of $ 5 crore or use shall have) a whole of the company secretaries.

Question 33. Managerial Personnel
Answer:

1. Overall managerial remuneration Section 197 of the Companies Act, 2013 prescribed the maximum) ceiling for payment of managerial remuneration by a public company to) its managing director whole-time director and manager which shall not) exceed 11 % of the net profit of the company in that financial year) computed by Section 198 except that the remuneration) of the directors shall not be deducted from the gross profits.
2. Remuneration to Managing Director Or whole-time Director Or Manager: The remuneration payable to any one managing director or whole-time) director or manager shall not exceed 5% of the net profits of the) company and if there is more than one such director remuneration) shall not exceed 10% of the net profits to all such directors.
3. Remuneration to other directors: Except with the approval of the company in general meeting, the remuneration payable to directors who are neither managing directors nor whole-time directors shall not exceed,
   • 1% of the net profits of the company, if there is a managing or whole-time director or manager;
   • 3% of the net profits in any other case.
4. Remuneration by a company having no profit or inadequate profit: If, in any financial year, a company has no profits or its profits are inadequate, the company shall not pay to its directors, including managing or full-time directors or managers, any remuneration exclusive of any fees payable to directors except by the provisions of Schedule V and if it is not able to comply with Schedule V, with the previous approval of the Central Government.
   • Managerial Remuneration under Schedule V (Part II):
5. Section 1: Remuneration by Companies Having Profits A company having profits in a financial year may pay remuneration to its managerial persons or persons or other directors or directors by Section 197.
6. Section 2: Where in any financial year during the currency of tenure of a managerial person, or another director a company has no profits or its profits are inadequate it may without Central Government approval, pay remuneration to the managerial person not exceeding the limits under (A) and (B) given below:

Provided that the above limits shall be doubled if the resolution passed by the shareholders is special.

Explanation-

• It is hereby clarified that for a period less than one year, the limits shall be pro-rated.
• In the case of a managerial person or another director who is functioning in a professional capacity, no approval of the Central Government is required.
• if such a managerial person or other director does not have any interest in the capital of the company or its holding company or any of its subsidiaries directly or indirectly or through any other statutory structures and does not have any direct or indirect interest related to the directors or promoters of the company.
• Its holding company or any of its subsidiaries at any time during the last two years before or on or after the date of appointment and possesses graduate level qualification with expertise and specialized knowledge in the field in which the company operates:
• Provided that any employee of a company holding shares of the company not exceeding 0.5% of its paid-up share capital under any scheme formulated for allotment of shares to such employees including Employees Stock Option Plan or by way of qualification shall be deemed to be a person not having any interest in the capital of the company

Amendment made by Companies (Amendment) Act, 2017 Revised First Proviso to Section 197(1)-

“Provided that the company in general meeting may, with the approval of the Central Government, authorize the payment of remuneration exceeding eleven percent, of the net profits of the company, subject to the provisions of Schedule V:”

Revised Second Proviso to Section 197(1)- “Provided further that, except with the approval of the company in general meeting by a special resolution,

1. The remuneration payable to any one managing director; or whole-time director or manager shall not exceed five percent, of the net profits of the company, and if there is more than one such director remuneration shall not exceed ten percent, of the net profits to all such directors and manager taken together.
2. The remuneration payable to directors who are neither managing directors nor whole-time directors shall not exceed,

• • one percent, of the net profits of the company, if there is a managing or whole-time director or manager;
  • three percent, of the net profits in any other case.

Third Proviso to Section 197(1)-“Provided also that, where the company has defaulted in payment of dues to any bank or public financial institution or non-convertible debenture holders or any other secured creditor, the prior approval of the bank or public financial institution concerned or the non -non-convertible debenture holders or other secured creditor, as the case may be, shall be obtained by the company before obtaining the approval in the general meeting.”

Question 34. Secretarial audit
Answer:

The Central Government through rules has prescribed such other classes of companies as under-

1. Every public company having a paid-up share capital of fifty crore rupees or more; or
2. Every public company having a turnover of two hundred fifty crore rupees or more

Steps for the Appointment of Whole-time Director

Directors Short Notes Question And Answers

Question 1. Write a short note of the following term Director Identification Number (DIN)
Answer:

• Every individual, who is to be appointed as director of a company shall make an application electronically in Form No. DIR-3 to the Central Government for allotment of DIN along with the prescribed fees.
• The applicant can download the said from the website of the Ministry of Corporate Affairs (‘MCA’ for short) duly filled in all respects along with a photograph and signed digitally.
• The form shall be verified by a Chartered Accountant in practice a Company Secretary in practice or a Cost Accountant in practice.
• On application, the system shall generate an application number. The Central Government shall process the application and decide on the approval or rejection and communicate the same to the applicant along with the DIN allotted in case of approval by way of a letter by post electronically or in any other mode within 30 days from the receipt of such application.
• If any defect is found in the application the central Government shall give intimation of such defect or incompletion to the applicant by placing it pp its website and by email to the applicant to rectify such defects within 15 days from the date of intimation.
• If the same has not been rectified the Government shall reject the application directing to file a fresh application.
• In case of rejection or invalidation of the application, the fee so paid with the application shall neither be refunded nor adjusted with any other application.
• The DIN allotted to a director before the commencement of this Act shall be deemed to be the DIN allotted under the present Act.
• The DIN allotted shall be valid up to the lifetime of the Director.
• The said number shall not be allotted to any other person. Similarly, a person shall be allotted only one DIN.
• The director, on allotment of DIN, is to intimate the company in Form No. DIR-3B within 30 days from the intimation, given to him.
• Amendment made by Companies (Amendment) Act, 2017 Proviso to Section 153- Provided that the Central Government may prescribe any identification number which shall be treated as Director Identification Number for this Act and in case any individual holds or acquires such identification number, the requirement of this section shall not apply or apply in such manner as may be prescribed.
• Section 159 provides that if any individual or director of a company, contravenes any of the provisions of Section 152 (dealing with the appointment of directors), Section 155 (dealing with prohibition to obtain more than one DIN), and Section 156 (Director to intimate DIN), such individual or director shall be liable to a penalty which may extend to fifty thousand rupees and where the default is a continuing one, with a further penalty which may extend to five hundred rupees for each day after the first during which such default continues.

Penalty if the company does not inform DIN to RoC within 15 days

As per the Companies (Amendment) Act, 2019 Section 157(1) of the Companies Act, 2013 imposes an obligation on every company to intimate DIN to RoC within 15 days of receipt of information from the director.

If any company fails to furnish the Director Identification Number under section 157(1), such company shall be liable to a penalty of twenty-five thousand rupees and in case of continuing failure, with further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of one lakh rupees, and every Officer of the company who is in default shall be liable to a penalty of not less than twenty-five thousand rupees and in case of continuing failure, with further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of one lakh rupees section 157(2) of Companies Act, 2013 amended vide the Companies (Amendment) Act, 2019.

Penalty violation of provisions by the director relating to DIN: If any individual or director of a company makes any default in complying with any of the provisions of sections 152,155 and 156, such individual or director of the company shall be liable to a penalty which may extend to fifty thousand rupees and where the default is a continuing one, with a further penalty which may extend to five hundred rupees for each day after the first during which such default continues – section 159 of Companies Act, 2013 amended vide the Companies (Amendment) Act, 2019.

Amendment made by Companies (Amendment) Act, 2017

Proviso to Section 153- “Provided that the Central Government may prescribe any identification number which shall be treated as Director Identification Number for this Act and in case any individual holds or acquires such identification number, the requirement of this section shall not apply or apply in such manner as may be prescribed.”

Directors Descriptive Question And Answers

Question 1. A company was formed and commenced business but directors were not appointed. In such a case who will act as a director?

1. The board acts on the advice given by a person in his professional capacity, whether he shall be treated as director.

2. What are the conditions to be complied with to keep the minutes in the loose-leaf binders?

3. “Audit committee is only luxury to the company”. Do you agree?

Answer:

1. Director: The designation as director does not mean that he indeed is a director. A person who has control over the direction, conduct, or management of the business of the company is a director. Company’s Act, 2013 provides that only individuals can be directors hence a firm, company, association of persons, body of individuals, or company can not function as a director of a company.

Appointment of first directors: (Section 152 of Companies Act, 2013)

1. Normally AOA contains the names of the first directors.
2. If the AOA does not contain the first directors then those who sign the MOA shall decide the names of the first directors.
3. If the first directors are not decided in this manner, the subscribers (signatories) to MOA will be deemed as the first directors of the company.

As per Section 35 of, Indian Companies Act, 2013 such persons shall not be deemed to be directors.

2. Minutes may be kept in loose-leaf binders: The modern practice is to type out or obtain computerized printing of the minutes in loose leaves and then keep them in a binder. The Department . of Company Affairs vide File No. 8-16(l)-61 PR has prescribed that, in certain cases, minutes may be kept in a loose-leaf binder provided the following conditions are fulfilled:

1. The pages are serially numbered;
2. The loose leaves are bound up at reasonable intervals, say not exceeding six months;
3. There should be a proper locking device to ensure security and proper control to prevent irregular removal of the loose leaves.

3. The audit committee serves as a communication link among various departments and has to interact with management, the internal auditor, the statutory auditor, and the public.

• • The Audit Committee provides independent and impartial reassurance to the board through its oversight, supervisory, and monitoring role.
    The chief role of the audit committee is to ensure that the reporting and disclosure made in the financial statements of the company are correct, accurate, and proper.
  • The Audit Committee has a responsibility to ensure that the company’s financials do not contain any misrepresentation or misleading information.
    There have been many failures in the field of corporate governance and this has given birth to the necessity of an audit committee in corporate governance the Audit Committee has become increasingly relevant in enhancing confidence in the integrity of an organization’s processes and procedures relating to internal control and financial reporting.
  • The Audit Committee has become one of the main pillars of corporate governance in checking and forestalling corporate misconduct.
    The effectiveness of the Audit Committee determines to a large extent the integrity of a company’s financial statements.
  • So, it can be said that the given statement is not true. Audit committee is not a luxury to the company and it is an essential element of good corporate governance.

Question 2. Describe the provisions for disclosure of interest by directors u/s184 of the Companies Act, 2013.
Answer:

The Act provides for the disclosure by directors relating their concern or interest in any company or companies or body corporate (including shareholding interest), firms, or other association of individuals by giving a notice in writing in form MBP 1 (Rule 9(1)) at the first meeting of the board after being appointed as director and at the first meeting of the board of every financial year, in addition to this, any change required to be disclosed in next board meeting.

1. Every director is required to disclose the nature of his concern or interest at the meeting of the board in which the contract or arrangement is discussed and he has not to participate in such meeting.
2. The abovementioned interest may be direct or indirect and relate to some contract or arrangement or proposed contract or arrangement entered into or to be entered into with a body corporate in which such director or such director in association with another director holds more than two percent shareholding or is a promoter, manager, Chief Executive Officer of that body corporate or with a firm or other entity in which such director is a partner, owner or member as the case may be.

• It shall be the duty of the director to give notice of interest to cause it to be disclosed at the meeting held immediately after the date of the notice. (Rule 9(2))
• If a director is not concerned or interested at the time of the contract but, subsequently becomes concerned or interested is required to disclose his interest or concern at the first meeting of the board.
• All notices shall be kept at the registered office and such notices shall be preserved for eight years from the end of the financial year to which it relates and shall be kept in the custody of the company secretary of the company or any other person authorized by the Board for the purpose. (Rule 9(3)).
• If a contract or arrangement entered into by the company without disclosure of interest by the director or with participation by a director who is concerned or interested in any way, directly or indirectly, in the contract or arrangement, shall be voidable at the option of the company.
• The contravention of the provisions leads to punishment for a term which may extend to one year or with a fine which shall not be less than fifty thousand rupees but which may extend to one lakh rupees or both.
• Any contract or arrangement entered into or to be entered into between two companies, where any director of any company holds more than two percent of the paid-up capital in another company, the provisions of this section shall not apply.

Note:

Amendment made by Companies (Amendment) Act, 2020: In Section 184 of the Principal Act, in sub-section (4), for the words “punishable with imprisonment for a term which may extend to one year or with fine which may extend to one lakh rupees, or with both”, the words “liable to a penalty of one lakh rupees” shall be substituted.

Question 3. In a public company, the total number of Directors is 9, and 2 offices of the Directors have fallen vacant. Referring to the relevant provisions of the Companies Act, 2013:

1. What would be the quorum for the Board Meeting?
2. Can the articles of a company fix the quorum (higher or lower) for the Board Meeting?

Answer:

Where the total number of Directors is 9 and 2 offices of the Directors have fallen vacant, the number of Directors remaining is 7. Therefore, a quorum is to be calculated concerning 7.

1. As per Section 174 of the Companies Act, 2013, the quorum shall be 1/3 of the total strength of the directors, and any fraction shall be rounded off to the next full figure. In the given case 1 Or 3rd is 2.33. Therefore, where the total strength is 7, the quorum shall be 3.
2. The articles of the company may fix a quorum higher than 1 /13th of total strength but not lower than that. If it is fixed on the lower side, it will be void.

Question 4. What is the time limit within which the Board has to appoint an Independent Director and at which meeting the Independent Director is appointed under the Companies Act, 2013?
Answer:

Section 149(5) of the Companies Act, 2013 inter alia provides that companies existing before the commencement of this Act, which are falling within the ambit of Section 149(4), shall have to appoint Independent Directors within one year from the commencement of Companies Act, 2013 or rules made in this behalf, as may be applicable.

Further, as per Section 152(2) read with Schedule IV of the Companies Act, 2013, inter alia provides that, the appointment of the Independent Director shall be approved by the Company in its meeting of shareholders.

5. How many Independent Directors have to be appointed in a company under the Companies Act, 2013?
Answer:

Number of Independent Directors:

The following class or classes of companies shall have at least two directors as independent directors:

1. The Public Companies having paid up share capital of ten crore rupees or more; or
2. Public Companies having a turnover of one hundred crore rupees or more; or
3. The Public Companies have, in the aggregate, outstanding loans, debentures, and deposits, exceeding fifty crore rupees.

Provided that in case a company covered under this rule is required to appoint a higher number of independent directors due to the composition of its audit committee, a higher number of independent directors shall apply to it.

• Provided further that any intermittent vacancy of an independent director shall be filled up by the Board at the earliest but not later than the immediate next Board meeting or three months from the date of such vacancy, whichever is later.
• Provided also that where a company ceases to fulfill any of three conditions ‘3’ d down in sub-rule (1) for three consecutive years, it shall not be required to comply with these provisions until it meets any of such corrections.
• Provided that a company belonging to any class of companies for which a higher number of independent directors has been specified in the law for the law being in force shall comply with the requirements specified in such law.

Question 6.

1. Describe the Procedure for the resignation of the Director.
Answer:

Resignation of a Director: Section 168 provides the procedure for the resignation of a director as detailed below:

• A director may resign from his office by giving a notice in writing to the company;
• He shall within 30 days from the date of resignation, forward to the Registrar a copy of his resignation along with the reasons for the resignation, in Form No. DIR – 11 along with the fee;
• A foreign director may authorize in writing a practicing Chartered Accountant or Cost Accountant or Company Secretary in practice or any other resident director of the company to sign Form No. DIR – 11 and file the same on his behalf intimating the reasons for the resignation;
• The Board shall on receipt of such notice take notice of the same;
• The company shall intimate the Registrar in Form No. DIR-12 within one month from the date of receipt of such notice;
• The said information is to be posted on the website of the company;
• The fact of the resignation shall be laid in the report of directors immediately following the general meeting by the company;
• The resignation of a director shall lake effect from the date on ‘which the notice is received by the company or the date, if any, specified by the director in the notice, whichever is later;
• The director who has resigned shall be liable even after his resignation for the offenses that occurred during his tenure;
• Where all directors of a company resign from their offices the promoter or, in his absence, the Central Government shall appoint the required number of directors, who shall hold the office till the directors are appointed by the company in a general meeting.

2. Describe the term ’independent director as per the Companies Act, 2013.
Answer:

Independent directors: Independent directors are defined under Section 149(6) of the Companies Act as directors other than managing directors whole-time directors or nominee directors:

• Who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience;
• He shall not be a promoter of the company or its holding, subsidiary, or associate company;
• He shall not relate to the promoters or directors in the company, its holding, subsidiary, or associate company;
• He shall not have any pecuniary relationship with the company or its promoters or directors during the two immediately preceding financial years or the current financial year;
• His relatives shall not have any pecuniary relationship with the company or their promoters of directors amounting to 2% or more of its gross turnover or total income. 50 lakhs or such higher amount as may be prescribed, whichever is lower, during the two immediately preceding financial years or the current financial years;
• He or his relatives:
• Holds or has held the position of a key managerial personnel or is or has been an employee of the company or its holding, subsidiary, or associate company, in any of the three financial years immediately preceding the financial year;
• Is or has been an employee or proprietor or partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of:
  • A firm of auditors or company secretaries in practice or cost auditors of the company: or % any legal or consulting firm that has or had
  • Any transaction with the company, amounting to 10% or more of the gross turnover of such firm.
• Holds together with his relatives 2% or more of the total voting power of the company: or is a Chief Executive or Director of any nonprofit organization that receives 25% or more of its receipts from the company, any of its promoters, directors, or its holding, subsidiary, or associate company or that holds 2% or more of the total voting power of the company; or
• Who possess such other qualifications as may be prescribed.

Question 7.

1. What are the different duties of a director in a company as per the Companies Act, of 2013?
Answer:

Section 166 of the Act prescribes the duties of a director under the provisions of this Act as detailed below:

• A director of a company shall act by the articles of the company;
• A director of a company shall act in good faith to promote the objectives of the company for the benefit of its members as a whole and in the best interests of the company, its employees, the shareholders, the community, and the protection of the environment;
• A director of a company shall exercise his duties with due and reasonable care, skill, and diligence and shall exercise independent judgment;
• A director shall not be involved in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company;
• A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company;
• A director of a company shall not assign his office and any assignment so made shall be void;

If a director of the company contravenes the provisions of Section 166 such director shall be punishable with a fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

2. Enumerate the provisions relating to Restrictions on the powers of the Board.
Answer:

The board can exercise the following powers only with the consent of the company by special resolution, namely –

• to sell, lease, or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the company owns more than one undertaking, of the whole or substantially the whole of any of such undertakings.
• to invest otherwise in trust securities the amount of compensation received by it as a result of any merger or amalgamation;
• to borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed the aggregate of its paid-up share capital and free reserves, apart from temporary loans obtained from the company’s bankers in the ordinary course of business;
• to remit, or give time for the repayment of, any debt due from a director.
• The special resolution relating to borrowing money exceeding paid-up capital and free reserves specifies the total amount up to which the money may be borrowed by the Board.
• The title of the buyer or the person who takes on lease any property, investment, or undertaking in good faith cannot be affected and also in case such sale or lease is covered in the ordinary business of such company.
• The resolution may also stipulate the conditions of such sale and lease, but this doesn’t authorize the company to reduce its capital except the provisions contained in this Act.
• The debt incurred by the company exceeding the paid-up capital and free reserves is not valid and effectual unless the lender proves that the loan was advanced in good faith and also has no knowledge that the limit imposed had been exceeded.

Question 8. Discuss the provisions of the Companies Act, 2013 regarding disqualifications for appointment of director.
Answer:

Section 164 of the Companies Act, 2013 details the disqualification of a person for the appointment as a Director. A person shall not be eligible for appointment as a Director of a company, if –

• He is of unsound mind and stands so declared by a competent court;
• He is an undischarged insolvent;
• He has applied to be adjudicated insolvent and his application is pending;
• He has been convicted by a Court of any offense,’ whether involving moral turpitude or otherwise and sentenced to imprisonment for not less than 6 months and 5 years has not elapsed from the date of expiry of the Sentence;

Provided that

• If a person has been convicted of any offense and sentenced in respect thereof to imprisonment for 7 years or more, he shall not be eligible to be appointed as a director in any company;
• An order disqualifying him for appointment as a director has been passed by the Tribunal and the Order is in force;
• He has not paid any calls in respect of any shares of the company held by
• Him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call;
• He has been convicted of the offence dealing with related party transactions under Section 188 at any time during the preceding five years; or
• He has not complied with sub-Section (3) of Section 152;
• He has not complied with the provision of Section 165(1). (As per Amendment Companies Act, 2019).
• A private company may by its articles provide for any disqualifications for appointment as a director in addition to the above disqualifications.

The disqualifications in (d), (e), and (f) shall not take effect:

• For 30 days from the date of conviction or order of disqualification;
• where an appeal or petition is preferred within 30 days against the conviction resulting in sentence or order, until expiry of 7 days from the date on which such appeal or petition is disposed of;
• where any further appeal or petition is preferred against the order or sentence within 7 days until such further appeal or petition is disposed of.

Note: Inserted a clause in section 164: Disqualifications from appointment of directors: A new clause (1) after clause (h) in section 164(1) is inserted, whereby a person shall be subject to disqualification if he accepts directorships exceeding the maximum number of directorships provided in Section 165.

Question 9. Directors are agents of the company.”- Discuss.
Answer:

• The company can act only through Directors, and so the relationship between the company and the Director is that of Principal and Agent. A contract entered into by a person as a Director of a company will be binding on the Company.
• However, Directors are not Agents or Members of the company.

Directors have personal liability. They would be personally liable under the following circumstances:

• The director acts in his name,
• Director enters into an agreement or contract which does not state clearly as to whether the Director signing in his capacity or in his representative capacity as an Agent of the Company.

Rights of the Company:

• Contract executed by the Director more than his authority, is binding on the Company.
• However, the Company may claim damages from the Director for breach of implied warranty of authority.
• When Directors act properly on behalf of the Company, they do not incur personal liability; they do not exceed their powers.

Question 10.

1. Discuss the powers of the Board of Directors of a company as per the Companies Act, 2013
Answer:

Section 179 of the Companies Act, 2013 provides that the powers of the board; all powers to do such acts and things for which the company is authorised is vested with the board of directors.

But the board can act or do the things for which powers are vested with them
and not with general meetings.

The following Section 179(3) read with Rule 8 of Companies (Management And Administration) Rules, 2014 powers of the Board of Directors shall be exercised only using resolutions passed at meetings of the Board, namely:

1. To make calls on shareholders in respect of money unpaid on their shares
2. To authorize the buy-back of securities under Section 68
3. To issue securities, including debentures, whether in or outside India
4. To borrow monies
5. To invest the funds of the company
6. To grant loans or give guarantee or provide security in respect of loans
7. To approve financial statement and the Board’s report
8. To diversify the business of the company
9. To approve amalgamation, merger, or reconstruction
10. To take over a company or acquire a controlling or substantial stake in another company
11. To make political contributions
12. To appoint or remove key managerial personnel (KMP)
13. To appoint internal auditors and secretarial auditor

Important: The Board may, by a resolution passed at a meeting, delegate to any committee of directors, the managing director, the manager, or any other principal officer of the company or in the case of a branch office of the company, the principal officer of the branch office, the powers specified in (4) to (6) above on such conditions as it may specify.

• The banking company is not covered under the purview of this section. The company may impose restrictions and conditions on the powers of the Board.
• Although, unless specifically restricted under the Act or Article of Association, the Board has all the powers to manage the affairs of the company

2. Enumerate the provisions of the Companies Act, 2013 relating to women directors in a company.
Answer:

The second proviso to Section 149(1) of the Companies Act, 2013 read with Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014 provides that the following classes of companies shall appoint at least one woman director

1. Every listed company;
2. Every other public company having
3. Paid-up share capital of 100 crores or more or
4. Turnover of 300 crores or more.
5. For this purpose, the paid capital or turnover as on the last date of the latest audited financial statements shall be taken into account.
6. A company incorporated under the Companies Act shall comply with such appointment of a woman director within six months from the date of its incorporation.
7. Any intermittent vacancy of a woman director shall be filed up by the Board at the earliest but not later than the immediate next Board meeting or three months from the date of such vacancy whichever is later.

Question 11.

1. Describe the procedure for the resignation of a Director under the Companies Act, 2013.
Answer:

Resignation of Director:

Section 168 of the Companies Act 2013, provides the procedure for the resignation of a director as detailed below:

• A director may resign from his office by giving a notice in writing to the company
• He may within 30 days from the date of resignation, forward to the Registrar a copy of his resignation along with the reasons for the resignation, in Form No. DIR -11 along with the fee
• A foreign director may authorize in writing a practicing Chartered Accountant or Cost Accountant in practice Company Secretary in practice or any other resident director of the company to sign Form No. DIR -11 and file the same on his behalf intimating the reasons for the resignation
• The Board shall on receipt of such notice take notice of the same
• The company shall intimate the Registrar in Form No. DIR-12 within one month from the date of receipt of such notice
• The said information is to be posted on the website of the company
• The fact of the resignation shall be included in the report of directors laid in immediately following the general meeting by the company
• The resignation of a director shall take effect from the date on which the notice is received by the company or the date, if any, specified by the director in the notice, whichever is later
• The director who has resigned shall be liable even after his resignation for the offenses that occurred during his tenure.
• Where all directors of a company resign from their offices the promoter or, in his absence, the Central Government shall appoint the required number of directors, who shall hold the office till the directors are appointed by the company in a general meeting.

Note: Amendment made by Companies Amendment Act, 2017 in Section 168(1): Provided that a [director may also forward] a copy of his resignation along, with detailed reasons for the resignation to the Registrar within thirty days of resignation in such manner as may be prescribed.

2. Discuss the rules of appointment of directors elected by small shareholders in a company.
Answer:

Process of appointment of director elected by small shareholders:

• ‘Small shareholder’ means a shareholder holding shares of nominal value of not more than? 20,000 or such other sum as may be prescribed. A listed company may have one director elected by small shareholders.
• Rules 7 requires that a listed company, may upon notice of not less. than 1000 small shareholders or one-tenth of the total number of such shareholders, whichever is lower, have a small shareholders director elected by small shareholders.
• Such a director shall not be liable to retire by rotation. The tenure shall not exceed three consecutive years and on the expiry of the tenure such director shall not be eligible for reappointment. A disqualified person for the appointment of director shall not be eligible for such appointment. No person shall hold the position of small shareholder’s director in more, than two companies at the same time.
• A small shareholders’ director shall not, for 3 years from the date on which he ceases to hold office as a small shareholders’ director in a company, be appointed in or be associated with such company in any other capacity either directly or indirectly.

Directors Practical Question And Answers

Question 1. Mr. Lalit, a Director of XY Limited proceeding on a long foreign tour, appointed Mr. Mohan as an alternate director to act for him during his absence. The articles of the company provide for the appointment of alternate directors. Mr Lalit claims that he has a right to appoint an alternate director. State whether Mr. Lalit is correct based on legal provisions.
Answer:

Appointment of an alternate director can be done by the BOD and not by any individual director. Mr. Lalit is not correct based on legal provisions. Section 161 (2) of the Companies Act, 2013 provides that the Board of Directors of a company may, if authorized by its Articles or by resolution passed by the company in a general meeting, appoint an alternate director to act for a director during his absence for not less than 3 months from the State in which the meetings of the Board are ordinarily held. The alternate director can be appointed only by the Board of Directors and only in cases where the Board is authorized by Articles or by the company in general meetings.

Hence Mr. Lalit the director in question, is not competent to appoint an alternate director, and the appointment of Mr. Mohan as alternate director is not valid.

Question 2. Mr. Joseph is the director of a Public Limited Company. He was removed by the company before the expiry of his term, by passing an ordinary resolution in a general meeting. Is the company justified in its actions? Is Mr. Joseph entitled to claim compensation for the loss of his office?
Answer:

1. Yes, the company is justified in this action;
2. As per Section 169 of the Companies Act, 2013, a company has the power to remove a director by ordinary resolution before the expiration of his office. Mr. Joseph is not entitled to claim any compensation for the loss of his office. As per Section 202, a director is not entitled to any compensation for loss of office.

In the present case, Mr. Joseph is removed by passing an ordinary resolution, and such removal is valid being authorized under Section 169. There is no entitlement of a director to claim compensation for such removal given Section 202.

Only a managing director, a director holding the office of the manager, or a director in whole-time employment is entitled to compensation for IOCs of office [Section 202].

Question 3. Atul was appointed director of the company in its Annual General Meeting. He took over the office and started acting on behalf of the company as its director. Subsequently, it was found that the appointment of the director was not valid because in the meeting where he was appointed, certain members who had voted were not qualified to vote and certain members had voted twice by mistake. There were also certain mistakes in the counting of votes. As such, the appointment of the director was held to be invalid. Would the acts of Atul, done by him as director, be valid and binding upon the company?
Answer:

• According to Sec. 176 of the Companies Act, 2013, all acts of the director are valid even though his appointment is afterward discovered to be invalid, the reason for any defect in his appointment.
• This is to protect outsiders as well as members dealing with the company.
• In this case, the defects in the appointment of the director were found after his appointment. The director did not know about the defects until he had started acting as a director.
• The validity of the acts of the director cannot be questioned just based on irregularities subsequently discovered in the appointment of the director.

Question 4. AB Ltd. has advanced a loan of 12,00,000 to one of its directors in Contravention of the provision of Section 185 of the Companies Act, 2013. State the consequences of such contravention.
Answer:

Loans to Directors (Section 185 of Companies Act, 2013):

Amendment made by Companies (Amendment) Act, 2017. Section 185 of the principal Act, the following section shall be substituted, namely:—

1. No company shall, directly or indirectly; advance any loan, including any loan represented by a book debt to, or give any guarantee or provide any security connection with any loan taken by
   • Any director of the company, or of a company which is its holding company or any partner or relative of any such director, or
   • Any firm in which any such director or relative is a partner.
2. A company may advance any loan including any loan represented by a book debt, or give any guarantee or provide any security in connection with any loan taken by any person in whom any of the directors of the company is interested, subject to the condition that—
   • A special resolution is passed by the company in the general meeting: Provided that the explanatory statement to the notice for the relevant general meeting shall disclose the full particulars of the loans given, or guarantee given or security provided, and the purpose for which the loan or guarantee or security is proposed to be utilized by the recipient of the loan or guarantee or security and any other relevant fact; and
   • The loans are utilized by the borrowing company for its principal business activities.
   • Explanation: For this sub-section, the expression “any person in whom any of the directors of the company is interested” means—
   • Any private company of which any such director is a director or
     member; any body corporate at a general meeting of which not less than twenty-five percent, of the total voting power, may be exercised or controlled by any such director, or by two or more such directors, together; or
   • Anybody corporate, the Board of directors, managing director or manager, whereof is accustomed to act by the directions or instructions of the Board, or of any director or directors, of the lending company.
3. Nothing contained in sub-sections (1) and (2) shall apply to
   • The giving of any loan to a managing or whole-time director
   • As a part of the conditions of service extended by the company to all its employees; or
   • Under any scheme approved by the members by a special resolution; or
   • A company that in the ordinary course of its business provides loans or gives guarantees or securities for the due repayment of any loan and in respect of such loans an interest is charged at a rate not less than the rate of prevailing yield of one year, three-year, five-year, or ten year Government security closest to the tenor of the loan; or t
   • Any loan made by a holding company to its wholly owned subsidiary company or any guarantee given or security provided by a holding company in respect of any loan made to its wholly owned subsidiary company; or
   • Any guarantee given or security provided by a holding company in respect of a loan made by any bank or financial institution to its subsidiary company:
   • Provided that the loans made under clauses (3) and (4) are utilized by the subsidiary company for its principal business activities.
4. If any loan is advanced or a guarantee or security is given or provided
   or utilized in contravention of the provisions of this section,-
   • The company shall be punishable with a fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees,
   • Every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with a fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, and the director or the other person to whom any loan is advanced or guarantee or security is given or provided in connection with any loan taken by him or the other person shall be punishable with imprisonment which may extend to six months, or with a fine which shall not be less than five lakh rupees but which may extend to. twenty-five lakh rupees, or with both.”

Quasi Contingent And Discharge Of Contracts Chapter At A Glance

Question 1. Quasi Contract
Answer:

• An obligation is imposed by law upon a person for the benefit of another even in the absence of a contract. They are known as quasi-contracts.
• They are based on principles of equity, justice and good conscience.
• They are termed as certain relations resembling those created by contracts.
• It is also known as the Law of Restitution.

It has the following features:

• It does not arise from any agreement between the parties but is imposed by law.
• It is a right only available against a particular person or persons and not against the entire world.

Question 2. Type of Quasi-Contract
Answer:

Responsibility of a finder of goods (Section 71)

• “A person who finds goods belonging to another and takes them into custody is subject to the same responsibility as a bailee”.
• He should act like a man of ordinary prudence i.e.

1. 1. He shall take proper care of goods
   2. He must take reasonable steps to trace the owner
   3. He should sell the goods, if they are in deteriorating condition and remit the proceeds to the owner.

• He is entitled to the reward if any, offered by the owner.
• He is also entitled to a refund of any expenses incurred in protecting and preserving the property.

A person receiving goods or money by mistake (Section 72)

• “A person to whom money has been paid, or anything delivered by mistake or under coercion, must repay or return it”
• Mistakes need not be unintentional. It may be even intentional.

Read and Learn More CMA Laws and Ethics Paper

Performance of Contracts (Section 37)

• It is one of the modes of discharging the contract. It is the completion or fulfilment of obligations by the respective parties to a contract.
• As per Section 37 of the Indian Contract Act, the parties to the contract must either-

1. 1. Perform their respective promises, or
   2. Offer to perform the same unless such performance is dispensed with or excused under the provision of any other law.

Question 3. Contingent Contract (Section 31)
Answer:

• It refers to a contract to do or not to do something, if some event, collateral to such contract, does or does not happen.
• Example Contracts of insurance, indemnity and guarantee etc.

Question 4. Wagering Agreements
Answer:

• It is void.
• It is a game of chance.
• The future event is the primary factor.
• Consists of reciprocal promises.
• Every wager is essentially contingent.

Question 5. Contracts to be performed by whom.
Answer:

• Promisor himself – Section 40 states that “ if it appears from the nature of the case that it was the intention of the parties to any contract that any promise contained in it needs to be performed by the promisor himself, such promise must be performed by the promisor. “Contracts involving the exercise of personal skill or diligence, or which are founded on the personal confidence between the parties need to be performed by the promisor himself.
• Agent: If the contract is not founded on personal consideration, the promisor or his representative may employ a competent person to perform it.
• Representatives: A contract involving the use of personal skill or founded on personal consideration comes to an end on the promisor’s death. In other cases, the legal representatives of the deceased partner are bound to perform it unless the contrary intention appears from the contract, but their liability is limited to the value of the property they inherit from the deceased.
• Third person: As per Sec. 41, “if the promisee accepts the performance of the promise by a third person, he cannot afterwards enforce it against the promisor.”
• Joint promisors: In the case of a joint promise, the promisee may compel one more of the joint promisors in the absence of a contract to the contrary. If any of them dies, his legal representatives must perform the promise jointly with the surviving promisors.

Question 6. Who Can Demand Performance?
Answer:

• Promise: Only the promisee can demand the performance of the promise irrespective of the fact that it is for the benefit of the promisee or any other person.
• Third-party: In some cases, like trust, marriage settlements etc. third party can enforce the promise against the promisor even though he is not a party to the contract.
• Representatives: In case of death of the promisee his representative may ask for the performance of the promise under a contract.

Question 7. Types of Performance.it is of the following two types:
Answer:

Actual Performance

• The promisor makes all offers of the performance of the promise and the offer to perform is accepted by the promisee.
• Thus, when both the parties perform their respective obligations, the contract comes to an end.

Attempted Performance (Tender) (Section 38)

• The promisor makes an offer of performance to the promisee, but the offer to perform is not accepted by the promisee.

Question 8. Types of Tender
Answer:

• Tender of goods – attempted performance of a promise to do something.
• Tender of money – attempted performance o! promise to pay something.

Essentials of a Valid Tender

• Must be unconditional
• Must be for the whole obligation
• Must be given at a proper time
• Must be given at a proper place
• Must give a reasonable opportunity for inspection
• The party giving tender must be willing to perform his obligation
• Must be made to the proper person
• Must be made for the exact amount of money.
• Effect of Refusal of party to perform promise (Sec. 39)
• The aggrieved party can-
• Terminate the contract
• Indicate by words or by conduct that he is interested in its continuance.
• If the promisee decides to continue the contract, he would not be entitled to put an end to the contract on this ground immediately.
• In both cases, the promisee would be entitled to claim damages that he suffered as a result of the breach.

Question 9. Joint Promise
Answer:

When two or more persons enter into a joint agreement with one or more persons, it is known as a joint promise.

Devolution

It means to pass over from one person to another – In the case of joint promise, two problems arise-

• who is liable to perform the promise,
• who can demand such performance?
• This problem is solved by devolution.

Liability of Joint Promisors

• Sec. 42: If two or more persons have made a joint promise, ordinarily all of them during their lifetime must jointly fulfil the promise. *After the death of any of them, his legal representative jointly with the survivor or survivors should do so.
• Sec. 43:

1. All the joint promisors are jointly and severally liable. However, the contract between the joint promisor may provide otherwise.
2. A joint promisor may claim contributions from other joint promisors if he is compelled to perform the whole promise.
3. A joint promisor may claim contribution from other joint promisors
   if any other joint promisor makes a default in the performance of his promise.

• Sec. 44: Where one of the joint promisors is released, other joint promisors shall continue to be liable.

Question 10. Rights of Joint Promisees:
Answer:

• U/s Sec. 45:
• When a person has made a promise to several persons, then unless a contrary intention appears from the contract, the right to claim performance rests between him and them during their lifetime.
• When one of the promisees dies, the right to claim performance rests with the legal representatives jointly with the surviving promisees.
• When all the promises die, the right to claim performance rests with their legal representatives jointly.

Question 11. Assignment
Answer:

• The promisee may assign the rights and benefits of the contract.
• The assignee will be entitled to demand performance by the promisor.
• It must be made by an instrument in writing.
• Obligation or liability under a contract cannot be assigned.

Differences Between Succession And Assignment

Question 12. Contracts which need not be performed
Answer:

Sec. 62: If the parties to the contract agree to

1. Substitute a new contract for it, or
2. rescind it, or
3. alter it.

Sec. 63: If the promisee-

1. dispenses with or remits, wholly or in part, the performance of the promise made to him.
2. extends the time for such performance
3. accepts any satisfaction for it.

• Sec. 64: If the person at whose option it is voidable rescinds the contract.
• Sec. 64: If the promisee neglects or refuses to afford the promisor reasonable facilities for the performance of the promise.

Question 13. Discharge of Contracts
Answer:

It means termination of contractual rolalloriu balloon tho parting to a nonunion.

Modes of Discharge of Contract

1. By Performance: It occurs when parties to the contract fulfil their obligations arising under the contract within the turn and In a proscribed manner. It may be
   1. Actual performance
   2. Attempted performance.
2. By Mutual Agreement: The portion may enter Into a trash agreement which proves  for the extinguishment of tailor rights and liabilities of the original contract, Important method of discharge by a froth contract –
   1. Novation: It our when an existing contract is substituted by a new one, colour between one portion or between two new ones,
   2. Rosclnulon: It occurs when only the old contract In cancelled and no new contract comes to the lot In Its place.
   3. Alteration; It occurs when the terms of the contract are not changed by mutual agreement is the option of substituting a new contract for the old one.
   4. Remission: It reforms to of looner fulfilment of tho torn ol promise.
   5. Walvor: It reforms the abundance of the rights by the party who In entitled to claim the performance of the contract.
   6. Acceptance of any other satisfaction: It occurs when the party is entitled to claim performance or any other satisfaction Instead of the performance of the contract.
3. By Lnpso of time: It occurs If a contract Is not performed within a specific period or is proscribed by the Limitation Act, 1963.
4. By Operation of law: It occurs when the contract Is discharged by operation of law which Includes
   1. Material alteration: where it Is done without the knowledge and consent of the other, the contract can be avoided by the other party.
   2. Insolvency: It can be done under certain particular circumstances.
   3. Death of a promisor: contracts Involving the personal skill or expertise of a promisor. When the promisor dies, It cannot be performed by anyone gIbo arid hence corners to an end.
   4. Merger of rights: If an inferior right in a contract fa merged Into a superior right by the party.
5. By Imposolbfllty of performance/frustration (Sec. 56)
   1. Discharge by supervening Impossibility: Discharge by supervening Impossibility  is done In the following ways-
      1. Death or personal Incapacity
      2. Destruction of subject-matter
      3. Non-existence or non-occurrence of certain essential things
      4. Change of Law
      5. Declaration of war
6. Discharge by supervening illegality: If after making the contract, its performance becomes impossible due to alteration of law or act of any person, it is discharged.
7. Cases not covered by the subsequent impossibility
   1. Strikes lockouts
   2. Partial impossibility
   3. Commercial performance
   4. Default Of A Third Party, etc.
8. It Is also known as frustration under English law.

Quasi Contingent And Discharge Of Contracts Short Notes Question And Answers

Question 1. Write short notes on

1. Quasi contract
2. Discharge of contract

Answer:

Quasi Contract:

• A Quasi contract is a fictitious contract in which the concerned parties do not intend to create a contract between them.
• In such a contract, there is no regular offer and acceptance and no agreement between the parties, even then there exists a contract which is imposed by the Court of Law.
• Even in the absence of a contract, social relationships require certain duties to be performed by a certain person.
• If a person finds some goods belonging to another person, he is required to return those goods to the actual owner even though there is no contract between the owner of goods and the finder of goods. This is an example of quasi contract.
• Quasi-contracts create the same obligation (duty, responsibility, commitment) as the regular contract. Quasi-contracts are based on the principles of equity, justice and good conscience.
• Quasi-contracts are also called Constructive contracts or Implied-in-law contracts.
  The basic principle lying behind a quasi-contract is that no person should be allowed to gain something at the expense of some other person.
• This type of contract is designed to remedy the cases of unjust enrichment or unjust benefits.

Features of Quasi contract:

• It is imposed by law. It does not arise by offer, acceptance and agreement.
• It is based on the duty of a party and not the promise of that party.
• It is a right which is available not against the whole world, but against a particular person or persons only. In this respect, it is similar to a regular contract.
• It can be sued in a Court of law.
• This way it is also similar to a regular contract.

Discharge of Contracts: A contract can be discharged or terminated by any of the following eight ways :

Question 2. Write a short note on the Contingent Contract
Answer:

Section 31 defines ‘contingent contract’ as a contract to do or not to do something, if some event, collateral to such contract, does or does not happen. The following are the essentials of a contingent contract-

• Uncertainty and futurity of the event to which it is related;
• Uncertain future events must be collateral to the contract.

An agreement to sell an unspecified half share in the property is not a contingent contract as held in ‘Harbakhash Singh Gill V. Ram Rattan’AIR 1988 P And H 60. In ‘Bhairon Prasad Chaurasiya V. Smt. Tara Devi’ – AIR 1980 All.

• It was held that an agreement to sell a house is by no means a ‘contingent contract’. An agreement to purchase a property is neither a contingent contract nor can it be characterized as a mere possible right or interest.
• It was contended that the contract is a ‘contingent contract’ because either of the parties to the contract may refuse to perform his part of the contract.
• The Court held that the argument is fallacious. Such a contingency would not be collateral to a contract. An agreement to purchase a property is neither a ‘contingent contract’ nor can it be characterized as a mere possible right of interest.
• Reciprocal promises are not contingent contracts as they cannot be said to be collateral to each other.
• The law allows the enforcement of a contingent contract after the event upon which it was contingent has happened.
• The contingency which is the essence of a condition must be distinguished from mere futurity.
• An obligation is not to be classified as conditional because its performance is not yet due.
• A contingent contract need not necessarily be independent of any external event. It may be conditional on the voluntary act or the future conduct of one of the parties or a third person.

Quasi Contingent And Discharge Of Contracts Descriptive Question And Answers

Question 1. Explain the meaning of ‘Quasi-Contracts’. State the circumstances which are identified as quasi-contracts by the Indian Contract Act 1872.
Answer:

• Even in the absence of a contract, certain social relationships give rise to certain specific obligations to be performed by certain persons.
• These are called – quasi-contracts as they create some obligations as in the case of regular contracts.
• Quasi-contracts are based on the principles of equity, justice and good conscience.

The salient features of quasi-contracts are:

Firstly, such a right is always a right to the money and generally, though not always, to a liquidated sum of money

Secondly, it does not arise from any agreement between the parties concerned the obligation is imposed by law

Thirdly, the rights available are not against the world but against a particular person or persons only, so in this respect, it resembles a contractual right.

Circumstances identified as quasi-contracts:

1. Claim for necessaries supplied to persons incapable of contracting (Sec.-68): Any person supplying necessaries of life to persons who are incapable of contracting is entitled to claim the price from the other person’s property. Similarly, where money is paid to such persons for the purchase of necessaries, reimbursement can be claimed.
2. Flight to recover money paid for another person (Sec.-69): A person who has paid a sum of money which another person is obliged to pay, is entitled to be reimbursed by that other person provided that the payment has been made by him to protect his interest.
3. Obligation of person enjoying benefits of non-gratuitous Act (Sec.-70): Where a person lawfully does anything for another person or delivers anything to him not intending to do so gratuitously and such other person enjoys the benefit thereof, the latter is bound to pay compensation to the former in respect of, or to restore, the thing so done or delivered.
4. Responsibility of finder of goods (Sec.-71): A person who finds goods belonging to another person and takes them into his custody is subject to the same responsibility as if he were a bailee.
5. Liability for money paid or things delivered by mistake or by coercion (Sec.-72): A person to whom money has been paid or anything delivered by mistake or under coercion, must repay or return it. In all of the above cases, contractual liability arises without any agreement between the parties.

Quasi-Contingent And Discharge Of Contracts Practical Question And Answers

Question 1. X agrees to pay Y a sum of money if Y marries Z. Z however marries F, who dies subsequently. After the death of F, Z marries Y. Whether X is legally bound to pay the agreed sum of money to Y? Comment.
Answer:

Any contract restraining the marriage is invalid. The original contract was dead at the time when Z married F. X is not legally bound to pay any sum to Y.

Question 2. Mr. P and Mr. Q bet as to whether there would be rain on a particular day of December. Mr. P promises to pay $ 5,000 to Mr. Q if there is rain on that day and Mr. Q promises an equal amount to Mr. P if there is no rain on the day. Suppose, there is no rain on that specific day of December and Mr. Q filed a suit for recovery of $ 5,000 from Mr P. Can Mr Q recover the amount under the Indian Contract Act, of 1872?
Answer:

• In this case, Mr. P bet with Mr. Q on the possibility of having rain on a specific day in December. Section 30 provides that agreements by way of wager are void and no suit
• shall be brought for recovering anything alleged to be won on any wager or entrusted to any person to abide by the result of any game or other uncertain event on which any wager is made.
• Therefore, the agreement between Mr. P and Mr. Q is wagering and hence void.
• Thus, despite no rain on a specific day in December, Mr. Q cannot recover the amount of $5,000 from Mr. P for the reason of agreeing on a wagering nature.

Question 3. Mr. X, a businessman has been fighting a long-drawn litigation with Mr. Y, another businessman. To support his legal campaign Mr. X enlists. the services of Mr. Z, a legal expert, stating that an amount of $ Two lakhs would be paid, if Mr. Z does not take up the brief of Mr. Y. Mr. Z agrees, but at the end of the litigation, Mr. X refuses to pay.

1. Decide whether Mr Z can recover the amount promised by Mr X under the provisions of the Indian Contract Act, of 1872.
Answer:

• The problem as asked in the question is based on one of the essentials of a valid contract. Accordingly, one of the essential elements of a valid contract is that the agreement must not be one which the law declares to be either illegal or void.
• Further Contract Act specifies that any agreements in restraint of trade, marriage, legal proceedings etc. are void agreements.
• Thus Mr, Z cannot recover the amount of $ 10 lakhs promised by Mr X because it is an illegal agreement and cannot be enforced by law.

Business Ethics

Question 1. Genesis of Ethics
Answer:

• The question of what is right and wrong gave birth to ethical and unethical codes.
• The word “ethics” is derived from the Greek word “ethos” (character), which means “way of living” and from the Latin word “mores” (customs).
• It defines what is good for the individual and for the society.
• Ethics refers to well-based standards of right and wrong that prescribe what humans ought to do, usually regarding rights, obligations, benefits to society, fairness, or specific virtues.
• It is related to issues of decency, rightness, and wrongness.
• What is wrong is unethical and what is right is ethical.
• If it is ethical, it is right, proper fair, and just.
• It is also defined as the science of the highest good.
• Mackenzie defines ethics as, “the study of what is right or good in human conduct” or “the science of the ideal involved in human life”.
• Applied ethics is the practice of ethics that aims to guide the moral judgment governing the decisions we make in all areas of our lives.
• Values are our standards of right and wrong.

Question 2. Background to Ethics
Answer:

Ethics is the area of philosophy concerned with the evaluation of human conduct.

Read and Learn More CMA Laws and Ethics Paper

Question 3. Major branches of ethics
Answer:

1. Meta-ethics
2. Political ethics
3. Normative ethics
4. Virtue ethics
5. Practical ethics
6. Rule-based ethics.

Meta-ethics is concerned with the meaning of philosophical language, the focus is on the grounds used to justify moral judgments rather than on making moral judgments.

1. Political Ethics consists of:
   • Examination of good society,
   • The origins,
   • Forms of political power Therefore Government.
2. Normative Ethics:
   • It is a branch of philosophy.
   • concerned with developing theories that determine which human actions are right or wrong.
   • It is evaluative and constructive.
   • It is not descriptive.
   • w – deontological ethics, utilitarian ethics, virtue ethics, etc.
3. Virtue Ethics:
   • Viewed as a separate branch.
   • It is certainly normative
   • It is concerned with possessing moral traits and living a good life.
4. Rule-based Ethics:
   • It seeks to evaluate moral considerations.
5. Rules are divided into 2 parts:
   • Consequentialism (or teleology)- Under this it is claimed that actions should be judged according to their consequences.
   • Deontology- under this, it is assumed that rightness or wrongness is a judgment not dependent on consequences but on the intrinsic goodness of action itself.
6. Practical (or applied) Ethics:

• • Applies ethical principles and theories to practical disciplines.
  • Its purpose is to give guidance on a specific issue.
  • w – medical ethics, business ethics, environment ethics, etc.

Question 4. History of Business Ethics
Answer:

• Business Ethics has existed as an academic field since the 1970s.
• Social responsibility has been described as being a pyramid with four types of responsibilities:
  • Philanthropic (top-level)
  • Ethical
  • Legal
  • Economic (bottom level)
• Business ethics is different from social ethics in the following three ways:
  1. Business ethics provide an ethical framework for evaluating a business.
  2. It allows critical analysis of business and the development of new and different methods.
  3. It fuses personal and social responsibility.
• Thus, business ethics is broader than social ethics and is more systematic and constructive.

Question 5.Business Ethics
Answer:

• It refers to the application of ethics in business.
• It facilitates and promotes:
  • Good to society,
  • Improves profitability,
  • Fosters business relations and
  • Employee productivity.
• Generally, it means, coming to know what is right or wrong in the workplace and doing what’s right.
• Unethical practices are creating problems for businessmen and business units.
• Business ethics are developed by the passage of time and custom.
• If a custom is adopted and accepted by businessmen and the public, that custom will become an ethic.

Question 6. Importance Of Business Ethics
Answer:

• Good business ethics promote good business.
• It helps to understand why the power and influence of business in society are increasing, what are its implications, and how this issue is to be addressed.
• It provides a major contribution to our societies like:
  • producing the products
  • providing services,
  • providing employment
  • paying taxes, etc.
• It helps to create mutual trust and confidence in relationships by helping us understand various causes and consequences of business malpractices.
• It provides a means to appreciate and understand the shareholder’s demand more clearly through which they can meet ethical expectations more effectively.
• It helps to improve ethical decision-making by providing managers with appropriate knowledge and tools.
• It helps the business to prosper by following good ethical standards.
• It provides us- with the ability to assess the benefits and problems associated with different ways of managing ethics.
• Good ethical standards help the business to face challenges.

Question 7.Characteristics of Business Ethics
Answer:

• They are the principles, which govern and guide business people to perform business functions and in that sense, it is a discipline.
• It is both a science and an art.
• It continuously tests the rules and moral standards.
• It is dynamic.
• It is based on theological principles like human welfare, good behavior, etc.
• It is based on reality and social customs prevailing in a business environment.
• It studies activities, decisions, and behavior that are related to human beings.
• It has a universal application because business exists all over the world.
• Many ethical principles develop personal dignity.
• It keeps harmony between the different roles of businessmen and every citizen, customer, owner, and investor.

Question 8. Principles of Business Ethics
Answer:

Various principles are developed by Cantt, J.S. Mill, Herbert Spencer, Plato, Thomas Garret, Woodrad, Wilson, etc.

• Not to do any evil: Doing evil to oneself or another, either as a means or an end, is unethical.
• Co-operation with others: Businesses should help others only if, others deserve help.
• Equivalent price: As per Wilson, “People are entitled to get goods equivalent to the value of money one pays”.
• Human dignity: Man should not be treated as a factor of production Human dignity should be maintained.
• Sacredness of means and ends: Means and techniques adopted to serve the business ends must be sacred and pure. Thus, a good end should not be attained with wrong means even if beneficial to society.
• Principle of proportionality: One should make a proper judgment before doing anything so that others do not suffer from any loss or risk of evil.
• Publicity: As per W. Wilson, “Anything that is being done or to be done should be brought to the knowledge of everyone”. This way is not unethical. act can be done.
• Universal value: Business should be conducted based on universal values.
• Co-operation in evils: Businesses should not cooperate with anyone in any evil acts.
• Non-violence: If a businessman hurts the interests or rights of society or exploits its consumers by overlooking their interests, it is equivalent to violence and unethical acts.

Question 9. Elements of Business Ethics
Answer:

• Key elements:
  • Formal code of conduct
  • Ethics committee
  • Ethical communication
  • An ethics office with ethical officers
  • Ethics Training Programme
  • A disciplinary system
  • Establishing an ombudsperson
  • Monitoring.

Question 10. Ethics vs Morals
Answer:

Generally, ethics and morals are used as synonyms. There is nothing wrong with such a usage, after all, the meaning of all words depends on their common usage. However, in formal study, we need to understand the meaning of the terms in a qualified way to make our subject of study precise and well-defined.

Question 11.Value-free Ethics
Answer:

• It would seem that business is an ethically neutral or value-free activity. In other words, the only value business is concerned with is the monetary value. It is not in the interest of business to mix ethical values.
• An ancient Arabic wisdom states, ‘Live together like brothers and do business like strangers.’
• Businesses should be kept free from other social relationships and obligations.
• The only successful relationship that exists in business is that of a vendor and a customer.
• It is also said that for the merchant, even honesty is a financial speculation.’ Indeed, for a businessman, every factor in the business is measured in terms of money.
• The volatility that we see in the stock market is a clear example of the speculative nature of business, which is directly proportional to the prevailing attitude of the people.

Question 12.Concept of Value-free Ethics
Answer:

• The concept of ‘value-free’ business ethics appears to be quite appealing to businessmen. It is as though it may be pursued devoid of all rules within a social vacuum. The concept of value-free ethics found application in economics in a rather ironic fashion.
• Ludwig von Mises, known as the father of the Austrian School of Economics, proposed the pure theory of economics, stating that economic concepts are a priori, that is, they are not dependent on experience but are purely virtual concepts.
• The concept of choice, for instance, is pure. It is immaterial whether one chooses water or wine, but the concept in itself is free of such particular elements. Hence, the choice is value-free (wertfrei).
• Applied to ethics, it would mean that we should be able to study the principles of this discipline, such as goodness, truth, justice, honor, etc, in their pure form.

Question 13.Ethics as a Principle
Answer:

• We have established that social evolution has developed definite principles of civic behavior, which have attained the status of principles.
• By principle, we understand that something proceeds and depends on it fonts cause.
• For instance, when one kicks a football, force is the principle that propels it into motion and the ball remains in motion till the force lasts.
• In other words, the physical world functions strictly according to the laws of physics.
• It is expected that people also submit their behavior, both in thoughts and actions, to these principles.

Question 14.Business Ethics as Professional Code
Answer:

Business ethics is not a pure science but a professional practice, and society expects businessmen to abide by the principles of civil society, just as it expects professionals from other areas such as medicine, bureaucracy, politics, and sports to do so. Thus, instead of value-free business ethics, we have a value-loaded or value-based business practice.

Question 15.The Seven Principles of Public Life
Answer:

1. Selflessness: Holders of public office should make decisions solely in terms of the public interest. They should not do so to gain financial or other material benefits for themselves, their family, or their friends.
2. Integrity: Holders of public office should not place themselves under any financial or other obligation to outside individuals or organizations that might influence them in the performance of their official duties.
3. Objective: In carrying out public business including making public appointments, awarding contracts, or recommending individuals for rewards and benefits, holders of public office should make choices on merit.
4. Accountability: Holders of public office are accountable for their decisions and actions to the public and must submit themselves to whatever scrutiny is appropriate to their office.
5. Openness: Holders of public office should be as open as possible about all the decisions and actions that they take. They should give reasons for their decisions and restrict information only when the wider public interest clearly demands. Ethics is a branch of philosophy that is concerned with human conduct.
6. Honesty: Holders of public office must declare any private interests relating to their public duties and take steps to resolve any conflicts arising in a way that protects the public interest.
7. Leadership: Holders of public office should promote and support these principles by sound leadership and prove to be an example in whatever they perform.

Question 16.The Relationship between Ethics and Law
Answer:

Ethics and Law – The Interface: Law is essentially an institutionalization or codification of ethics into specific social rules, regulations, and prescriptions.

• Perhaps the best way of visualizing ethics and law is in terms of two intersecting domains as depicted Thus, in one sense, business ethics can be said to begin where law ends.
• Business ethics is primarily concerned with those issues not completely covered by law, or where there is no definite consensus on whether something is right or wrong.
• Hence, it is often remarked, that business ethics is about the “grey areas” of business where values conflict.

Question 17.Ethics in Business
Answer:

“Business ethics is the study of business situations, activities, and decisions where issues of right and wrong are addressed”

1. Business for Profit: It would seem that business ethics does not come within the confines of ethics. As Adam Smith (1779), the father of modern economics says: ‘People of the same trade seldom come together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.’ People find mechanisms to generate the highest possible returns when conducting business.
2. Business and Ethics: No matter how hard one tries, it is impossible to separate life from business. For a businessman, business is life. Mahatma Gandhi (1948) said, ‘It is difficult but not impossible to conduct strictly honest business. What is true is that honesty is incompatible with amassing a large fortune.’ The business world is an important part of society, as it is concerned with the livelihoods of people.
3. The character of Business: There are two fools in every market: one asks too little, one asks too much,’ so says a Russian proverb. Is there a concept called balanced profit? The business in a society reflects its character. Transparency International, in its corruption perception index, gives Finland, Denmark, and New Zealand the first place with 9.4 points. India is way down at 72, with just 3.5 points on a scale of 10. We may gloat over our cultural heritage and religious and ethical glories of the past, but we stand exposed before the world as a corrupt society,
4. Professional Ethics: The aforementioned discussion may be understood through the following distinctions: ethics and business ethics. We have studied the distinction between normative and practical ethics and have established that business ethics comes under practical ethics and is applied to a particular activity. Just as a society functions on the social codes of conduct and a country is governed by its constitution, a business is run on corporate codes. In other words, there is a professional code of conduct for any business.

18. Need for Business Ethics
Answer:

1. Stop business malpractices: Some unscrupulous businessmen do business malpractices by indulging in unfair trade practices like black-marketing, artificial high pricing, adulteration, cheating in weights and measures, selling of duplicate and harmful products, hoarding, false claims or representations about their products, etc.
2. Improve customers’ confidence: Business ethics are needed to improve the customers’ confidence about the quality, quantity, price, etc. of the products. The customers have more trust and confidence in the businessmen who follow ethical rules. They feel that such businessmen will not cheat them.
3. Survival of business: Business ethics are mandatory for the survival of business. The businessmen who do not follow it will have short-term success, but they will fail in the long run. This is because they can cheat a consumer only once. After that, the consumer will not buy goods from that businessman.
4. Safeguarding consumers’ rights: Consumer sovereignty cannot be either ruled out or denied. Business can survive so long H enjoys the patronage of consumers. The consumer has many rights such as the right to health and safety, the right to be informed, the right to choose, the right to be heard, the right to redress, etc.
5. Protecting employees and shareholders: Business ethics are required to protect the interests of employees, shareholders, competitors, dealers, suppliers, etc. It protects them from exploitation through unfair trade practices.
6. Develops good relations: Business ethics are important to develop good and friendly relations between business and society. This will result in a regular supply of good quality goods and services at low prices to society. It will also result in profits for the businesses thereby resulting in the growth of the economy.
7. Creates good image: Business ethics create a good image for the business and businessmen. If businessmen follow all ethical rules, then they will be fully accepted and not criticized by society.
8. Smooth functioning: If the business follows all the business ethics, then the employees, shareholders, consumers, dealers, and suppliers will all be happy. So they will give full cooperation to the business.
9. Consumer movement: Business ethics are gaining importance because of the growth of the consumer movement. Gone are the days when the consumer could be taken for a ride by unscrupulous businesses with their false propaganda and false claims, unfair trade practices.
10. Consumer satisfaction: Today, the consumer is the king of the market. Any business simply cannot survive without the consumers. Therefore, the main aim or objective of a business is consumer satisfaction.
11. Importance of labour: Labour, i.e. employees or workers play a very crucial role in the success of a business. Therefore, businesses must use business ethics while dealing with employees. The business must give them proper wages and salaries and provide them with better working
12. Healthy competition: The business must use business ethics while dealing with competitors. They must have healthy competition with the competitors. Healthy competition brings about efficiency, breaks compliance, and leads to optimal utilization of scarce resources, hence is always welcome.

Business Ethics Short Note Question And Answers

Question 1. Write a qualitative note on ‘ethics philosophies’.
Answer:

The following are some of the ethical philosophies :

Question 2. Write a short note on the following Seven principles of public life
Answer:

Seven Principles of Public Life

The Seven Principles of Public Life were set out by Lord Nolan for the first time in the year 1995. These principles of public life will apply to anyone who works as a public office holder, including those elected and appointed to public office either locally or nationally. These principles apply to civil service, local government, the police, the Courts and probation of services, nondepartmental public bodies, health, education, and social care services. These principles also apply to another sector that delivers public services.

The British Government appointed a committee called as Committee on Standards in Public Life to advise the Prime Minister on ethical standards of public life. The Committee was established in October 1994. The term of reference to the committee is:

• To examine current concerns about standards of conduct of all holders of public office, including arrangements relating to financial and commercial activities: and
• To make recommendations as to any changes in present arrangements
  which might be required to ensure the highest standards of propriety in public life.

The Committee submitted its first report in the year 1995 containing the seven principles of public life. The said principles have been amended over the years. The seven principles of public life as amended up to and as of 2015 are as follows:

• Selflessness – Holders of public office should act solely in terms of the public interest.
• Integrity – Holders of public office must avoid placing themselves under – any obligation to people or organizations that might try inappropriately to influence them in their work. They should not act or make decisions to gain financial or other material benefits for themselves, their family, or their friends. They must declare and resolve any interests and relationships.
• Objectivity – Holders of public office must act and make decisions impartially, fairly, and on merit, using the best evidence and without discrimination or bias.
• Accountability – Holders of public office are accountable to the public for their decisions and actions and must submit themselves to the scrutiny necessary to ensure this.
• Openness – Holders of public office should act and make decisions openly and transparently. Information should not be withheld from the public unless there are clear and lawful reasons for so doing.
• Honesty – Holders of public office should be truthful
• Leadership – Holders of public office should exhibit these principles in their behavior. They should actively promote and robustly support the principles and be willing to challenge poor behavior wherever it occurs.

Question 3. Write a short note on the following term Business Ethics
Answer:

Meaning: Business ethics deals with morality in the business. It is a system of moral principles and values applied to business activities. This means that business activities should be conducted according to ethics or moral standards.

Business Definition: Business ethics is the art or science of maintaining harmonious relationships with society, its various groups and institutions as well as reorganizing for right or wrong of business conduct.

Features of business ethics

• Code of conduct;
• Protect social groups;
• Provide a basic framework;
• Need willing acceptance;
• Education and guidance;
• Not against for-profit making.

Principles

• Avoid exploitation of consumers;
• Avoid unfair trade practices;
• Fair treatment to employees,

Importance

• Improving consumer confidence
• Business become conscious of social responsibilities
• Create a good image of the business
• Goodwill
• Profitability
• Survival of heated competition
• Safety from a legal perspective

Question 4. Write a short note on the following terms Consumer movement and Ethics.
Answer:

Consumer movement: Business ethics is gaining importance because of the growth of the consumer movement.

• Gone are the days when the consumer could be taken for a ride by unscrupulous businesses with their false propaganda and false claims, unfair trade practices.
• Today, consumers are aware of their rights and well informed as well as well organized. Now they are more organized and hence cannot be cheated easily.
• They take action against those businessmen who indulge in bad business practices. They boycott poor quality, harmful, high-priced, and counterfeit goods.
• Therefore, the only way to survive in business is, to be honest and fair. Consumer forums and consumer associations are more active and vocal now.

Question 5. Write short notes on Improving ethical behavior in business
Answer:

Improving ethical behavior in business

• Understanding how people make ethical choices and what prompts a person to act unethically may reverse the current trend toward unethical behavior in business.
• Ethical decisions in an organization are influenced by three key factors individual moral standards, the influence of managers and co-workers, and the opportunity to engage in misconduct.
• It is difficult for employees to determine what conduct is acceptable within a company if the firm does not have ethics policies and standards.
• And without such policies and standards, employees may base decisions on how their peers and superiors behave. Professional codes of ethics are formalized rules and standards that describe what a company expects of its employees.
• Codes of ethics, policies on ethics, and ethics training programs advance
  ethical behavior because they prescribe which activities are acceptable and which are not, and they limit the opportunity for misconduct by providing punishments for violations of the rules and standards.
• The enforcement of such codes and policies through rewards and
  punishments increases the acceptance of ethical standards by employees.

Question 6. Write short notes on the Importance of ethics
Answer:

Importance of Ethics: Ethics is a requirement for human life. It is our means of deciding a course of action Without it, our actions would be random and aimless.

• There would be no way to work towards a goal because there would be no way to pick between a limitless number of goals.
• Even with an ethical standard, we may be unable to pursue our goals with the possibility of success.
• To the degree to which a rational ethical standard is taken, we can correctly organize our goals and actions to accomplish our most important values.
• Any flaw in our ethics will reduce our ability to be successful in our endeavors.
• A proper foundation of ethics requires a standard of value to which all goals and actions can be compared.
• This standard is our own lives and the happiness that makes them liveable.
  This is our ultimate standard of value, the goal for which an ethical man must always aim.
• It is arrived at by an examination of man’s nature, and recognizing peculiar needs.
• A system of ethics must further consist of not only emergencies but the day-to-day choices we make constantly.
• It must include our relations to others, and recognize their importance not only to our physical survival but to our well-being and happiness.
• It must recognize that our lives are an end in themselves, and that sacrifice is not only not necessary, but destructive.

Question 7. Write a short, note on the following term Advantages of Business Ethics
Answer:

Advantages of Business Ethics: Business ethics deals with morality in the business. It is a system of moral principles and values applied to business activities.

1. This means that business activities should be conducted according to ethics or moral standards.
2. Business ethics is the art or science of maintaining harmonious relationships with society, its various groups and institutions as well as reorganizing for right or wrong of business conduct.

The following are the advantages of following the principles of business ethics:

• It offers a company a competitive advantage;
• Goodwill of the firm hikes depending on its responses towards its ethical issues;
• Productivity through rigid, firm, and sincere workers as well as other business chain members;
• Through increasing morale and trust business can increase their market share;
• Publicity due to good and ethical performance;

Question 8. Write Short Notes on Types of Ethics
Answer:

Type of ethics

Ethics may be divided into three types as follows:

1. Meta-ethics: Meta-ethics deals with the nature of moral judgment. It looks at the origins and meanings of ethical principles.
2. Normative ethics: Normative ethics is concerned with the content of moral judgments and the criteria for what is right or wrong.
3. Applied ethics: Applied ethics looks at controversial topics like war, animal rights, and capital punishment.

Distinguish Between Question And Answers

Question 1. What is the difference between morals and ethics?
Answer:

First of all analysis of the key terms ‘ethics’ and ‘morals’ is to be done. The linguistic use of the terms, they seem as if they are in the plural form, just as

• ‘Economics’ or ‘polities’, but we treat them as singular. Generally, ethics and morals are used as synonyms.
• There is nothing wrong with such a usage, for, after all, the meanings of all words depend on their common usage.
• However, in formal study, we need to understand the meaning of the terms in a qualified way to make our subject of study precise and well-defined.

Meaning: The terms ‘ethics’ and ‘morals’ are etymological, that is, from their very roots or terms, different. The word moral(s) is derived from the Latin root moralis, which implies custom. In other words, it refers to a behavior that is accepted or rejected due to an accepted social custom.

• The word ethics stems from the Greek word ethic, which is attributed to a social environment, referred to as ethos or social milieu.
• This latter meaning embraces much more than mere custom. It refers to everything that is part and parcel of society and not just what is allowed or forbidden.
• Morality is more concerned with the norms, values, and beliefs embedded in social processes that define what is right or wrong for an individual or community.
• Another point of difference between the two refers to their usage in ordinary language.
• For instance, a lawyer defending an alleged rapist would accuse the victim as ‘morally fallen’ and not as ‘ethically fallen’.
• On the other hand, a committee that is formed to probe the behavior of the members of Parliament would be called an ‘ethics committee’ not a ‘moral committee’. The meaning of the word -is in its usage.
• Thus, both these terms have their unique characteristics and applications.

Usage: However, the terms are intrinsically not different. Both of them refer to the same reality of human actions, which may be characterized as morally or ethically positive or negative as the case may be.

• It may be true that the terms (ethics and morals) sound different but they refer to the same social reality wherein a certain body of accepted norms forms a code of conduct in society.
• The actions of the members are described as ‘moral’ or ‘ethical’ depending on the linguistic nuances of the meaning in a particular case as well as on the conventional use of the terms. It is in the use of the words in a given context, that the meaning becomes clear.
• In academic usage,- however, moral behavior refers to a concrete behavior such as showing respect to elders.
• Ethics, on the other hand, is used to mean a discipline or a systematic study of moral behavior such as justice.
• People’s behavior in a society can be morally characterized in their day-to-day actions.
• It is in the classroom that we analyze the ethical significance of these actions.
• These terms are generally interchanged with the same meaning, that is, to determine whether some human action is right or wrong.
• They deal with the application of a socially accepted code of conduct. This conduct may be termed as either moral conduct or ethical conduct.

Descriptive Questions And Answers

Question 1. “Companies displaying a clear commitment to ethical conduct consistently outperform companies that do not display- ethical conduct.” Discuss this statement highlighting the advantages of business ethics.

1. Discuss briefly the following:
   1. Ethics in. human resources.
   2. Enlightened egoism.

Answer:

Business ethics is a form of applied ethics. In broad sense ethics in business is simply the application of moral or ethical norms to business. Ethics is a set of principles or standards to human conduct that govern the behavior of individuals or organizations using this ethical standard, a person or a group of persons or organizations regulate their behavior to distinguish between what is right and what is wrong as perceived by others.

The advantages of Business Ethics Include:-

Ethics in Human Resources: Human Resource Management (HRM) is decisive in introducing and implementing ethics.

• Ethics should be a pivotal issue for HR specialists.
• The ethics of HRM covers those ethical issues arising around the employer-employee
• relationship such as the rights and duties shared between employer and employee.

The issues of ethics faced by HRM include:

• Discrimination issues i.e. discrimination based on age, gender, race, religion, disabilities, weight, etc.
• Sexual harassment
• Issues surrounding the representation of employees and the democratization of the workplace, trade unionization.
• Issues affecting the privacy of the employer; whistle-blowing.
• Issues relating to the fairness of the employment contract and the balance of power between employer and employee.
• Occupational safety and health.

Question 2.

1. ‘The integrity pact (P) is a tool aimed at preventing corruption in public contracting.”
Answer:

Developed by Transparency International (Tl), the Integrity Pact (IP) is a tool aimed at preventing corruption in public contracting.

• It consists of a process that includes an agreement between a government or a government department and all bidders for a public contract.
• It contains rights and obligations to the effect that neither side will pay, offer, demand, or accept bribes,
• collude with competitors to obtain the contract or engage in such abuses while carrying out the contract.
• The IP also introduces a monitoring system that provides for independent oversight and accountability.

2. Discuss briefly the following: Ethics in compliance.
Answer:

Ethics in compliance: Compliance is about obeying and adhering to rules and authority. The motivation for being compliant could be to do the right thing out of the fear of being caught and punished rather than a desire to abide by the law.

• An ethical climate In an organization ensures that compliance with the law is supported by a desire to abide by the law.
• Organizations that value high ethics comply with the laws not only in letters but go beyond what is stipulated or expected of them.

Question 3. You are the Company Secretary of Innovative Products Ltd. The Board of Directors desires to know the advantages of business ethics. Draft a note for consideration by the Board of Directors.
Answer:

Advantages of Business Ethics :

Adherence (means loyalty, faithfulness, observance) to a Code of Conduct offers the following advantages:

1. Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
2. Full, fair, accurate, timely, and understandable disclosure in reports and documents that a company files with, or submits to the commission and in other public communications made by the company;
3. Compliance with applicable governmental laws, rules, and regulations;
4. The prompt internal reporting of violations of the code to an appropriate
   person or- persons identified in the code, and;
5. Accountability for adherence to the code.

Question 4. Bhagavad Gita teaches that “without being attached to the fruits of activities, one should act as a matter of duty, by working without attachment one attains the supreme.” In light of this statement, discuss various ethical philosophies.
Answer:

The Other Ethical Philosophies Include:

 

Question 5. “Good business ethics promotes good business” Explain.
Answer:

In general, ethics is concerned with doing the right thing. Ethics covers the understanding and analysis of right and wrong, good and bad or evil.

• There is a growing realization all over the world that ethics is vitally important for the survival and growth of any business and the progress of any society.
• Ethics leads to an efficient economy; ethics alone, not government or laws, can protect society; ethics is good in itself; ethics and profits go together in the long run.
• An ethically responsible company has developed a culture of caring for people and the environment; a culture that flows downwards from the top managers and leaders.
• Adopting ethical behavior in an organization not only increases and enhances its goodwill but also leads to positive consequences in the long run. Business ethics protects the interests of all stakeholders.
• A businessman who follows business ethics improves principles
  self-satisfaction and motivates others also to follow e So in the era of the global economy, for successful use follow sound ethical practices.
• Ethics are important not only in business but in a^Pe because it is an essential part of the foundation on which society is built.
• A business or society that lacks ethical principles is bound to fail sooner
  or later.
• An organization that has a strong ethical program in place will certainly help in reducing the burden on the employees while deciding on some alternatives, Ethics helps employees develop a rationale behind the actions that they undertake in the efficient performance of their duties.
• It will certainly help in reducing unnecessary tensions and unavoidable thoughts that an individual gets surrounded with when he is faced with such kinds of problems.
• This helps him concentrate more on his work and less on the indecisive thoughts that come to his mind.

Question 6.“Ethics and morals are the same” Comment.
Answer:

The word ethics is derived from the Greek word ‘ethos’ meaning the character is the essence of behavior while the word Moral is derived from the Latin ‘mos’ which means customs.

• These two words are fundamentally different and provide two very different standards for defining what is right and what is wrong.
• Character is a personal attribute while custom relates to a group of people.
• People have character while societies have customs.
• Moral refers to a behavior that is accepted or rejected due to an accepted social custom. The word ethics embraces much more than mere custom.
• It refers to everything that is part and parcel of society and not just what is allowed or forbidden.
• Morality is more concerned with the norms, values, and beliefs embedded in social processes that define what is right or wrong for an individual or community.
• Another point of difference between the two refers to their usage in ordinary language.
• For instance, a lawyer defending an alleged rapist would accuse the victim as ‘morally fallen’ and not as ‘ethically fallen’.
• On the other hand, a committee that is formed to probe the behavior of the members of Parliament would be called an ‘ethics committee’, not an oral committee.
• The meaning of the world is in its usage.
• Thus, both these terms have their unique characteristics and applications.
  However, both terms refer to human actions, which may be characterized as morally or ethically positive or negative as the case may be.
• It may be true that the terms (ethics and morals) sound different but they refer to the same social reality wherein a certain body of accepted norms forms a code of conduct in society.
• The actions of the members are described as “moral” or “ethical” depending on the context in which the term is used.

Question 7. “Business Ethics is the study of business situations, activities, and decisions where issues of right and wrong are addressed”. Explain.
Answer:

Business Ethics also called Corporate Ethics is a form of applied ethics or professional ethics that examines ethical principles and moral or ethical problems that arise in a business environment.

• It applies to all aspects of business conduct and is relevant to the conduct of individuals and entire organizations.
• Business ethics takes into account the social principles of the situations in which business takes place.
• No matter how hard one tries, it is impossible to separate life from business. For a businessman, business is life. Mahatma Gandhi (1948) said, ‘It is difficult but not impossible to conduct strictly honest business.
• What is true is that honesty is incompatible with amassing of large fortune’. The business world is an important part of society, as it is concerned with the livelihoods of people.
• Business activity too is subjected to the code of conduct without any exception.
• People expect businessmen to possess the same rationality as any other citizen.
• Therefore, there is no separate business ethics for businessmen, as ethics applies to all the activities of people. Consequently, we have to keep business within the bounds of ethics.

Question 8. Explain the interface between Ethics and Laws.
Answer:

Ethics and Law: The Interface Law is the application of ethics into social and personal life. All laws are subordinates to ethical values but all ethics may not be covered by law.

• Law has a mandatory outside force behind it while ethics has a moral force inside the person.
• Law is objective while ethics is subjective. What is ethical for one person may not be ethical for some other person whereas the law has to be the same for all persons.
• Perhaps the best way of visualizing ethics and law is in terms of two intersecting domains as depicted in the following figure:
• Thus, in one sense, business ethics can be said to begin where the law ends.
• Business Ethics is primarily concerned with those issues not completely covered by the law, or where there is no definite consensus on whether something is right or wrong.
• Hence, it is often remarked, that business ethics is about the “grey areas” of business where values conflict.

Question 9. “Ethics are desirable for every business.” Comment. Explain the concept of value-free ethics.
Answer:

Need for Business Ethics: Business ethics is currently a very prominent business topic and the debates and dilemmas surrounding business ethics have attracted an enormous amount of attention from different quarters of organizations and society. Hence, it has emerged as an increasingly important area of study.

Some of the major reasons why a good understanding of business ethics is important can be stated as follows:

Value-free Ethics:

It would seem that business is an ethically neutral or value-free activity. In other words, the only value business is concerned with is the monetary value.

• It is not in the interest of business to mix ethical values.
• Ancient Arabic wisdom states, ‘Live together like brothers and do business like strangers.
• Businesses should be kept free from other social relationships and obligations.
• The only successful relationship that exists in business is that of a vendor and a customer.
• It is also said that ‘for the merchant, even honesty is a financial speculation.
• Indeed, for a businessman, every factor in the business is measured in terms of money.
• The volatility that we see in the stock market is a clear example of the speculative nature of business, which is directly proportional to the prevailing attitude of the people.

Concept of Value-free Ethics: Nowadays, we are familiar with ‘sugar-free’ soft drinks, ‘caffeine-free’ coffee, and ‘alcohol-free’ beer.

• The concept of ‘value-free’ business ethics appears to be quite appealing to businessmen.
• It is as though it may be pursued devoid of all rules within a social vacuum.
  The concept of value-free ethics found application in economics in a rather ironic fashion.
• Ludwig von Mises known as the father of the Austrian School of Economics, proposed the pure theory of economics, stating that economic concepts are a priori, that is, they are not dependent on experience but are purely virtual concepts.
• The concept of choice, for instance, is pure.
• It is immaterial whether one chooses water or wine, but the concept in itself is free of such particular elements.
• Hence, the choice is value-free  Applied to ethics, it would mean that we should be able to study the principles of this discipline, such as goodness, truth, justice, honor, etc. in their pure form.

Question 10. Explain Business ethics as professional ethics.
Answer:

• Just as a society functions on the social codes of conduct and a country is governed by its constitution, a business is run on corporate codes.
• In other words, there is a professional code of conduct for any business.
• These codes keep evolving as other things evolve and develop.
• Therefore, not only should business be defined within the confines of
  ethics, but it should be practiced strictly under its professional code of conduct.
• This distinction helps to orient the general principles of ethics and business to a particular activity.
• The principles, however, do not change.

Ethical behavior is particularly important to professions and to business: 

• It matters to the professions because the complexity of what they do means that there has to be trust by the user in what they do, or they have no purpose.
• It matters to business because investors will not back a company that will not report fairly and customers, increasingly, will not buy from a business
• That is not acting in the wider interests of society. Deciding what is the right thing to do can be challenging.
• We all face numerous personal, social, and organizational pressures which influence our decisions and actions.
• Sometimes it is easy to assume that compliance with legislation, regulations policies, and procedures equates to doing the right thing.
• By its nature, a compliance approach to decision-making cannot cover all types of situations and eventualities.
• Even when a specific circumstance is addressed by a rule, compliance is often with the letter of the rule, not its spirit.
• What is needed is a principles-based approach to decision-making, which encourages deliberation, judgment, and responsibility.
• The character of a true professional remains undivided, whether at work or home.
• Our roles may change from time to time and from place to place but the integrity of our character should be maintained.
• Business ethics, thus, professionally adhere to a code of conduct that is by normative principles.
• Further, it may be concretely stated that professionals bear the following marked characteristics:
  1. competency of educational qualification,
  2. professional skills, and
  3. compensation (salary or remuneration, etc.).

Question 11.

1. The ethics of business is the ethics of responsibility. The businessman must promise that he will not harm knowingly’. Explain.
Answer:

Over some time, businesses have developed a code of conduct that creates the greatest good and least harm to its pillars of support viz.

• customers, employees, shareholders, and community. There is a contradiction between ethics and the motive of profit.
• It is now a well-accepted fact that ethical behavior creates a positive reputation that expands profit opportunities.
• A business is not restricted to its various assets viz. Building, Machine, Wand working Capital only but is having a vision and a role, present or prospective to play in society.

To achieve such a goal it needs to make several sacrifices and take responsibilities such as:

• • Creation of awareness within the organization hof ow its products and services are accepted by the consumer, the industry, and society at large.
  • Sacrifice is part of the profit to satisfy legal or other commitments for corporate social responsibility.
  • An organizational culture most likely encourages high ethical standards of risk tolerance, control, and conflict tolerance.
  • Spend on research and other innovations for protecting environmental needs to carry out business or industrial operations.

2. Explain Ethics as a principle.
Answer:

Ethics as a Principle: We have established that social evolution has developed definite principles of civic behavior, which have attained the status of principles.

• By principle, we understand that something proceeds and depends on it for its cause.
• For instance, when one kicks a football, force is the principle that propels it into motion and the ball remains in motion till the force lasts.
• In other words, the physical world functions strictly according to the laws of physics.
• It is expected that people also submit their behavior, both in thoughts and in actions, to these principles.
• An action is valid as long as it reflects the principle, just as the speed of the moving ball depends on the force it receives.

3. What are the seven principles of Public life? Explain.
Answer:

The seven Principles of public life

Question 12. The terms ethics and morals are etymologically different’. Explain
Answer:

Meaning: The terms ‘ethics’ and ‘morals’ are etymological that is, from their very roots or terms, different.

• The word moral(s) is derived from the Latin root moralis, which implies custom.
• In other words, it refers to a behavior that is accepted or rejected due to an accepted social custom.
• The word ethics stems from the Greek word ethikos, which attributes to a social environment, referred to as ethos or social milieu.
• This latter meaning embraces much more than mere custom.
• It refers to everything that is part and parcel of society and not just what is allowed or forbidden
• Morality is more concerned with the norms, values, and beliefs embedded in social processes that define what is right or wrong for an individual or community.
• Another point of difference between the two refers to their usage in ordinary language.
• For instance, a lawyer defending an alleged rapist would accuse the victim as ‘morally fallen’ and not as ‘ethically fallen’.
• On the other hand, a committee that is formed to probe the behavior of the members of Parliament would be called an ‘ethics – committee’, not a ‘moral committee’.
• The meaning of the word is in its usage.
• Thus, both these terms have their unique characteristics and applications. Social conduct has evolved along with the evolution of society.
• When your elders tell you ‘Do not cheat’, they are referring to a social code of conduct.

Question 13. State the evolution of ethics.
Answer:

Social conduct has developed in society over hundreds of years.

• The codes of conduct have been passed down from generation to generation, and there is a pattern to the evolution of such codes.
• Acceptable behavior is promoted and elevated as a social value, and unacceptable behavior is rejected and condemned.
• In ancient India, there was no moral problem with the custom of sati-immolating the wife on the funeral pyre or the deceased husband.
• But society has evolved humanely and has condemned the act as unacceptable and morally reprehensible.
• The laws of a country are based on the customs or moral codes of its society.
• Penalties are prescribed for bad actions, actions that contradict the established laws.
• The laws are a measure against those people who cross the limits of the code of social conduct, and ensure that good citizens are protected from the negative consequences of the law-breakers.

Question 14.‘Fairness and honesty are the pillars of success in business Comment.
Answer:

The success of the business depends very much on fairness and honesty in the business.

• Fairness and honesty are at the heart of business ethics and relate to the general values of decision-makers.
• At a minimum, business professionals and persons are expected to follow all applicable laws and regulations.
• Even then, they are expected not to harm customers, employees, clients, or competitors knowingly through deception,
• misrepresentation, coercion, or discrimination. One aspect of fairness and honesty is related to disclosure of potential harm caused by product use.
• Another aspect of fairness relates to competition.
• Although numerous laws have been passed to foster competition and make monopolistic practices illegal, companies sometimes gain control over markets by using questionable practices that harm competition.
• Rivals of Microsoft, for example, accused the software giants of using unfair and monopolistic practices to maintain market dominance with its Internet Explorer browser.
• These aforementioned examples show that fairness and honesty pay in the long run; they secure the stability of the business and overall reputation in the business world.
• Therefore, we may say that fairness and honesty are the pillars of success in the business.

Question 15. What is ‘Business Ethics’?
Answer:

Business Ethics:

1. According to Andrew Crane: “ Business Ethics is the study of business situations, activities, and decisions where issues of right and wrong are addressed.”
2. Raymond C. Baumhart contends: “The ethics of business is the ethics of responsibility. The businessman must promise that he will not harm knowingly”.

• Thus, Business Ethics (also called Corporate Ethics) is a form of applied ethics or professional ethics that examines ethical principles and moral or ethical problems that arise in a business environment.
• It applies to all aspects of business conduct and is relevant to the conduct of individuals and entire organizations.
• Business ethics concerns itself with adhering to the social principles of the situations in which business takes place.
• The analysis of this definition leads us to the following discussion.
• Thus, Business Ethics (also called Corporate Ethics) is a form of applied ethics or professional ethics that examines ethical principles and moral or ethical problems that arise in a business environment.
• It applies to all aspects of business conduct and is relevant to the conduct of individuals and entire organizations.
• It deals with morality in a business environment. It involves moral judgment based on an understanding of society.
• It extends beyond the legal questions and involves moral judgment based on understanding of the society.
• It extends beyond the legal questions and involves the goodness and badness of an Act.
  1. Business ethics refers to the application of everyday moral or ethical norms to business.
  2. It requires an awareness of how the products and sentences of organizations and the actions of its employees, can affect its stakeholders and society as a whole, either positively or negatively.
  3. Ethics in business organizations relates to a corporate culture of values, leadership programs, and enforcement.
  4. It is that set of principles or reasons that govern the conduct of business at the individual or collective level by the application of ethical reasoning to specific business situations and activities.

Question 16. Explain in brief the measures to ensure ethics in the workplace.
Answer: An ethical company may develop certain basic principles that will guide its employees in dealing with ethical issues at the workplace.

A set of such principles is given below:

 

Question 17. What are the standards of ethical conduct for practitioners fixed by the ICAI?
Answer:

ICAI has promulgated the following standards of ethical conduct for practitioners:

• Maintain at all times independence of thought and action
• Not to express an opinion on cost or financial reports or statements without first assessing her or his relationship with her or his client to determine whether such Member might expect her or his opinion to be considered independent, objective, and unbiased by one who knows all the facts; and
• When preparing cost or financial reports or statements or expressing an opinion on cost or financial reports or statements, disclose all material facts known to such member in order not to make such cost or financial reports or statements misleading, acquire sufficient information to warrant an expression of opinion and report all material misstatements or departures from generally accepted accounting principles.
• Not to disclose or use any confidential information concerning the affairs of such Member’s employer or client unless acting in the course of his or her duties or except when such information is required to be disclosed in the course of any defense of himself or herself or any associate or employee in any lawsuit or other legal proceeding
• Against alleged professional misconduct by order of lawful authority or any committee of the Society in the proper exercise of their duties but only to the extent necessary for such purpose.
• Inform his or her employer or client of any business connections or interests of which such Member’s employer or client would reasonably expect to be informed;
• Not, in the course of exercising his or her duties on behalf of such Member’s
• employer or client, hold, receive, bargain for, or acquire any fee, remuneration, or benefit without such employer’s or client’s knowledge and consent; and
• Take all reasonable steps, in arranging any engagement as a consultant, to establish a clear understanding of the scope and objectives of the work before it is commenced and will furnish the client with an estimate of cost, preferably before the engagement is commenced, but in any event as soon as possible thereafter.
• Conduct himself or herself toward other Members with courtesy and good faith.
• not to accept any engagement to review the work of another member for the same employer except with the knowledge of that member
• Except where the connection of that member with the work has been terminated unless the member reviews the work of others as a normal part of his or her responsibilities;
• Not to attempt to gain an advantage over other members by paying or accepting a commission in securing management accounting work;
• Not to act maliciously or in any other way that may adversely reflect on the public or professional reputation or business of another member;
• At all times maintain the standards of competence expressed by the Institute from time to time;
• Undertake only such work as he or she is competent to perform by his or her training and experience and will, where it would be in the best interests of an employer or client, engage, or advise the employer or client to engage, other specialists;

Question 18. Why business ethics is more important and immensely needed in the present business environment? Discuss.
Answer:

Importance of Ethics:

• The Public expects businesses to exhibit high levels of ethical performance and social responsibility.
• Encouraging business firms and their employees to behave ethically is to prevent harm to society.
• Promoting ethical behavior is to protect businesses from abuse by unethical employees or unethical competitors.
• High ethical performance also protects the individuals who work in business.

Need for business ethics

The following points discuss the need and importance of business ethics-

• To stop business malpractice
• To improve customers’ confidence
• For the survival of business
• To safeguard consumers’ rights
• To protect employees and shareholders
• To develop good relations
• To create a good image
• For smooth functioning
• Consumer movement
• Consumer satisfaction
• Importance of labor
• Healthy competition.

Question 19. What are the areas of business ethics? Write a note of the same.
Answer:

Areas In business ethics:

• Corporate Social Responsibility;
• Fiduciary responsibility to stakeholders;
• Industrial espionage.
• Ethical behavior and corporate
• social responsibility can bring significant benefits to a business.

For example, they may:

• Attract customers to the firm’s products, which means boosting sales and profits
• make employees want to stay with the business, reduce labor turnover, and therefore increase productivity
• Attract more employees wanting to work for the business, reduce
  recruitment costs and enable the company to get the most talented employees
• Attract investors and keep the company’s share price high, thereby protecting the business from takeover.

Knowing that the company, they deal with, has stated their morals and made a promise to work ethically and responsibly allows investors peace of mind that their money is being used in a way that arranges with their moral standing.

• When working for a company with strong business ethics, employees are comfortable in the knowledge that they are not by their action allowing unethical practices to continue.
• Customers are at ease buying products or services from a company they know to source their materials and labor ethically and responsibly.
• A company that sets out to work within its ethical guidelines is also less at risk of being fined for poor behavior, and less likely to find themselves in breach of one of a large number of laws concerning required behavior.
• Reputation is one of a company’s most important assets, and one of the most difficult to rebuild should not be lost.
• Maintaining the promises it has made is crucial to maintaining that reputation.
• Businesses not following any kind of ethical code or carrying out their social responsibility leads to wider consequences.
• Unethical behavior may damage a firm’s reputation and make it less appealing to stakeholders.
• This means that profits could fall as a result.
• The natural world can be affected by a lack of business ethics.
• For example, a business that does not show care for where it disposes of its waste products or fails to take a long-term view
• when buying up land for development is damaging the world in which every human being lives, and damaging the prospects of all companies.

Question 20. Discuss the nature and relevance of Ethics to the Business.
Answer:

Ethics – Nature and relevance to the business

• Several factors play a role in the success of a company that is beyond the scope of financial statements alone. Organizational culture, management philosophy, and ethics in business each have an impact on how well a business performs in the long term.
• No matter the size, industry or level or profitability of an organization, business ethics are one of the most important aspects of long-term success
• The management team sets the tone for how the entire company runs on a day-to-day basis.
• When the prevailing management philosophy is based on ethical practices and behavior, leaders within an organization can direct employees by example and guide them in making decisions that are not only beneficial to them as individuals but also to the organization as a whole.
• Building on a foundation of ethical behavior helps create long-lasting positive effects for a company, including the ability to attract and retain highly talented individuals and build and maintain a positive reputation within the community.
• Ethically running a business from the top down builds a stronger bond between individuals on the management team, further creating stability within the company.
• When management is ethically leading an organization, employees follow in those footsteps.
• Employees make better decisions in less time with business ethics as a guiding principle; this increases productivity and overall employee morale.
• When employees complete work in a way that is based on honesty and integrity, the whole organization benefits.

Employees who work for a corporation that demands a high standard of business ethics in all facets of operations are more likely to perform their job duties at a higher level and are also more inclined to stay loyal to that organization.

• The importance of business ethics reaches far beyond employee loyalty and morale or the strength of a management team bond.
• As with all business initiatives, the ethical operation of a company is directly related to profitability in both the short and long term.
• The reputation of a business from the surrounding community, other businesses, and individual investors is paramount in determining whether a company is a worthwhile investment.
• If a company’s reputation is less than perfect based on the perception that it does not operate ethically, investors are less inclined to buy stock or otherwise support its operations.
• With consistent ethical behavior comes an increasingly positive public image, and there are few other considerations as important to potential investors and current shareholders.
• To retain a positive image, businesses must be committed to operating on an ethical foundation
• it relates treatment of employees, respect for the surrounding environment, and fair market practices in terms of price and consumer treatment.

Question 21. “Ethics is the first line of defense against corruption, while law enforcement is remedial and reactive. However, both fail to achieve the desired aim in the Indian set-up.” Do you agree? Give reasons in support of your answer.
Answer:

It is, absolutely correct to say that ethics is the first line of defense against corruption. What prevents corruption in the first place is ethics.

• The enforcement of the law is a reaction to the occurrence of corruption.
• While the law can only lay down the do’s and don’ts and the consequences of doing or not doing something.
• Compliance with the law in letter and spirit can be achieved only through ethical practices.
• An act may be perfectly legal but unethical.
• Therefore, the statement law enforcement is remedial and reactive is also true.
• However, ethics is not absolute and is open to the influence of time, place, and situation.
• Certain unethical practice because is widely prevalent is justified.

The following are some of the factors that have contributed to the prevalence of corruption in India:

1. Cultural ethos: Putting a premium on materialism, profiteering, power play, and casual attitude for ethical values.
2. Myopic concern overrides long-term considerations and values.
3. Institutional failures: Procedural formalities in-built obstacles, bureaucratic red-tapism, etc.
4. Poor enforcement of law: Delay injustice.
5. Erosion of values in politicians, entrepreneurs political lobbying etc.

Question 22. What is a Value Chain? What are the new themes and challenges that managers face currently?
Answer:

The value chain is a visualization of complete business as a sequence of activities in which usefulness is added to the products or services produced and sold by an organization.

• Management accountants provide decision support for managers in each activity of the value chain.
• The design of the management accounting system has to take into consideration the decision needs of the managers.

Also, it has to take into consideration the new themes and challenges that managers face currently.

• Customer focus: The challenge for managers it invest sufficient resources to enhance customer satisfaction. However, every action of the organization has to result in enhanced profitability or maintained profitability for the organization.
• Key Success Factors: These are nonfinancial factors that affect the economic viability of the organization. Cost, quality, time, and innovation are important key success factors.
• Continuous Improvement: Continuous improvement or kaizen is a popular theme. Innovation related to this area of costing is kaizen costing,
• Value Chain and Supply Chain Analysis: Value chain as a strategic framework for analysis of competitive advantage was promoted by Michael Porter.

Question 23. Discuss the importance of ethics.
Answer:

Importance Of Ethics:

• Ethics is a requirement for human life.
• It is our means of deciding a course of action.
• Without it, our actions would be random and aimless.
• There would be no way to work towards a goal because there would be no way to pick between a limitless number of goals. Even with an ethical standard, we may be unable to pursue our goals with the possibility of success.
• To the degree to which a rational ethical standard is taken, we can correctly organize our goals and actions to accomplish our most important values.
• Any flaw in our ethics will reduce our ability to be successful in our endeavors.
• A proper foundation of ethics requires a standard of value to which all goals and actions can be compared.
• This standard is our own lives and the happiness which makes them livable.
• This is our ultimate standard of value, the goal for which an ethical man must always aim.
• It is arrived at by an examination of man’s nature, and recognizing his peculiar needs.
• A system of ethics must further consist of not only emergencies but the day-to-day choices we make constantly.
• Ethics is the area of philosophy concerned with the evaluation of human conduct.
• It must include our relations to others, and recognize their importance not only to our physical survival but to our wellbeing and happiness.
• It must recognize that our lives are an end in themselves, and that sacrifice is not only necessary but destructive.

Access la tatangital

It means gaining entry into a computer, computer system or computer network. [Section 2(1)(a)].

Addressee

It means a person who is intended by the originator to receive the electronic record or the information sent via a computer system. However, the definition does not include any intermediary. [Section 2(1)(b)].

Affixing Electronic Signature

‘Affixing electronic signature’ means authentication of an electronic record by means of digital signature. [Section 2(1)(d)] This indicates his authority as well as the authenticity of the document.

Asymmetric Crypto System

‘Asymmetric Crypto System’, according to the definition of Section 2(1)(f) of the Information Technology Act, 2000, means a key pair that provides safety and authenticity to the electronic records being transmitted.

The key pair consists of a public and a private key, both of which are needed to ‘sign’ an electronic document digitally.

Communication Device

The definition includes cell phones, personal digital assistance devices or a combination of both or any other device used to communicate, send or transmit text, video, audio information or even an image. [Section 2(1) (ha)]

Learn and Read More CS Executive JIGL Question and Answers

Computer

The definition includes any electronic, magnetic, optical or other high-speed data processing device or system that performs logical, arithmetic, and memory functions, by way of manipulations of electronic, magnetic or optical Data.

It includes all input, output, processing, storage, computer software, or communication facilities which are connected or related to the computer in a computer system or computer network. [Section 2(1)(i)]

Computer Resource

It means and includes a computer, computer system, computer network, data, computer database or software. [Section 2(1)(k)]

Computer System

It means a device or collection of devices, including input and output support devices and excluding calculators which are not programmable and capable of being used in conjunction with external files, which contain computer programmes, electronic instructions, input data, and output data, that performs logic, arithmetic, data storage and retrieval, communication control and other functions. [Section 2(1)(I)]

Communication Device

It includes all devices used to convey or communicate any text, video, audio or image, like cell phones or other digital communication devices. [Section 2(1) (ha)].

Computer Network

It is the interconnection of one or more computers through satellite, microwave, terrestrial line or other communication media; and includes terminals or a complex consisting of two or more interconnected computers.

The definition includes all these elements even if the interconnection is not continuously maintained. [Section 2(1)(j)]

Cyber Cafe

It means any facility that offers access to internet to the public, in the ordinary course of business. [Section 2(1)(na)].

Cyber Security

It implies protecting information, equipment, devices, computer, computer resource, communication device and information stored therein from unauthorised access, use, disclosure, disruption, modification or destruction. [Section 2(1)(nb)].

It ensures the authenticity and safety of information, so that it can be relied upon by users.

Digital Signature

‘Digital Signature’ is defined in Section 2(1)(p). This definition provides for Electronic means of validating of electronic records by the procedure prescribed under the Information Technology Act, 2000.

Domain Name

‘Domain Name’ is a unique address pertaining to a website. This is where all communications using the net will be addressed. It helps to register the domain name as the address then becomes exclusive and identifies the company or person whose website it is. It also makes finding the company online easier.

Offences and penalties under the Act

‘Electronic Record’ as per Section 2(1)(t) includes information recorded by way of data or images in electronic form and recorded in any media, viz,microfilm, microfiche etc.

Electronic Signature

It is a means of authenticating electronic records by a subscriber by means of affixing digital signature. It is as per the Second Schedule to the Act. [Section 2(1)(ta)]

Electronic Signature Certificate

It means an Electronic Signature Certificate issued under Section 35. It is inclusive of a Digital Signature Certificate. [Section 2(1)(tb)].

Hacking

‘Hacking’ means causing or attempting to cause loss or damage to anyone by removing or changing any information stored in a computer system or allied resources. This is done by unauthorized access of the information.

The punishment for hacking is imprisonment upto three years, or fine upto rupees two lacs, or both. (Section 66)

Information

It includes data, message, text, images, sound, voice, codes, computer programmes, software and data bases or micro film or computer generated micro fiche. [Section 2(1)(v)].

Intermediary

Intermediary in context of electronic records means any person who receives, stores or transmits that record on behalf of another person or provides any service with respect to that record.

The definition includes telecom service providers, network service providers, internet service providers, web hosting service providers, search engines, online payment sites, online-auction sites, online-market places and cyber cafes; [Section 2(1)(w)]

Key Pair

The Key Pair consists of a public and a private key, both of which are needed to ‘sign’ an electronic document digitally. [Section 2(1)(x)]

Network Service Providers

‘Network Service Providers’ have been defined in Section 2(1)(w) of the Information Technology Act, 2000. These are intermediaries who do not initiate the creation or passing off a message but help in providing facilities for the same.

Originator

‘Originator’ means a person who sends or initiates an electronic message. This excludes all intermediaries who just act as a link between the sender and recipient of messages. [Section 2(1)(za)]

This definition helps to judge the authenticity of messages, i.e. if a message has been sent by a known originator, then it can be deemed to be authentic.

Passing off

‘Passing off’, although not defined in the Act, means using the domain name registered by someone else in his name. This is punishable as a tort, as it might result in financial and other losses to the person who is the original owner of the domain name.

For example, a company opening a website to market its products might face losses if another company uses a similar name to market similar products.

Private Key

It is the key of a key pair that is used to create a digital signature. [Section 2(1)(zc)]

Public key

It is the key of a key pair, used to verify a digital signature and listed in the Digital Signature Certificate. [Section 2(1)(zd)] acheall to

Secure system

‘Secure system’ means computer hardware, software, and procedures that-

1. are reasonably secure from unauthorised access and misuse;
2. provide a reasonable level of reliability and correct operation;
3. are reasonably suited to performing the intended functions; and
4. adhere to generally accepted security procedures; It is deemed to be secure when it is as per the requirements of Section 15 of the Information Technology Act, 2000.

They are as under – If the signature is unique and controlled by the person affixing it.

It distinguishes the subscriber, i.e. the person affixing or using it. It is so linked with the electronic record to which it is attached that if the record were changed in any way, doing so would nullify the authenticity or veracity of the signature.

Verify

To verify a digital signature or electronic record means to determine whether –

1. the initial electronic record was affixed with the proper digital signature by the use of the right and authorized private and public key combination of the subscriber; and that
2. the initial electronic record is retained intact, or
3. if it has been altered since, such electronic record was so affixed with the proper digital signature. [Section 2(1)(zh)].

Descriptive Questions

Question 1: Explain the provisions for renewal of licence of Certifying Authority as per Information Technology Act, 2000.
Answer:

Renewal of license:

A Certifying Authority can apply for renewal of license not less than forty-five days before the date of expiry of the period of validity of licence and comply all the rules of Information Technology (Certifying Authorities) Rules, 2000 which are applied in case of fresh application for becoming certifying Authority.

The Controller may, on receipt of an application for appointment as certifying authority, after considering the documents accompanying the application and such other factors, as he deems fit, grant the licence or reject the application.

No application for becoming certifying Authority shall be rejected under unless the applicant has been given a reasonable opportunity of presenting his case.

Question 2: Comment on the punishment for publishing or transmitting obscene material in electronic form as stated in section 67 of Information Technology Act, 2000. 
Answer:

Punishment for Publishing or Transmitting of material obscene material in electronic form:

As per Section 67 of the Information Technology Act, 2000 whoever publishes or transmits or causes to be published or transmitted in the electronic form, any material which is lascivious or appeals to the prurient interest or if its effect is such as to tend to deprave and corrupt persons who are likely, having regard to all relevant circumstances, to read, see or hear the matter contained or embodied in it, shall be punished on first conviction with imprisonment of either description for a term which may extend to three years and with fine which may extend to five lakh rupees and in the event of second or subsequent conviction with imprisonment of either description for a term which may extend to five years and also with fine which may extend to ten lakh rupees.

Question 3: Discuss ‘Digital Signature’ and ‘Electronic Signature’ under the Information Technology Act, 2000.
Answer:

‘Digital Signature’ and ‘Electronic Signature’ under the Information Technology Act, 2000

‘Digital signature’ is defined in Section 2(1)(p). This definition provides for electronic means of validating of electronic records by the procedure prescribed under the Information Technology Act, 2000.

This is done with the help of a signature in electronic form, which is registered with the Certifying Authority under the Act. Affixing electronic signature ‘Affixing electronic signature’ means authentication of an electronic record by means of digital signature [Section 2(1)(d)].

This indicates the signatory’s authority as well as the authenticity of the document. Section 3A of the Act provides for authentication of electronic records with the aid of digital signature or other electronic authentication technique.

Question 4: Discuss the liability of Corporate body for data protection under Information Technology Act, 2000.
Answer: 

The liability of Corporate body for data protection under Information Technology Act, 2000

Section 43A of the Information Technology Act, 2000 lays responsibility of maintaining the security of sensitive personal data or information contained in its computers resources.

If, because of insufficient security, there is some loss of such data, or a wrongful gain to a party from such data, the corporate body shall be liable to pay compensation by way of damages to the person who suffers a loss because of such negligence to maintain security.

Security here implies maintaining data integrity as well as restraining unauthorized access to such data. Usually, there is a clause to this effect in the contract signed between the party giving such information and the corporate body receiving it.

Question 5: If any person dishonestly or fraudulently does any act under section 43 of Information Technology Act, 2000 without the permission of the owner or any other person, who is incharge of a computer, computer system network, he shall be punished. What is the punishment for this offence? In brief, discuss the offences listed in The IT Act relating to computer and computer system network.
Answer:

If any person, dishonestly or fraudulently, does any act referred to in Section 43 of the Information Technology Act, 2000, he shall be punishable with imprisonment for a term which may extend to three years or with fine which may extend to five lakh rupees or with both. (Section 66 of the Information Technology Act, 2000)

The offences listed in the Information Technology Act, 2000 are as follows:

• Dishonestly receiving stolen computer resource or communication device
• Identity theft
• Cheating by personation by using computer resource
• Violation of privacy
• Cyber terrorism
• Publishing or transmitting of material containing sexually explicit act, etc., in electronic form
• Publishing or transmitting of material depicting children in sexually explicit act, etc., in electronic form
• Misrepresentation
• Breach of confidentiality and privacy
• Disclosure of information in breach of lawful contract
• Publishing electronic signature Certificate false in certain particulars
• Publication for fraudulent purpose.

Question 6: Describe the documents or transactions to which the Information Technology Act, 2000 shall not apply. (4 marks)
Answer:

Following documents or transactions to which the Information Technology Act, 2002 shall not apply:

1. A negotiable instrument (other than a Cheque) as defined in section 13 of the Negotiable Instruments Act, 1881.
2. A power-of-attorney as defined in section 1A of the Powers-of-Attorney Act, 1882.
3. A trust as defined in section 3 of the Indian Trust Act, 1882.
4. A will as defined in clause (h) of section 2 of the Indian Succession Act, 1925, including any other testamentary disposition by whatever name called.
5. Any contract for the sale or conveyance of immovable property or any interest in such property.

Question 7:Discuss the provisions of Sections 14 and 15 of Information Technology Act, 2000, on secure electronic records.
Answer:

Secure Electronic Records:

‘Asymmetric Crypto System’, according to the definition of Section 2(1)(f) of the Information Technology Act, 2000, means a key pair that provides safety and authenticity to the electronic records being transmitted.

The key pair consists of a public and a private key, both of which are needed to ‘sign’ an electronic document digitally.

Secure System:

‘Secure system’ means computer hardware, software, and procedures that-

1. are reasonably secure from unauthorised access and misuse.
2. provide a reasonable level of reliability and correct operation.
3. are reasonably suited to performing the intended functions; and
4. adhere to generally accepted security procedures.

When the security procedure has been applied to an electronic record at a specific point of time, then such record is deemed to be a secure electronic record, from such point of time to the time of verification. (Section 14) It is deemed to be secure when it is as per the requirements of Section 15 of the Information Technology Act, 2000. They are as under –

• If the signature is unique and controlled by the person affixing it.
• It distinguishes the subscriber, i.e. the person affixing or using it.
• It is so linked with the electronic record to which it is attached that if the record were changed in any way, doing so would nullify the authenticity or veracity of the signature.

Question 8 : Explain the procedure for obtaining ‘Electronic Signature Certificate’ under the Information Technology Act, 2000.
Answer:

Procedure for obtaining an Electronic Signature Certificate it means an Electronic Signature Certificate issued under Section 35. It is inclusive of a Digital Signature Certificate. [Section 2(1) (tb)].

These are dealt with in Section 35-39 of the Act. Section 35 of the Act authorises the Certifying authority to issue electronic signature certificates.

Application-Whoever requies a DSC or electronic signature may apply in the prescribed form, along with the requisite fees, to the Certifying Authority. The form and fees for such is prescribed by the Central Government.

The application shall also have attached to it a certification practice statement or a statement containing such particulars as are specified by regulations.

On the receipt of such an application and after due enquiries, the Certifying Authority may grant or reject the electronic signature Certificate. In the case of the latter, the reasons have to be recorded in writing.

However, no application shall be summarily rejected, without adequate reasons for the same.

Question 9: Elaborate the offences relating to computers and connected matters therein.
Answer:

Offences related to computers and related matters:

The Information Technology Act, 2000 provides for penalties adjudicated before adjudication officers, as per Sections 43-47, for offences related to computers and related matters.

Section 43 also talks of “penalty and compensation for damage to computer, computer system”. Section 43 of the Act provides for penalty for damages inflicted on a computer or computer resource, without the owner’s permission or knowledge.

The damages are to be paid by way of compensation upto an amount of rupees one crore.

The offences it covers are as follows:

If anyone:

• accesses or secures access to such computer, computer system or computer network or computer resource;
• downloads, copies or extracts any data, computer data base or information from such computer, computer system or computer network including information or data held or stored in any removable storage medium;
• introduces or causes to be introduced any computer contaminant or computer virus into any computer, computer system or computer network;
• damages or causes to be damaged any computer, computer system or computer network, data, computer data base or any other programmes residing in such computer, computer system or computer network;
• disrupts or causes disruption of any computer, computer system or computer network; (f) denies or causes the denial of access to any person authorised to access any computer, computer system or computer network by any means;
• provides any assistance to any person to facilitate access to a computer, computer system or computer network in contravention of the provisions of this Act, rules or regulations made thereunder;
• charges the services availed of by a person to the account of another person by tampering with or manipulating any computer, computer system, or computer network;
• destroys, deletes or alters any information residing in a computer resource or diminishes its value or utility or affects it injuriously by any means;
• steal, conceal, destroys or alters or causes any person to steal, conceal, destroy or alter any computer source code used for a computer resource with an intention to cause damage; he shall be liable to pay damages by way of compensation to the person so affected.”

As per Section 65 in The Information Technology Act, 2000, “whoever knowingly or intentionally conceals, destroys or alters or intentionally or knowingly causes another to conceal, destroy, or alter any computer source code used for a computer, computer programme, computer system or computer network, when the computer source code is required to be kept or maintained by law for the time being in force, shall be punishable with imprisonment up to three years, or with fine which may extend up to two lakh rupees, or with both.”

Question 10: What is the liability of network service provider for contravention of Information Technology Act, 2000?
Answer:

The liability of network service provider for contravention of Information Technology Act, 2000

‘Network service providers’ have been defined in Section 2(1)(w) of the Information Technology Act, 2000. These are intermediaries who do not initiate the creation or passing off a message but he’p in providing facilities for the same.

They can help in the receiving or sending of a message on behalf of another.

Section 79 of the Act exempts them from liability they might incur for the actions of third parties making use of their services and doing something that is expressly prohibited under the Act.

The standard defenses of network service providers would be that they exercised due care and the contravention did not occur with their knowledge or negligence.

Distinguish Between

Question.1: Distinguish between hacking and passing off.
Answer:

Difference between hacking and passing off

Question 2: Distinguish between ‘Computer network’ and ‘Computer system’.
Answer:

Difference between ‘Computer network’ and ‘Computer system’

Descriptive Questions

Question.1: Define the following terms

• Electronic record
• Digital signature
• Originator
• Asymmetric crypto system
• Network service providers
• Domain name

Answer:

‘Electronic record’ as per Section 2(1)(t) includes information recorded by way of data or images in electronic form and recorded in any media, viz, microfilm, microfiche etc.

Section 4 of the Information Technology Act, 2000 provides that information provided in electronic form, including but not limited to data, images, databases, texts etc., will be given the same importance and legal recognition as is given to written, printed or typewritten information.

‘Digital signature’ is defined in Section 2(1)(p). This definition provides for electronic means of validating of electronic records by the procedure prescribed under the Information Technology Act, 2000.

This is done with the help of a signature in electronic form, which is registered with the Certifying Authority under the Act.

‘Originator’ means a person who sends or initiates an electronic message. This excludes all intermediaries who just act as a link between the sender and recipient of messages. [Section 2(1)(za)]

This definition helps to judge the authenticity of messages, i.e. if a message has been sent by a known originator, then it can be deemed to be authentic.

‘Asymmetric cryptosystem’, according to the definition of Section 2(1)(f) of the Information Technology Act, 2000, means a key pair that provides safety and authenticity to the electronic records being transmitted.

The key pair consists of a public and a private key, both of which are needed to ‘sign’ an electronic document digitally.

‘Network service providers’ have been defined in Section 2(1)(w) of the Information Technology Act, 2000. These are intermediaries who do not initiate the creation or passing off a message but help in providing facilities for the same.

They can help in the receiving or sending of a message on behalf of another. Section 79 exempts them from liability they might incur for the actions of third parties making use of their services and doing something that is expressly prohibited under the Act.

The standard defenses of network service providers would be that they exercised due care and the contravention did not occur with their knowledge or negligence.

‘Domain name’ is a unique address pertaining to a website. This is where all communications using the net will be addressed. It helps to register the domain name as the address then becomes exclusive and identifies the company or person whose website it is. It also makes finding the company online easier.

Question.2: When is a digital signature deemed to be secure?
Answer:

A digital signature deemed to be secure

‘Digital signature’ is defined in Section 2(1)(p). This definition provides for electronic means of validating of electronic records by the procedure prescribed under the Information Technology Act, 2000.

This is done with the help of a signature in electronic form, which is registered with the Certifying Authority under the Act.

It is deemed to be secure when it is as per the requirements of Section 15 of the Information Technology Act, 2000. They are as under:

• If the signature is unique and controlled by the person affixing it.
• It distinguishes the subscriber, i.e. the person affixing or using it.

It is so linked with the electronic record to which it is attached that if the record were changed in any way, doing so would nullify the authenticity or veracity of the signature.

Question.3: Define hacking and explain its effects.
Answer:

Hacking

‘Hacking’ means causing or attempting to cause loss or damage to anyone by removing or changing any information stored in a computer system or allied resources. This is done by unauthorized access of the information.

The punishment for hacking is imprisonment upto three years, or fine upto rupees two lacs, or both. (Section 66 of the Information Technology Act, 2000). Hacking definitely affects the financial returns of a company, since the hacker takes a large slice of the profits.

It might also cause loss of reputation to the company whose Id is hacked, or it may even cause company secrets to be brought out into the open if the confidential information of the company is accessed.

Question.4: Explain the terms ‘computer contaminant’ and ‘computer virus’.
Answer:

The terms ‘computer contaminant’ and ‘computer virus’

The terms are contained in Section 43 of the Information Technology Act,2000. ‘Computer contaminant’ means a program or a series of commands given to a computer that alters, deletes or releases programs within the computer and in doing so alters the ordinary working of the system or network. (Explanation to the section)

‘Computer virus’ means a program, set of instructions or information set into a computer to affect its functioning in any way. It operates by affixing itself to the computer’s resources and replicating itself when a program is run.

Section 43 of the Act provides for penalty for damages inflicted on a computer or computer resource, without the owner’s permission or knowledge. The damages are to be paid by way of compensation upto an amount of rupees one crore.

Question.5: When can a digital signature be revoked?
Answer:

According to the Information Technology Act, 2000, Section 38, a digital signature can be revoked by the Certifying Authority under the following circumstances –

• When the person in whose name it has been registered requests, by himself or through an authorized representative, and gives it in writing that he wishes for it to be cancelled.
• When the subscriber expires.
• When he becomes insolvent.
• When the company or firm that is the subscriber is wound up or dissolved.
• When the Certifying Authority is of the opinion that the certificate has been obtained by misrepresentation of a material fact or by fraud.
• When some essential requirement for obtaining the certificate has not been fulfilled.
• When the private key of the certificate has been breached.

In all the cases where the revocation takes place by an action taken suo motu by the Certifying Authority, the subscriber will be given an opportunity
of being heard, and upon the revocation of the certificate, the subscriber will be intimated of the fact.

Practical Questions

Question.1 : Amrish was found guilty of damaging the data stored in a computer. The adjudicating officer fined him ₹ 1,00,000 and directed the amount to be paid to the aggrieved person. Advise Amrish about the course of action against this decision under the Information Technology Act, 2000.
Answer:

Amrish has the right to file an appeal to the Cyber Appellate Tribunal (CAT) against the order passed by the adjudicating officer. The limitation period for filing the appeal is forty-five days. If he is unsatisfied with the order passed by the CAT, he may prefer an appeal to the High Court within a period of sixty days.

However, since under Section 43 of the Act, damaging data stored in a computer is liable to be punished with a penalty not exceeding one crore rupees, the remedy will only work in his favor if it is proven that he is not guilty of the offence.

Question.2: Abhay downloaded secret data from the computer network of a foreign company engaged in the manufacture of aircrafts. He was prosecuted and fined One lakh by the adjudicating officer under section 43 of the Information Technology Act, 2000. Is any remedy available to Abhay?Advise.
Answer:

Abhay has the right to file an appeal to the Cyber Appellate Tribunal (CAT) against the order passed by the adjudicating officer. The limitation period for filing the appeal is forty-five days. If he is unsatisfied with the order passed by the CAT, he may prefer an appeal to the High Court within a period of sixty days.

However, since under Section 43 of the Act, downloading secret data stored in a computer is liable to be punished with a penalty not exceeding one crore rupees, the remedy will only work in his favor if it is proven that he is not guilty of the offence.

Question.3: Chanchal sues Indian Online Ltd. (IOL) for allowing a subscriber Rajat to use its chatroom for making video tapes and photographs of child pornography in which Chanchal’s minor son appears. The complaint alleged that IOL was negligent per se in allowing Rajat to use its facilities for producing obscene materials, therefore, is liable under criminal law and under the Information Technology Act, 2000. IOL contends that it has no knowledge of such transmission of unlawful information. Decide the liability of IOL.
Answer:

‘Network service providers’ have been defined in Section 2(1)(w) of the Information Technology Act, 2000. These are intermediaries who do not initiate the creation or passing off a message but help in providing facilities for the same.

They can help in the receiving or sending of a message on behalf of another. Section 79 exempts them from liability they might incur for the actions of third parties making use of their services and doing something that is expressly prohibited under the Act.

The standard defenses of network service providers would be that they exercised due care and the contravention did not occur with their knowledge or negligence.

Hence, IOL, being a network service provider, can prove that the offence did not occur because of their negligence. Hence, they would not be liable for the subscriber and hence not punishable.

Registration

Registration means recording of the contents of a document with a Registering Officer and preservation of copies of the original document.

Documents whose registration is optional

These are as under:

• Instruments that create, extinguish or alter any right or interest in immovable property exceeding rupees one hundred in value.
• Instruments that recognize the receipt of any recompense for the above.
• Instruments that create, extinguish or alter any right or interest in movable property.
• Leases for which registration is exempted and the period of which is less than a year.
• Wills
• Instruments create, extinguish or alter any right or interest in immovable property for less than rupees hundred.

Documents of which registration is compulsory

Section 28 of The Registration Act, 1908 provides that all documents mentioned in Section 17 as compulsorily registrable would be registered in the office of the sub-registrar in whose jurisdiction or sub-district the property or a part of it is located.

According to Section 17 of the Act, documents relating to creation, diminution or alteration of rights related to immovable property, if not registered, will not have the same effect as it would have had if it had been registered.

Moreover, no document pertaining to any change in right or liability relating to immovable property of Rupees hundred or more may be affected unless it is through a duly registered instrument.

Hence, the oral grant will not be allowed and will carry no effect. Section 2(6) of the Registration Act, 1908 defines the term “immovable property”as including: “

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land, buildings, hereditary allowances, rights to ways, lights, ferries, fisheries or any other benefit to arise out of land, and things attached to the earth, or permanently fastened to anything which is attached to the earth, but not standing timber, growing crops nor grass.”[Supreme Court in Anand Behra v. State of Orissa].

Any document covered under section 17, if not registered, will not have the same effect as it would have had if it had been registered.

Unstamped document

In case the stamp is not of proper amount or description, the document is deemed to be unstamped; the presentation is still deemed to be good though. For such presentation, penalty can be levied under the Stamp Act [Mahaliram v. Upendra Nath].

As per Section 35 of the Indian Stamp Act, 1899, an instrument not duly stamped is inadmissible as evidence. However, it does not become void. Upon payment of duty with the penalty amount, the unstamped instrument becomes valid and admissible as evidence. (Section 35).

Re-registration

Section 23A provides for the re-registration of certain documents. The section is mainly intended to deal with situations where the original presentation was by a person not duly authorized; when presented by the right party, it is deemed to be properly registered.

Time limit for presentation

A document other than a will is to be presented within four months of its execution, in order to be registered validly. A decree is also to be registered within this time period, counting from the date of the decree.

In cases of urgent necessity and on sufficient cause, the period is eight months, but higher fee has to be paid (Sections 23-26). The time limits prescribed by the Act are mandatory [Ram Singh v. Jasmer Singh].

Several executants

Section 24 provides that if several persons execute a document at different times, it may be presented for registration and re-registration within four months from the date of each execution.

The registration, however, is deemed to be partial in regard to each party.

Documents executed out of India
According to Section 26, when the registering officer is satisfied that the document is executed outside India and presented for registration within four months after its arrival in India, he may accept such document for registration on payment of proper registration fee.

A document executed outside India is not held valid and effective unless is registered in India [Nainsukhdas v. Gowardhandas].

Place of registration of documents related to land and other property

Sections 28 and 29 of Act cover the provisions for the place of registration of documents related to land and other property. According to Section 17 of the Act, documents relating to creation, diminution or alteration of rights related to immovable property, if not registered, will not have the same effect as it would have had if it had been registered.

Section 28 provides that all documents mentioned in Section 17 as compulsorily registrable would be registered in the office of the sub-registrar in whose jurisdiction or sub-district the property or a part of it is located.

Any other document would be registered in the office of the Sub-Registrar within whose jurisdiction the document was executed, or where the persons who are executing the document want it to be registered.

Section 29 provides for all other documents, for example, a decree or court order needs to be presented in the office of the sub-registrar where the decree or order was executed, or at the place where the persons in whose favor the decree has been passed want it to be registered.

Registration Act, 1908 Descriptive Questions

Question 1 Is a ‘will’ required to be registered under the Registration Act, 1908? State the benefits of registration of a will, if any.
Answer:

Wills are included in Section 18 of the Registration Act, 1908. This section says that the registration of a will is optional and that if unregistered, it will not be rendered invalid or inoperative.

Section 27 provides for the method of presentation of wills for registration; it says that a will can be presented for registration anytime after it is made. The actual process is given under Part VIII and IX of The Registration Act, 1908, Sections 40 to 43.

The provisions are as under Section 40 – Who can present the will for registration – The following can present it for registration:

• Executor
• Representative of Executor
• Assignee of Executor
• Agent of Executor
• Testator, or after his death by any person claiming as executor or otherwise.

Section 41 – The authority to which the will is presented will check to see whom the will was presented by, and also whether the person presenting it had the authority to do so. He will check also if the testator has expired.

Section 42 The will can be deposited personally or by authorizing someone for this act. It has to be given in a sealed envelope, with the name of the testator on the envelope, the name of the testator’s agent, if he had authorized someone to be his agent, and a brief description about the nature of the document contained in the envelope.

Section 43 – The Registrar, on being satisfied, shall enter the details in his Register No. 5 and place and retain the sealed cover in his fireproof box.

Question 2: State the effect of non-registration of documents required to be registered under the Registration Act, 1908.
Answer:

The effects of non-registration of documents that require registration are detailed in Section 49 of The Registration Act, 1908. It provides for the following effects:

1. The document cannot cause any changes in the rights to or interest in any immovable property.
2. It will not be admitted as evidence of any transaction mentioned in the document, as per the Indian Evidence Act, 1872.

Any document covered under Section 17, if not registered, will not have the same effect as it would have had if it had been registered. However, such a document can subsequently be registered on payment of penalty.

Question 3 What are the documents which are compulsorily registrable under the Registration Act, 1908?

1. What is the effect of non-registration of compulsorily registrable documents under the Registration Act, 1908?
2. What are the cases in which a compulsorily registrable document can be used in evidence, even if it has not been registered?
   

Answer:

Section 17 of the Indian Registration Act 1908, deals with the documents that are compulsory to be registered. The section runs as
follows:

Section 17-Indian Registration Act, 1908

he following documents shall be registered, if the properties to which they relate is situate in a district in which, and if they have been executed on or after the date on which Act No. XVI of 1864, of the Indian Registration Act 1866, or the Indian Registration Act 1871, or the Indian Registration Act 1877, or the this Act came or comes into force, namely:

1. instruments of gift of immoveable property;
2. other non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees and upwards, to or in immoveable property;
3. non-testamentary instruments which acknowledge the receipt or payment of any consideration on account of the creation, declaration, assignment, limitation or extinction of any such right, title or interest; and
4. leases of immoveable property from year to year, or for any term exceeding one year, or reserving a yearly rent;
5. non-testamentary instruments transferring or assigning any decree or order of a Court or any award when such decree or order or award purports or operates to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees and upwards, to or in immoveable property.

The effects of non-registration of documents that require registration are detailed in Section 49 of the Registration Act, 1908. It provides for the following effects:

• The document cannot cause any changes in the rights to or interest in any immovable property.
• It will not be admitted as evidence of any transaction mentioned in the document, as per the Indian Evidence Act, 1872.

Any document covered under Section 17, if not registered, will not have the same effect as it would have had if it had been registered. However, nothing in this section shall affect the inclusion as evidence in a suit for specific performance.

Such a document can be subsequently stamped and be treated as an instrument valid ab initio.

However, under Section 53A of the Transfer of Property Act, 1882, an unregistered document may be admitted as evidence in a case where the document is proof of part performance of a contract and a proof also of the fact that the plaintiff has performed or is willing to perform his part of the deal.

Ordinarily, as per the Registration Act, 1908, an unregistered document which comes within Section 17 cannot be used in any legal proceeding to create directly or indirectly the effect which it would have if registered.

However, as provided in the proviso to Section 49, an unregistered document affecting immovable property and required to be registered may be received as evidence of a contract in a suit for specific performance or as evidence of part performance of a contract as per Section 53A of the Transfer of Property Act, 1882 or as evidence of any collateral transaction.

So, the effect of this proviso to Section 49 is that in a suit for specific performance an unregistered document affecting immovable property may be given in evidence: The purpose is that the document which has not conveyed or passed title may still be used as evidence of the terms.

In K. Narasimha Rao Vs. Sai Vishnu, it has been held that although it is a settled legal principle that an unstamped instrument is not at all admissible in evidence even for collateral purpose, still an unregistered instrument originally unstamped, if duly stamped subsequently can be admitted in evidence.

This remains true even though it continues to be unregistered for collateral purpose but actual terms of transaction cannot be looked into.

Question 4: Enumerate the documents, registration of which is optional under the provisions of the Registration Act, 1908.
Answer:

Section 18 of the Registration Act, 1908 provides for those documents whose registration is optional. These are as under:

• Instruments that create, extinguish or alter any right or interest in immovable property not exceeding rupees one hundred in value.
• Instruments that recognize the receipt of any recompense for the above.
• Instruments that create, extinguish or alter any right or interest in movable property.
• Leases for which registration is exempted and the period of which is less than a year.
• Wills

Instruments create, extinguish or alter any right or interest in immovable property for less than rupees hundred.

Question 5: What do you understand by registration of documents? State the effect of non-registration of documents required to be registered.
Answer:

Registration of documents

Registration means recording of the contents of a document with a Registering Officer and preservation of copies of the original document. Documents can be classified into two classes: (i) Those whose registration is compulsory; (Section 17) (ii) Those whose registration is optional. (Section 18 of the Registration Act, 1908).

The effects of non-registration of documents that require registration are detailed in Section 49 of The Registration Act, 1908. It provides for the following effects.

The document cannot cause any changes in the rights to or interest in any immovable property.

It will not be admitted as evidence of any transaction mentioned in the document, as per the Indian Evidence Act, 1872. Any document covered under section 17, if not registered, will not have the same effect as it would have had if it had been registered.

Question 6: Under what circumstances a Sub-Registrar can refuse to register a document under The Registration Act, 1908?
Answer:

Section 28 provides that all documents mentioned in Section 17 as compulsorily registrable would be registered in the office of the sub-registrar in whose jurisdiction or sub-district the property or a part of it is located.

Any other document would be registered in the office of the Sub-Registrar within whose jurisdiction the document was executed, or where the persons who are executing the document want it to be registered.

Under valuation of stamp duty is not a valid ground for refusing the registration of a document. In such a case, the Sub-Registrar can guide the person to affix proper stamps before he can register the documents presented.

If the Sub-Registrar is doubtful as to the proper value of stamps affixed, he can refer the case to the Collector to be adjudicated.

Reasons for refusal to register to be recorded:

1. Every Sub-Registrar refusing to register a document shall make an order of refusal and record his reasons for such order and communicate the same to the parties.
2. No registering officer shall accept for registration a document so endorsed unless and until, under the provisions hereinafter contained, the document is directed to be registered. (Section 71)

Registration cannot be refused on the ground of undervaluation for stamp or any other extraneous reason. An undervalued document can be stamped properly by payment of the balance amount of stamp duty and getting a proper endorsement.

Question 7: State the documents whose registration is compulsory under Registration Act, 1908.
Answer:

Section 17 of the Indian Registration Act 1908, deals with the documents that are compulsory to be registered. The section runs as follows:
Section 17 – Indian Registration Act, 1908

The following documents shall be registered, if the properties to which they relate is situate in a district in which, and if they have been executed on or after the date on which, Act No. XVI of 1864, of the Indian Registration Act 1866, or the Indian Registration Act 1871, or the Indian Registration Act 1877, or the this Act came or comes into force, namely:-

1. instruments of gift of immoveable property;
2. other non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees, and upwards, to or in immoveable property;
3. non-testamentary instruments which acknowledge the receipt or
   payment of any consideration on account of the creation, declaration,
   assignment, limitation or extinction of any such right, title or interest; and
4. leases of immoveable property from year to year, or for any term exceeding one year, or reserving a yearly rent;
5.  non-testamentary instruments transferring or assigning any decree or order of a Court or any award when such decree or order or award purports or operates to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees and upwards, to or in immoveable property.

Question 8: “Is it necessary that registration of documents should be done only where the property is situated”? Discuss the provisions of the Registration Act, 1908 dealing with the matter.
Answer:

The rules with respect to place of registration of documents under the Registration Act, 1908 are as follows:

Document related to immovable property should be registered in the office of sub registrar of sub district within which whole or some part of the property lies other documents can be registered where all persons executing the document want to get it registered.

Hence it is necessary that registration of documents should be done only where the property is situated [Section 28].

Question 9:Discuss in brief the remedy available to party if registration of document is refused by Registrar under The Registration Act, 1908.
Answer:

Where the Registrar refuses to order the document to be registered, under Section 72 or a decree Section 76, any person claiming under such document, or his representative, assign or agent, may, within thirty days after the making of the order of refusal, institute in the Civil Court, within the local limits of whose original jurisdiction is situate the office in which the document is sought to be registered, a suit for a decree directing the document to be registered in such office if it be duly presented for registration within thirty days after the passing of such decree.

The provisions contained in sub-sections (2) and (3) of Section 75 shall, mutatis mutandis, apply to all documents presented for registration in accordance with any such decree, and, notwithstanding anything contained in this Act, the documents shall be receivable in evidence in such suit [Section 77].

Question 10 Yash signed a deed of gift in favour of Raja. If Yash does not agree to its registration, will the gift deed be registered? Explain, whether delay in registration of a gift deed will postpone its operation?
Answer:

Section 123 of the Transfer of Property Act, 1882 merely requires that donor should have signed the deed of gift.

Hence a gift deed can be registered even if the donor does not agree to its registration (Kalyan Sundaram Pillai v. Karuppa Mopanar, AIR 1927 PC 42). Delay in registration of a gift does not postpone its operation.

The gift deed will be registered even if Yash (donor) does not agree to its registration.

Question 11; Explain the documents of which registration is optional under the Registration Act, 1908.
Answer:

Section 18 of the Registration Act, 1908 specifies documents. registration of which is optional. It provides that any of the following documents may be registered under this Act, namely:

1. Instruments (other than instruments of gift and wills) which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest whether vested or contingent, of value less than one hundred rupees, to or in immovable property
2. Instruments acknowledging the receipt or payment of any consideration on account of the creation, declaration, assignment; limitation or extinction of any such right, title or interest
3. Leases of immovable property for any term not exceeding one year and leases exempted under Section 17;
4. Instruments transferring or assigning any decree or order of a court or any award when such decree or order or award purports or operates to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent of a value less than one hundred rupees, to or in immovable property
5. Instruments (other than wills) which purport or operate to create declare, assign, limit or extinguish any right, title or interest to or in movable property
6. Wills; and
7. Other documents not required by Section 17 to be registered.

Question 12 State at least four instruments which are exempted from the provisions of Section 17(1) of the Registration Act, 1908.
Answer:

The registration of the non-testamentary documents mentioned under Section 17(1)(b) and (c) of the Registration Act, 1908 is subject to the exceptions provided in of Section 17(2). These are as follows:

1. any composition deed, i.e., every deed the essence of which is composition; or
2. any instrument relating to shares in Joint Stock Company; or
3. any debentures issued by any such Company; or
4. any endorsement upon or transfer of any debenture; or
5. any document other than the documents specified under Section 17(IA) of the Act creating merely a right to obtain another document which will, when executed create, declare, assign, limit or extinguish any such right, title or interest; or
6. any decree or order of a court; or
7. any grant of immovable property by the Government; or
8.  any instrument of partition made by Revenue-officer; or
9. any order granting a loan or instrument of collateral security granted under the Land Improvement Act, 1871, or the Land Improvement Loans Act, 1883; or
10. any order granting loan made under the Agriculturists Loans Act, 1884 or instrument for securing the repayment of a loan made under that Act; or
11. any order made under the Charitable Endowments Act, 1890 vesting any property in a treasurer of a charitable endowment or divesting any such Treasurer of any property; or
12. any endorsement on a mortgage deed acknowledging the payment of the whole or any part of the mortgage money, and any other receipt for payment of money, due under a mortgage when the receipt does not. purport to extinguish the mortgage; or
13. any certificate of sale granted to the purchaser of any property sold by public auction by Civil or Revenue Officer.

Question 13: “Section 32 of the Registration Act, 1908 specifies the persons who can present documents for registration”. Narrate them.
Answer:

According to Section 32 of the Registration Act, 1908, a document may be presented for registration by –

• the executant(s) or
• persons claiming under him, or
• the legal representative or assignee or
• their appointed agent, who has been authorized to do so by a special power of attorney. In this case, a general power of attorney is not acceptable. Such a power of attorney needs to be executed before and authenticated by the Registrar within whose jurisdiction the person giving it resides. (Section 33)

Presentation by any of these parties will be deemed to be valid equally, without any discrimination.

Question 14: Who can present documents for registration at the proper registration office under the Registration Act, 1908? Explain. 
Answer:

Who can present a document for registration:

Section 32 of the Registration Act specifies who can present documents for registration at the requisite registration office. They are as below:

1. a person executing a document or claiming under it, or if it is a decree or an order, anyone who is claiming under it, or
2. the representative or assignee of such person, or
3. the agent of such person, representative or assignee, who should be duly authorised by power-of-attorney executed and authenticated in the manner hereinafter mentioned.

The effect of a document being presented other than by a rightful person as per Section 32, is that the presentation is deemed to be inoperative and the registration too, is considered to be void (as per the case of Kishore Chandra Singh v. Ganesh Prashad Bhagat).

However, the Act does provide some exceptions to this rule, in the form of Sections 31, 88 and 89-

• 31. Registration or acceptance for deposit at private residence
• 88. Registration of documents executed by Government officers or certain public functionaries.
• 89. Copies of certain orders, certificates and instruments to be sent to registering officers and filed.

Moreover, for anyone to present documents for registration Under Section 32, a special power of attorney is required, the form of which is as per Section 33.

No other format would do, hence, a general power of attorney will not suffice. According to Section 33, in order to give the requisite authority to the agent in order to get the document registered, the power of attorney should be executed before the Registrar, who then also authenticates it.

The right authority in this situation would be the Registrar within whose district or sub-district the principal resides. (Sections 32 to 35)

Question 15: What is the object of registration of documents under Registration Act, 1908 ?
Answer:

Registration of documents: Registration means recording of the contents of a document with a Registering Officer and preservation of copies of the original document. The object of registration is to support the claim of authenticity and to establish the precedence of a document, as proof of a particular transaction.

Section 47 of the Registration Act, 1908 provides that a registered document shall operate from the time from which it would have commenced to operate if no registration thereof had been required or made and not from the time of its registration.

The effects of non-registration of documents that require registration are detailed in Section 49 of The Registration Act, 1908. It provides for the following effects –

• The document cannot cause any changes in the rights to or interest in any immovable property.
• It will not be admitted as evidence of any transaction mentioned in the document, as per the Indian Evidence Act, 1872.

Any document covered under Section 17, if not registered, will not have the same effect as it would have had if it had been registered.

However, nothing in this section shall affect the inclusion as evidence in a suit for specific performance. Such a document can be subsequently stamped and be treated as an instrument valid ab initio.

Practical Questions

Question 1: Shyam executes a sale deed of a house in favour of Krishna. The house is situated in Faridabad, but the transferor and the transferee want the sale deed to be registered at Gurgaon, which has also a District Court of Haryana State. Can they do so? Given reasons.
Answer:

Sections 28 and 29 of The Registration Act, 1908 cover the provisions for the place of registration of documents related to land and other property. According to Section 17 of the Act, documents relating to creation, diminution or alteration of rights related to immovable property, if not registered, will not have the same effect as it would have had if it had been registered.

Section 28 provides that all documents mentioned in Section 17 as compulsorily registrable would be registered in the office of the sub-registrar in whose jurisdiction or sub-district the property or a part of it is located. Any other document would be registered in the office of the Sub-Registrar within whose jurisdiction the document was executed, or where the persons who are executing the document want it to be registered.

Section 29 provides for all other documents, for example, a decree or Court order needs to be presented in the office of the sub-registrar where the decree or order was executed, or at the place where the persons in whose favor the decree has been passed want it to be registered. In this case, since the property is situated in Faridabad, not in Gurgaon, the parties can only get it registered in Faridabad.

Descriptive Questions

Question.1: Which are the documents the registration of which is optional?
Answer:

The documents the registration of which is optional

Whereas Section 17 of the Act has made registration of certain documents compulsory, Section 18 specifies documents, registration of which is optional.

It provides that any of the following documents may be registered under this Act, namely:

1. instruments (other than instruments of gift and wills) which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest whether vested or contingent, of value less than one hundred rupees, to or in immovable property;
2. instruments acknowledging the receipt or payment of any consideration on account of the creation, declaration, assignment; limitation or extinction of any such right, title or interest;
3. leases of immovable property for any term not exceeding one year and leases exempted under Section 17;
4. instruments transferring or assigning any decree or order of a court or any award when such decree or order or award purports or operates to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent of a value less than one hundred rupees, to or in immovable property;
5. instruments (other than wills) which purport or operate to create declare, assign, limit or extinguish any right, title or interest to or in movable property;
   wills; and other documents not required by Section 17 to be registered. (Section 18)

Question.2: What points need to be kept in mind regarding registration of documents executed outside India?
Answer:

Registration of documents executed outside India

Registration of documents executed outside India is covered under Section 26 of The Registration Act, 1908. The following points need to be kept in mind in this regard –

The document has to be presented for registration within four months after having reached India. In case of some exigency, the period can be prolonged upto eight months.

If such a document is not duly registered under the Act, it will not be operational in India, i.e. it cannot seek to effect any change in the rights or interests in any movable or immovable property.

Question.3: What is the time limit for registration of documents?
Answer:

The time limit for registration of documents

The time limit for presentation of a document for registration is four months, as per Section 23 included in Chapter IV of the Act. This period can be prolonged upto eight months in cases of need, where proper justification is provided.

The same period applies in the case of re-registration of documents found to be invalidly registered.

Question.4: What are the effects of non-registration of a document?
Answer:

The effects of non-registration of a document

The effects of non-registration of documents that require registration are detailed in Section 49 of The Registration Act, 1908. It provides for the following effects –

• The document cannot cause any changes in the rights to or interest in any immovable property.
• It will not be admitted as evidence of any transaction mentioned in the document, as per the Indian Evidence Act, 1872.

Any document covered under Section 17, if not registered, will not have the same effect as it would have had if it had been registered. However, nothing in this section shall affect the inclusion as evidence in a suit for specific performance.

Such a document can be subsequently stamped and be treated as an instrument valid ab initio.

Question.5: Explain about the requirement of registration regarding wills.
Answer:

The requirement of registration regarding wills

Wills are included in Section 18 of the Registration Act, 1908. This section says that the registration of a will is optional and that if unregistered, it will not be rendered invalid or inoperative.

Section 27 provides for the method of presentation of wills for registration; it says that a will can be presented for registration anytime after it is made.

The actual process is given under Part VIII and IX of The Registration Act, 1908, Sections 40 to 43. The provisions are as under –

Section 40: Who can present the will for registration – The following can present it for registration

• Executor
• Representative of Executor
• Assignee of Executor
• Agent of Executor
• Testator, or after his death by any person claiming as executor or otherwise.

Section 41: The authority to which the will is presented will check to see whom the will was presented by, and also whether the person presenting it had the authority to do so. He will check also if the testator has expired.

Section 42: The will can be deposited personally or by authorizing someone for this act. It has to be given in a sealed envelope, with the name of the testator on the envelope, the name of the testator’s agent, if he had authorized someone to be his agent, and a brief description about the nature of the document contained in the envelope.

Section 43: The Registrar, on being satisfied, shall enter the details in his Register No. 5 and place and retain the sealed cover in his fireproof box.

Question.6: Explain the provisions of the Act regarding the place of registration of documents.
Answer:

The provisions of the Act regarding the place of registration of documents

Sections 28 and 29 of The Registration Act, 1908 cover the provisions for the place of registration of documents related to land and other property. Sav

According to Section 17 of the Act, documents relating to creation, diminution or alteration of rights related to immovable property, if not registered, will not have the same effect as it would have had if it had been registered.

Section 28 provides that all documents mentioned in Section 17 as compulsorily registrable would be registered in the office of the sub-registrar in whose jurisdiction or sub-district the property or a part of it is located.

Any other document would be registered in the office of the Sub-Registrar within whose jurisdiction the document was executed, or where the persons who are executing the document want it to be registered.

Section 29 provides for all other documents, for example, a decree or court order needs to be presented in the office of the sub-registrar where the decree or order was executed, or at the place where the persons in whose favor the decree has been passed want it to be registered.

Question.7: Explain where the documents relating to property ought to be registered.
Answer:

The documents relating to property ought to be registered

Section 28 of The Registration Act, 1908 provides that all documents mentioned in Section 17 as compulsorily registrable would be registered in the office of the sub-registrar in whose jurisdiction or sub-district the property or a part of it is located.

According to Section 17 of the Act, documents relating to creation, diminution or alteration of rights related to immovable property, if not registered, will not have the same effect as it would have had if it had been registered.

Section 2(6) of the Registration Act, 1908 defines the term “immovable property” as including: “land, buildings, hereditary allowances, rights to ways, lights, ferries, fisheries or any other benefit to arise out of land, and things attached to the earth, or permanently fastened to anything which is attached to the earth, but not standing timber, growing crops nor grass.”

Question.8: What rights does a person aggrieved with the orders of a sub-registrar have?
Answer:

Section 72 of The Registration Act, 1908 gives the person aggrieved with the order of the Sub-Registrar the right to appeal to the Registrar to whom the Sub-Registrar reports. This can be done in situations where the Sub-Registrar has refused to register the document that has been presented within the proper time limit of thirty days.

Upon such an appeal being made, the Registrar has the right to modify or annul the original order. The Registrar can then, order that the document be duly registered, and it shall be deemed to be registered from the date it would have originally been registered if the Sub-Registrar had not refused registration.

This would be the date of presentation of the document to the Sub-Registrar. Under valuation of stamp duty is not a valid ground for refusing the registration of a document. In such a case, the Sub-Registrar can guide the person to affix proper stamps before to be adjudicated.

Question.9: From when is a document requiring registration deemed operational?
Answer:

Section 47 of The Registration Act, 1908 clarifies that a document is operational from the date when it should have become operational, without the need for registration being considered, even if it is subsequently registered.

However, in case of subsequent registration, the execution will not be deemed invalid. It simply means that when a document is duly registered, it has the same effect as if it registered at the time of execution.

Practical Questions

Question.1: Ajit sells a house to Baljit by a written document in 1997 and delivers possession thereof to Baljit. But the document is not registered. After one year, Ajit sues Baljit to take back possession of the house on the ground that because of non-registration, the document has no validity. Will Ajit succeed?
Answer:

According to Section 49 of The Registration Act, 1908, if any document is required to be registered and is not registered, it shall not be admitted as evidence under the Indian Evidence Act, 1872.

However, under Section 53A of the Transfer of Property Act, 1882, an unregistered document may be admitted as evidence in a case where the document is proof of part performance of a contract, and a proof also of the fact that the plaintiff has performed or is willing to perform his part of the deal.

In this case, Ajit sells to Baljit a house by a written document in 1997, and hands over the possession to Baljit. The document, however, remained unregistered. A year later, Ajit sues Baljit for repossession of the house, claiming that as the document was unregistered, it had no validity.

This claim of Ajit would be unfounded, as this case comes under Section 53A of the Transfer of Property Act, 1882. Hence, Ajit will not succeed.

Question.2: Rohit executes a sale deed of a house in favour of Prem. The house is situated at NOIDA, but the transferor and transferee want the sale deed to be registered at Lucknow, which is the capital of the State. Can they do so?
Answer:

According to Section 17 of the Registration Act, 1908, documents relating to creation, diminution or alteration of rights related to immovable property, if not registered, will not have the same effect as it would have had if it had been registered.

Section 28 of The Registration Act, 1908 provides that all documents mentioned in Section 17 as compulsorily registrable would be registered in the office of the sub-registrar in whose jurisdiction or sub-district the property or a part of it is located.

Hence, in this case, Rohit, who wants to sale deed of the house located at Noida to be registered in Lucknow, will not be allowed to do so. He will need to get the deed registered in Noida, where the property is located.

Question.3: Amrit executed a gift deed in his life time in favour of Bhanu. The gift deed was not registered during the life time of Amrit. Bhanu, after death of Amrit, presented the gift deed before the Registrar for its registration. Rakshit, brother of Amrit raised an objection for the registration of gift deed on the ground of fake signatures of Amrit. But the witnesses to the gift deed contended that the signatures were made before them by the donor at the time of execution of gift deed. Whether the gift deed will be treated valid for registration under the Registration Act, 1908?
Answer:

Section 17 of the Registration Act, 1908 provides for those documents the registration of which is compulsory under the Act. It includes a gift of immovable property. However, it is not mandatory that the deed be registered during the life of the donor; even if subsequently registered, it will have the same effect as if it had been registered from the date of execution.

In this case, Amrit executed a gift deed in favor of Bhanu, who failed to get it registered during the lifetime of Amrit. Later, after Amrit’s death, it was resented to the Registrar for registration. Amrit’s brother, Rakshit, raised an objection, contending that Amrit’s signatures were fake.

However, the witnesses maintained that Amrit signed the deed before them. Hence, the gift deed would be valid for registration and the objection made by Rakshit will not stand.

Question.4: Akhilesh executes a sale deed of a house in favour of Brijesh. The house is situated at Patna. Akhilesh wants to get the sale deed registered at Delhi. Can he do so?
Answer:

Section 28 provides that all documents mentioned in Section 17 as compulsorily registrable would be registered in the office of the sub-registrar in whose jurisdiction or sub-district the property or a part of it is located.

Any other document would be registered in the office of the Sub-Registrar within whose jurisdiction the document was executed, or where the persons who are executing the document want it to be registered.

However, according to Section 30 of the Act, a property located elsewhere can be registered in presidency towns or at Delhi.

Hence, Akhilesh, who transferred a house located in Patna to Brijesh by a sale deed, has the option to get it registered either in Delhi or in Patna.

Question.5: By an agreement, Anamika transferred to Bipasha a decree of a court by which she was entitled to possess 500 bighas of land. Is it necessary to register such a transfer under the Registration Act, 1908?
Answer:

Under Section 17 (d) of The Registration Act, 1908, the transfer of any decree by which an interest of rupees hundred or upwards in immovable property is created, altered or diminished needs to be registered to have effect.

Hence, the agreement by which Anamika transfers to Bipasha a court decree that entitles her to possess five hundred bighas of land is required to be registered. Only then it can create any acceptable rights in favor of Bipasha.

Question.6: Ajoy has executed a gift deed in favour of Bijoy. But prior to the registration of gift deed, Ajoy dies. Ajoy has already given the delivery of possession to Bijoy. The heirs of Ajoy wished to register the gift. Bijoy’s brother objected on the ground that it being a non-registered gift in the life-time of Ajoy, it cannot be registered after the death of donor. Decide the validity of gift on the ground of non-registration of the gift deed.
Answer:

Section 17 of the Registration Act, 1908 provides for those documents the registration of which is compulsory under the Act.

It includes a gift of immovable property. However, it is not mandatory that the deed be registered during the life of the donor; even if subsequently registered, it will have the same effect as if it had been registered from the date of execution.

In this case, Ajoy executed a gift deed in favor of Bijoy, who failed to get it registered during the lifetime of Ajoy. Later, after Ajoy’s death, it was presented to the Registrar for registration.

Bijoy’s brother, raised an objection, contending that since the gift was unregistered during the lifetime of Ajoy, it cannot subsequently be registered validly.

However, it is provided in the Act that a gift deed can be registered anytime within the period specified under the Act, and even a subsequent registration will have the same effect as if it was registered upon execution.

As in the case of Kalyana Sundaram Pillai vs. Karuppa Mopanar, non-registration of the deed will not render the gift invalid, and if it is presented within the proper timeframe, it can be duly registered.

Question.7: Chirag holds a general power of attorney given to him by Abhay. On the basis of it, Chirag wishes to register some papers related to land transfer, affected by Abhay. Can he do so?
Answer:

According to Section 32 of the Registration Act, 1908, a document may be presented for registration by the executant(s) or persons claiming under him, or by the legal representative or assignee or by their appointed agent, who has been authorized to do so by a special power of attorney.

Hence, a general power of attorney is not acceptable. Such a power of attorney needs to be executed before and authenticated by the Registrar within whose jurisdiction the person giving it resides. (Section 33)

Therefore, the registration described in this case is not valid, as it is effected by Chirag who does not hold a special power of attorney but only a general one.

Question.8: Ankur has made a gift of a house to Bhaskar. Ankur has signed on the gift deed and handed over the possession of the house to Bhaskar. Ankur
did not want gift deed to be registered. After sometime, Ankur dies. There was a long delay in the registration of the gift deed. Whether the period of delay may be condoned by the Registrar for the registration of gift deed even after the death of the donor under the Registration Act, 1908.
Answer:

Section 17 of the Registration Act, 1908 provides for those documents the registration of which is compulsory under the Act.

It includes a gift of immovable property. However, it is not mandatory that the deed be registered during the life of the donor; even if subsequently registered, it will have the same effect as if it had been registered from the date of execution.

In this case, Ankur executed a gift deed in favor of Bhaskar, who failed to get it registered during the lifetime of Ankur, who did not want it registered. However, he had already given the possession to Bhaskar.

Later, after Ankur’s death, it was presented to the Registrar for registration. There occurs a long delay in the registration of the gift deed. Section 23 of the Act provides for a time limit of four months from execution for getting a document registered.

This time can extend to eight months in cases of urgent necessity. Hence, in this case, the period of delay can be condoned by the Registrar, but only upto eight months and upon proving sufficient cause for the delay.

Instrument

It includes every document by which rights or liabilities pertaining to a property can be created, limited, extinguished or transferred, or other transactions of a like nature. Only these are chargeable to stamp duty under the Act, and they are listed in the Schedule to the Act.

Conveyance

It includes every transaction between two living persons (inter vivos) by which a property can be transferred. E.g, a sale of property.

Execution

Implies signing of a document, thus making it a legally binding instrument.

Main rules regarding stamping

• Section 4: When several instruments are needed to complete one transaction, the main one is charged the full rate of duty and the secondary ones are chargeable with only one rupee as stamp duty.
• Section 5: When several different matters are described upon one instrument, it is chargeable with a cumulative duty, calculated individually on all and summed up. nofaye amel
• Section 6: When an instrument falls under several heads under the Schedule to the Act, and each has a different rate of duty prescribed, ab it will be chargeable with the highest rate of duty.

E-stamping

E-stamping is a computer-based method; an electronic way of paying stamp duty. This facility is not available in all the states and Union territories. To avail the facility, one needs to fill up an application form available at authorized collection centres (ACCs) for stamp duty payment.

Learn and Read More CS Executive JIGL Question and Answers

Substance and description

These two things are relevant in determining the nature of an instrument-

• The substance of the transaction contained in the document may not necessarily match the description given at the head of the instrument.
• It is the substance of the transaction as contained in the instrument and not the form of the instrument that will determine the stamp duty, although it can rightly be said that the duty is leviable on the instrument and not on the transaction.
• In trying to match the description of an instrument, one has to look at the entire document to find out whether it falls within the description.
• Where a single instrument contains several purposes, the instrument as a whole should be read to find out its dominant or main purpose.
• Hence, substance has to be given precedence, as the instrument might be described wrongly in order to evade duty.

Principal and ancillary

These terms are essential because if the principal object or matter covered in the instrument is exempt, the entire document might be exempt, even if the matter ancillary to it is chargeable to stamp duty.

For example, a deed of dissolution of partnership containing a clause charging the partnership assets in favour of outgoing parties is chargeable separately for the charge and the partnership, because the former is not ancillary to the latter.

Hence, in case of a primary and an ancillary matter, the test will be to see whether the primary one is chargeable to duty. In case they are two independent matters, this rule is not applicable.

The Finance Act, 2019 effective from 1st July, 2020 has broadened the development of equity markets, thus causing more economic and regional development. This amendment brings about a rationalization of the stamp duty structures.

The following structural reforms have been notified-

The collecting agents shall now collect the stamp-duty on the sale, transfer and issue of securities, on behalf of the State Government. They shall then transfer the collected duty to the relevant State Government account.

To avoid multiple taxation, no stamp duty shall be collected by the States on any secondary record of transaction associated with a transaction on which the depository/ stock exchange is already authorised to collect the duty.

Earlier, stamp duty was payable by both seller and buyer whereas in the new system it is to be paid only by one party – either the buyer or the seller but not both. The exceptions are certain instruments of exchange where the stamp duty shall be borne by both parties in equal proportion.

The Stock Exchanges or authorized Clearing Corporations and the Depositories shall be the collecting agents.

For secondary market transactions in securities, especially those that are exchange based, the Stock Exchanges shall themselves collect the duty.

In case of off-market securities transactions where the trading parties disclose the consideration and the initial issue of securities is in demat form, the Depositories shall be responsible for collection of the duty.

The Clearing Corporation of India Limited (CCIL) under the jurisdiction of RBI, as well as the Registrars to an Issue and/or the Share Transfer Agents (RTI/STAS) can act as collecting agents as well.

The collecting agents shall transfer the stamp duty collected to the State Government where the residence of the buyer is located within three weeks of the end of each month. In case the buyer is located outside India, they shall transfer it to the State Government having the registered office of the trading member or broker of such buyer.

In case there is no such trading member of the buyer, the duty shall be transferred to the State Government having the registered office of the participant.

Stamp duty has been lowered in many cases. E.g. for issue of equity/debentures and for transfer of debentures. This has been done to assist in capital formation and to promote corporate bond market, particularly in the current situation.

Secondary market transfer of instruments like interest rate/ currency derivatives or corporate bonds and for the newly introduced ‘repo on corporate bonds’, there is a very low rate as compared to the existing rates.

No stamp duty shall be chargeable in respect of the Instruments of transactions in stock exchanges and depositories established in any International Financial Services Centre (IFSC) set up under the Special Economic Zones (SEZ) Act, 2005.

Tax arbitrage is henceforth avoided by providing the same rate of stamp duty for issue or re-issue or sale or transfer of securities happening outside stock exchanges and depositories.

Indian Stamp Act, 1899 Distinguish Between

Question 1 Distinguish between executed and execution under Indian Stamp Act, 1899.
Answer:

Under Section 1(12) of the Indian Stamp Act, 1899 the words “executed” and “execution” (used with reference to instruments), mean “signed” and “signature” respectively.
Signature includes mark by an illiterate person [Section 3(52), General Clauses Act, 1897].

An instrument which is chargeable with stamp duty only on being “executed” is not liable to stamp duty until it is signed. The Collector can receive the stamp duty without penalty and certify an instrument as duly stamped, as from the date of execution. (Sections 37 and 40 of the Indian Stamp Act 1899)

Indian Stamp Act, 1899 Descriptive Questions

Question 1: What are the modes of cancellation of adhesive stamps?
Answer:

The modes of cancellation of adhesive stamps

Section 12 of the Indian Stamp Act, 1899, provides for the method of canceling stamps, so that they cannot be reused. This has to be done either at the time of execution or before it. The commonly acceptable method of stamping is by writing across the face of the stamp.

Unless the stamp has already been cancelled, one who executes an instrument on stamp paper has the duty of cancelling it. If the stamp on an instrument is not so cancelled, as in a manner rendering the stamp unusable again, the instrument will be deemed to be unstamped.

Acceptable ways of cancelling a stamp are as follows

Writing of the executant’s initials or his name or the name of the firm on or across the face of the stamp, along with the date of doing so, at the time of executing such an instrument. [Nuddea Tea Co. Ltd. Vs Asok Kumar Saha and Ors.]

When an adhesive stamp affixed to an instrument was cancelled by a third person on a date subsequent to the date on which the instrument was drawn, by putting the date across the stamps, there was no proper cancellation of the stamp. [Dayaram Vs. Chandulal]

Drawing lines across the adhesive stamp, extending onto the instrument. Drawing of two parallel lines across adhesive stamps. two lines crossing each other across the face of the stamp.

Drawing of While there is no fixed format of a valid cancellation of a stamp, the true test for determining the same is whether after the cancellation, the stamp is capable of being used again.

The true test, therefore for determining whether an adhesive stamp has been effectually cancelled is whether an ordinary man would, on seeing the stamp, believe that it had already been used so as to preclude him from using it again. [A. Narayana Reddy Vs Dr. J. Sarojini Devi And Anr. 1962]

Question 2: What do you mean by ‘promissory note’? State the requisites of a promissory note with the help of some illustrations.
Answer:

Promissory note: A promissory note is an instrument in writing (not being a bank-note or a currency-note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or the bearer of the instrument.

A promissory note is a written promise to pay a debt. It is an unconditional promise to pay on demand or at a fixed or determined future time a particular sum of money to or to the order of a specified person or to the bearer.

Essentials of a promissory note.

The promissory note:-

1. must be in writing;
2. must be signed by a maker;
3. must contain an undertaking to pay;
4. must be a promise to pay unconditionally on demand or at a fixed or determinable future time;
5. payee must be certain;
6. maker must be certain;
7. sum payable must be certain;
8. must contain a promise to pay money and money only;
9. must be payable to or to the order of a certain person or to the bearer.

Indian Stamp Act, 1899 has also defined the word Promissory note.

Promissory note means a promissory note as defined by the Negotiable Instruments Act, 1881;

“It also includes a note promising the payment of any sum of money out of any particular fund which may or may not be available, or upon any condition or contingency which may or may not be performed or happen.”

Question 3: (a) Discuss the evidentiary value of an instrument not duly stamped under the Indian Stamp Act, 1899.
Answer:

Evidentiary value of an instrument not duly stamped:

Section 35 of the Indian Stamp Act, 1899 covers instruments not duly stamped. It provides the following:

• An instrument insufficiently stamped will not be admitted as evidence or recognized as valid by any government official unless it is duly stamped.
• It can, subsequently, be stamped with stamps of proper amount, and be rendered duly stamped according to the Indian Stamp Act, 1899.
• An agreement or contract that is made up of various parts contained in separate letters would be deemed to be properly stamped if any one part of all the documents bears stamps of proper description and value.
• The exclusion of insufficiently stamped instruments shall not apply to criminal proceedings.
• The Collector of Stamps can be presented with such an instrument and the proper stamp duty paid on it, so that it becomes a proper and valid instrument.

Question 4: An instrument bears a stamp of sufficient amount, but of improper description. Can it be certified as duly stamped? How the instrument can be rectified and what would be the date of its execution? Achal gives an instrument to Basu which is unstamped. This instrument is also not registered –

1. Will the instrument be admitted in evidence?
2. Will the situation change if the instrument is stamped but not registered before passing to Basu and Basu gets it registered subsequently?

Answer :

As per Section 37 of the Indian Stamp Act, 1899, an instrument that is stamped with the proper amount but wrong description of stamps, may, by the State Government Rules, be certified as duly stamped on payment of the right duty.

The date of execution of this instrument will be deemed to be the date of actual execution, and not the date of proper stamping. The reason behind this is that there is no revenue loss to the government and if the mistake is bona fide, the right description of stamps can be subsequently put to use.

Section 17 of the Transfer of Property Act, 1882, provides a list of instruments that are compulsorily registrable. Section 49 of the Registration Act, 1908 provides that no such instrument shall be admitted as evidence or put to any use unless registered.

1. Since the instrument is unstamped, it cannot be used as evidence. However, if the same is duly stamped and registered, it can be so admitted subsequently.
2. Such an instrument can be admitted as evidence, as per Section 49 as mentioned above.

Question 5: What is a ‘promissory note’?
Answer:

‘Promissory note’

A promissory note is defined as per Section 2(22) of the Negotiable Instruments Act, 1881. It implies a note given by a debtor to a creditor whereby he acknowledges his debt or liability, as well as the promise to pay that amount at a predetermined date.

It is an ‘instrument’ as per the Indian Stamp Act.

Requirements of a promissory note:

1. Unconditional undertaking to pay
2. Payment to be in money only
3. Ascertained or ascertainable amount
4. Either bearer or payable to or to the order of a certain person
5. Signed by the maker.

Question 6: State the law of inadmissibility in evidence of an instrument not duly stamped.
Answer:

Section 35 of the Indian Stamp Act, 1899 covers instruments not duly stamped, whereas Chapter IV (Sections 35-48) gives the consequences in case an instrument is not duly stamped. It provides the following:

• An instrument insufficiently stamped will not be admitted as evidence or recognized as valid by any government official unless it is duly stamped.
• It can, subsequently, be stamped with stamps of proper amount, and be rendered duly stamped according to the Indian Stamp Act, 1899.
• An agreement or contract that is made up of various parts contained in separate letters would be deemed to be properly stamped if any one part of all the documents bears stamps of proper description and value.
• The exclusion of insufficiently stamped instruments shall not apply to criminal proceedings.
• The Collector of Stamps can be presented with such an instrument and the proper stamp duty paid on it, so that it becomes a proper and valid instrument.

Question 7: Write a note on ‘mode of cancellation of adhesive stamps ‘ under the Indian Stamp Act, 1899.
Answer:

Section 12(3) of the Indian Stamp Act, 1899, deals with the mode of cancellation of adhesive stamps.

It provides that the cancellation of an adhesive stamp may be done by the person concerned by writing on or across the stamp his name or initials, or the name or initials of his firm with the current date, or in any other effectual manner, so as to render the stamp not reusable.

Sub-section (3) merely lays down as a guidance one of the ways in which an adhesive stamp can be cancelled; the efficacy of the actual methods will depend on the facts of each case.

In Mahadeo Koeri Vs. Sheoraj Ram Teli, it was held that a stamp may be treated as having been effectively cancelled by merely drawing a line across it. However, in the case of Hafiz Allah Baksh Vs.

Dost Mohammed, it was held that if it is possible to re-use a stamp despite a line being drawn across it, there is no effectual cancellation. These two cases stress the fact that mode of cancellation and its efficacy depend on the facts of the case.

Question 8: Define the term ‘bill of lading’ under the Indian Stamp Act, 1899.
Answer:

The term ‘bill of lading’ under the Indian Stamp Act, 1899

“Bill of lading includes a through bill of lading but does not include a mate’s receipt.” [Section 2(4)] of the Indian Stamp Act, 1899. A bill of lading is a receipt or acknowledgment given by the master of a ship for goods delivered to him for delivery to a disclosed recipient.

The master of the ship gives this receipt in three copies, all signed by him. One is kept by the consignor of the goods, one by the master of the ship and one is forwarded to the recipient or the consignee, who can show the receipt at the destination of the goods and collect them.

This receipt evidences a contract for the carriage and delivery of goods. This same receipt is known as the mate’s receipt when the goods are delivered on board a ship for delivery via sea.

Bills of lading come under entry 91 of the union list, giving power to the union legislature to levy stamp duty.

Question 9: “If once the ‘instrument’ has been admitted in evidence, it shall not be questioned later on in the same suit on the ground that it does not bear the adequate stamp duty or no stamp.” Discuss briefly with reference to case law. (5 marks)
Answer:

Section 35 of the Indian Stamp Act, 1899 covers instruments not duly stamped, whereas Chapter IV (Sections 35-48) gives the consequences in case an instrument is not duly stamped.
It provides the following:

• An instrument insufficiently stamped will not be admitted as evidence or recognized as valid by any government official unless it is duly stamped.
• It can, subsequently, be stamped with stamps of proper amount, and be rendered duly stamped according to the Indian Stamp Act, 1899.

Section 36 provides that where an instrument has been admitted in evidence, such an admission shall not (except as provided in Section 61) be called in question at any stage of the same suit or proceeding on the ground that the instrument has not been duly stamped (Guni Ram v. Kodar).

If not with standing any objection, the trial Court admits the document, the matter ends there and the Court cannot subsequently order the deficiency to be made good and levy penalty (Bhupathi Nath v. Basanta Kumar).

Question 10: What is ‘e-stamping’? Also, discuss its benefits.
Answer:

‘E-stamping’

E-stamping is a computer-based method; an electronic way of paying stamp duty. This facility is not available in all the states and Union territories. To avail the facility, one needs to fill up an application form available at Authorized Collection Centres (ACCS) for stamp duty payment.

E-stamping is an alternate to the physical, paper-based stamps. It is deemed to be a secure way of paying non-judicial stamp duty, since there is no paperwork involved and hence none of the problems associated with paperwork.

E-stamping is currently operational in the states of Gujarat, Karnataka, NCR Delhi, Maharashtra, Assam, Tamil Nadu, Rajasthan, Himachal Pradesh, Uttarakhand, and the union territories of Dadra & Nagar Haveli, Daman & Diu, Puducherry and Uttar Pradesh.

Ultimately, the vision is to have a paperless e-stamping system replacing the current stamping/franking system. This will, in turn, help reduce the danger of counterfeiting and make the work of stamping easier for all parties involved.

It is extremely fast; the certificate is generated within minutes of the transaction. Moreover, it cannot be tampered with, and is hence, entirely safe. Since there is less processing and administrative work involved, it is also more cost effective.

E-stamping has several benefits –

• Speed of generation and processing.
• It is tamper-proof; cannot be altered by an unauthorized entity.
• It is easily accessible.
• It is reasonable in cost.
• User-friendly.

Question 11: Are securities dealt in depository liable to stamp duty under the provisions of Indian Stamp Act, 1899?
Answer:

As per Section 8A of the Indian Stamp Act, 1899:

Securities issued in the names of depositories need not be stamped. However, the issuer will be liable to pay the duty on the total amount of securities.

Whenever the issuer issues a certificate in lieu of such demat securities, duty equivalent to that of duplicate certificates shall be payable on such certificates.

the transfer of:

registered ownership of securities from a person to a depository or from a depository to a beneficial owner; or the change of beneficial owner from one to another or change in the beneficial ownership of units, such units being units of a Mutual Fund including units of the Unit Trust of India, shall not be liable to duty under this Act or any other law for the time being in force.

Question 12: State the provisions of Indian Stamp Act, 1899 regarding the payment of stamp duty for renewing debentures.
Answer:

The provisions of Indian Stamp Act, 1899 regarding the payment of stamp duty for renewing debentures

As per Section 55 of the Act, there is no liability regarding payment of stamp duty on the companies renewing debentures issued by them, because duty would already have been paid on the original debentures.

This section provides that when any duly stamped debenture is renewed by the issue of a new debenture in the same terms, the company can apply to the Collector within one month.

Upon such application, the Collector shall repay to the issuer of such debenture, the value of the stamp on the original or on the new debenture whichever is less.

However, the Section also requires that for this Section to apply, the original debenture has to be produced before the Collector and cancelled by him in a manner determined by the State Government.

The Section further provides that a debenture shall be deemed to be renewed on the same terms even if there are the following changes:

• splitting of the original debenture, if the total amount secured remains the same;
• consolidated debenture certificate being issued in place of two or more original debentures, if the total amount secured remains the same;
• the original holder’s name has been substituted for another; and
• change in the rate of interest
• change in the date of payment of the amount secured under the debenture.

Question 13: Explain the meaning of ‘Bill of Lading’ under The Indian Stamp Act, 1899?
Answer:

The meaning of ‘Bill of Lading’ under The Indian Stamp Act, 1899

According to Section 2(4) of the Indian Stamp Act, 1899, “Bill of Lading” includes a ‘through bill landing’ but does not include a mater’s receipt. A bill of lading is a receipt by the master of a ship for goods delivered to him for delivery to X or his assigns.

Three copies are made, each signed by the master. One is kept by the consignor of the goods, one by the master of the ship and one is forwarded to X, the consignee, who, on receipt of it, acquires property in the goods.

It is a written evidence of a contract for the carriage and delivery of goods by sea, for certain freight. When goods are delivered on board a ship, the receipt is given by the person in charge at that time. This receipt is known as the mate’s receipt.

The shipper of the goods returns this receipt to the master before the ship leaves and receives from him bill of lading for the goods, signed by the master.

Question 14: Define ‘Lease’ under the Indian Stamp Act, 1899.
Answer:

‘Lease’ means a lease of immovable property and includes also:

1. a patta;
2. a kabuliyat or other undertaking in writing, not being a counterpart of a lease to cultivate, occupy or pay or deliver rent for, immovable property;
3. any instrument by which tolls of any description are let;
4. any writing on an application for a lease intended to signify that the application is granted.” [Section 2(16) of the Indian Stamp Act, 1899]

Hence, it is a kind of right over a property or the benefits arising therefrom, for a fixed period of time, usually exceeding a year. A lease of a year or more needs to be in writing and registered.

Hence, such a lease deed would essentially be stamped, as per the Indian Stamp Act, 1899. It is covered under the definition of an ‘instrument; under the Section 2(14) of the Act.

Question 15: A promissory note is executed by Suresh and Udit and stamp is afterwards affixed and cancelled by Suresh by again signing it. Explain whether the provisions of section 17 relating to time of stamping instruments have been complied with?
Answer:

Section 17 of the Indian Stamp Act, 1899 provides that all instruments chargeable with duty and executed by any person in india shall be stamped before or at the time of execution.

The scope of Section 17 is restricted to only instruments executed in India. If the executant of a document has already completed the execution of the document and in the eye of law the document, could be said to have been executed, a subsequent stamping, (however close in time) could not render the document as one stamped at the time of execution.

Thus, where a promissory note is executed by ‘A’ and ‘B’ and a stamp is afterwards affixed and cancelled by ‘A’ by again signing it, the stamping has taken place subsequent to the execution and hence, the provisions of Section 17 are not complied with (Rohini v. Fernandes, AIR 1956 Bom 421).

A receipt stamped subsequent to its execution, but before being produced in the Court is not stamped in time and accordingly, not admissible in evidence. In view of the above. the provisions of Section 17 relating to stamping instruments are not complied with.

Question 16: What is the extent of liability of instruments to stamp duty where several instruments are executed in a single transaction? Explain with any one illustration.
Answer:

Section 4 of Indian Stamp Act, 1899 provides that, where in the case of any sale, mortgage or settlement, several instruments are employed for completing the transaction –

Only the principal amount shall be chargeable with the duty prescribed for the conveyance, mortgage or settlement

Each of the other instrument shall be chargeable with a duty of one rupee (instead of the duty if any prescribed for the other instruments)

Illustrations

A executed a conveyance of immovable property. On the same deed his nephew (undivided in status) endorsed his consent to the sale, as such consent was considered to be necessary.

It was held that the conveyance was the principal instrument. The consent was chargeable with only one rupee (ILR 13 Bom 281).

Subsequent to a sale of immovable property, two declarations were executed reciting that the sale was subject to an equitable mortgage created by the vendor. These declarations were held to be chargeable, together with the sale deed, as having completed the conveyance (Somaiya Organics Ltd. v. Chief Controlling Revenue Authority, AIR 1972 All 252).

Brother A executed in favour of brother B a gift of all his property. By another deed, brother B made provision for the living expenses of brotherA and hypothecating in favour of brother A a part of the property included in the above mentioned gift deed, in order to secure the payment of the living expenses.

It was held that the two documents were part of the same transaction. They amounted to a settlement and Section 4 applied (Maharaj Someshar Dutt, ILR 37 All 264).

B conveyed the whole of his property to three persons who undertook to provide for him and to perform his obsequies. By another document, the three donees agreed to provide for This was mentioned in the deed executed by A also.

It was held that the two documents had to be construed as part of the same act; the first was liable to duty as a conveyance while the second was liable to a duty of Rupee 1 only (Dadoba v. Krishna, ILR 7 Bom. 34).

A company executed, first a deed of trust and mortgage stating that the company was to issue notes for raising loans secured by the sale deed. It was held as under:

1. The deed was principal or primary security (and not a collateral security). It was chargeable as mortgage under Article 14.
2. The notes issued subsequently were debentures and not principal instruments (Madras Refinery Ltd. v. Chief Controlling Revenue Authority, Madras, AIR 1977 SC 500).

Question 17: Name of the officers of the Company who can be held liable in case the Company has issued share warrant without proper stamp duty. What shall be the penalty as prescribed under Sec. 62(2) of the Stamp Act.
Answer:

As per Section 62(2) of the Indian Stamp Act, 1899, if a share-warrant is issued without being duly stamped, the company issuing the same, and also every person who, at the time when it is issued, is the managing director or secretary or other principal officer of the company, shall be punishable with fine which may extend to five hundred rupees.

Question 18: Explain the terms ‘Patta’ and ‘Kabuliyat’, under the Indian Stamp Act, 1899.
Answer:

Patta and Kabuliyat: Both can roughly be said to be types of leases. The Indian Stamp Act, 1889 includes both the terms in its definition of lease as per Section 2(16).

A ‘patta’ is a legal document given to the owner of a land by the government. It generates from the term ‘pattani’ which indicated usufructuary land rights given by zamindars or land owners. In case of multiple owners of a common land, a single patta is issued in favour of all.

A ‘kabuliyat’ is a deed of settlement in favour of the lessee, which entails all land rights as long as he follows all the terms pertaining to the land transfer. Hence, the term ‘kabuliyat’ that derives meaning from the Urdu word ‘Kabul’, meaning ‘to accept’; here the acceptance pertains to the terms of land transfer.

Both indicate a kind of right over a property or the benefits arising therefrom, for a fixed period of time, usually exceeding a year. In both, some conditions are built into the agreement of transfer.

Question 19: Describe the concept of ‘E-Stamping’ under Indian Stamp Act, 1899.
Answer:

The concept of ‘E-Stamping’ under Indian Stamp Act, 1899

E-stamping is a computer-based method; an electronic way of paying stamp duty. This facility is not available in all the states and Union territories. To avail the facility, one needs to fill up an application form available at Authorized Collection Centres (ACCS) for stamp duty payment.

E-stamping is an alternate to the physical, paper based stamps. It is deemed to be a secure way of paying non-judicial stamp duty, since there is no paperwork involved and hence none of the problems associated with paperwork.

E-stamping is currently operational in the states of Gujarat, Ultimately, the vision is to have a paperless e-stamping system replacing the Karnataka, NCR Delhi, Maharashtra, Assam, Tamil Nadu, Rajasthan, Himachal Pradesh, Uttarakhand, and the union territories of Dadra & Nagar Haveli, Daman & Diu, Puducherry and Uttar Pradesh.

current stamping/franking system. This will, in turn, help reduce the danger of counterfeiting and make the work of stamping easier for all parties involved. It is extremely fast; the certificate is generated within minutes of the transaction.

Moreover, it cannot be tampered with, and is hence, entirely safe. Since there is less processing and administrative work involved, it is also more cost-effective.

Question 20: Explain the term “Receipt” under the Indian Stamp Act, 1889.
Answer:

As per the Indian Stamp Act, a “Receipt” means a note, memorandum or writing, which has the following features:

1. that acknowledges any money or any bill of exchange, cheque or promissory note as being received; or
2. that acknowledges any other movable property as being received in full or partial satisfaction of a debt; or
3. that acknowledges the satisfaction or discharge of any debt or demand; or
4. any such acknowledgment, whether signed with the name of any person or not. [Section 2(23)]

However, in case of immovable property, a mere acknowledgment in writing of the receipt will not be deemed to satisfy the requirements of the Section.

An acknowledgment in satisfaction or discharge of any debt or demand or any part thereof is also covered by the Section, even if given by for example, the secretary or the manager of a club or an association.

The exclusions are ordinary cash memos or invoices issued by shopkeepers etc., unless it specifically mentions receipt of the money. On the contrary, a mail or letter acknowledging the receipt of money in cash or via cheque shall be deemed to be a receipt.

Even a document that acknowledge the receipt of an amount shall be given the status of a receipt.

Question 21: Discuss the instruments which are Chargeable with duty under section 3 of the Indian Stamp Act, 1889.
Answer:

Instruments chargeable to stamp duty Instrument includes every document by which any right or liability, is, or purported to be created, transferred, limited, extended, extinguished or recorded [section 2(17) of Indian Stamp Act).

Any instrument mentioned in Schedule I to Indian Stamp Act is chargeable to duty as prescribed in the schedule [section 3]. The list includes all usual instruments like affidavit, lease, memorandum and articles of company, bill of exchange, bond, mortgage, conveyance, receipt, debenture, share, insurance policy, partnership deed, proxy, shares etc.

Thus, if an instrument is not listed in the schedule, no stamp duty is payable. ‘Instrument’ does not include ordinary letters. Similarly, an unsigned draft of an agreement is not an ‘instrument’.

Subject to the provisions of this Act and the exemptions contained in Schedule I, the following instruments shall be chargeable with duty of the amount indicated in that Schedule as the proper duty therefore-

Every instrument mentioned in that Schedule which, not having been previously executed by any person, is executed in India on or after the first day of July. 1899;

Every bill of exchange payable otherwise than on demand or promissory note drawn or made out of India on or after that day and accepted or paid or presented for acceptance or payment, or endorsed, transferred or otherwise negotiated, in India; and

Every instrument (other than a bill of exchange or promissory note) mentioned in that Schedule, which, not having been previously executed by any person, is executed out of India or after that day relates to ally property situate, or to any matter or thing done or to be done in India and is received in India.

Indian Stamp Act, 1899 Practical Questions

Question 1: Amit mortgages a house of the value of ₹ 25,000 to Bimal for 10,000. Bimal afterwards buys the house from Amit. Whether the stamp duty already paid is deductible from the stamp duty payable on 25,000?
Answer:

In this case, the mortgage deed would already be stamped, since it is a prior contract. Hence, the stamp duty already paid on it can be deducted from the duty payable now on the deed of sale.

So, only the balance duty is to be paid, i.e. the duty paid on mortgage would be less, and that required on sale would naturally be more, so the assessee now needs to pay the balance duty on the sale.

For such a ruling, however, the Act specifies the condition that the entire property should be sold.

Sale Price of house                                                                 ₹25,000

Amount for which it is already mortgaged                             10,000

= Amount on which duty is to be paid currently                    15,000

Question 2: Atul mortgages his house of the value of ₹ 50,000 to Vijay. After some time Vijay buys the house from Atul for 25,000. Decide the amount on which Vijay has to pay the stamp duty under Indian Stamp Act, 1899.
Answer:

Instrument includes every document by which any right or liability, is, or purported to be created, transferred, limited, extended, extinguished or recorded [Section 2(14) of the Indian Stamp Act, 1899].

Any instrument mentioned in Schedule I to Indian Stamp Act is chargeable to duty as prescribed in the Schedule [Section 3]. The list includes all usual instruments like affidavit, lease, memorandum and articles of company, bill of exchange, bond, mortgage, conveyance, receipt, debenture, share, insurance policy, partnership deed, proxy, shares etc.

Thus, if an instrument is not listed in the Schedule, no stamp duty is payable. ‘Instrument’ does not include ordinary letters. Similarly, an unsigned draft of an agreement is not an ‘instrument’.

In this case, the mortgage deed would already be stamped, since it is a prior contract. Hence, the stamp duty already paid on it can be deducted from the duty payable now on the deed of sale.

So, only the balance duty is to be paid, i.e. the duty paid on mortgage would be less, and that required on sale would naturally be more, so the assessee now needs to pay the balance duty on the sale.

For such a ruling, however, the Act specifies the condition that the entire property should be sold. If a mortgaged property is sold, then the stamp duty already paid on the deed will be deducted from the duty payable on the deed of sale.

However, the one condition essential for this is that the entire property should be transferred in this sale, not just a part of it (Mirabai, Inre Laxman and Ganpat).

The explanation to Section 24 says that in the case of sale of property that is already mortgaged to the buyer, any unpaid mortgage money or money charged together with the interest, if any, due on the same shall be deemed to be part of the consideration for the sale.

This is the case when the property subject to a mortgage is transferred to the mortgagee. In such a situation, he shall be entitled to deduct from the duty payable on the transfer on account of sale any duty already paid in respect of the mortgage.

Descriptive Questions

Question.1: What is the concept of apportionment as described in the Stamp Act?
Answer:

Apportionment

Section 28 of the Act contains rules regarding apportionment of consideration, in those cases where certain conveyances arising out of a property being contracted to be sold is thereafter conveyed in parts. It provides the following –

Section 28 (1)-

If the contract is for the property to be sold as a whole but conveyance to the purchaser is made in separate parts, the consideration shall be apportioned in such manner as the parties think fit, provided that a distinct consideration is set-forth for each separate part in the conveyance.

The conveyances shall be chargeable with ad valorem in respect of such distinct consideration pertaining to each conveyance.

Section 28 (2)-

If the contract is for the sale of a property as a whole to two or more purchasers jointly or by any person for himself and others, and the property is conveyed to them in parts by separate conveyances, then each distinct part of the consideration shall be chargeable with ad valorem duty in respect of the distinct part of the consideration so specified.

Section 28 (3) –

If a person, after contracting to purchase a property from another and before the property has been duly conveyed to him, enters into a contract to sell the property to a third person, and the contract is given effect to only by one conveyance from the owner of the property to the sub-purchaser directly, then the stamp duty payable is on the consideration paid by the sub-purchaser.

This provision ensures that double payment does not take place.

Section 28 (4) –

If a person contracts for the sale of property and before obtaining a conveyance in his favour, enters into a contract to sell the property in parts to other persons, the conveyances which may be executed directly by the owner to each sub-purchaser would be liable to be charged with duty in respect of the consideration paid by the sub-purchaser, original price for the whole and the aggregate price paid by the sub-purchasers, subject to a minimum duty of Re. 1/-.

Section 28 (5) –

If a person contracts to sell property to another person and again contracts to sell the same property to a third person and such third person obtains a conveyance first from the seller with whom he had contracted and later gets another conveyance of the same property from original seller, the duty is to be charged on the consideration received by the original seller subject to a maximum of ₹ 5.

Alternate Dispute Redressal (ADR)

ADR is a substitute for the more common judicial process. ADR includes methods like negotiation, conciliation, mediation and arbitration. It avoids the cost and time involved in the normal Court procedures.

Arbitration Agreement

It means an agreement between parties to refer present or future disputes arisen or arising between them to arbitration. Such disputes may arise out of contractual or other capacities.

Such an agreement can take two forms – it can be part of a contract, i.e. in the form of a clause in the main contract, or it can be a separate contract by itself. (Section 7)

Conciliation

It is an informal process in which both the disputing parties appoint a neutral conciliator or a third person to bring them to an agreement and to help end the dispute. This is done by sorting out any misinterpretations between the parties and removing the technical difficulties and working out possible solutions.

It is an alternative dispute resolution (ADR) process whereby the parties to a dispute using the help of a conciliator, resolve the issues bothering them.

Arbitration Award

The formalized outcome of arbitration; it outlines the final settlement between the parties.

Settlement Agreement

Sub-section (1) of Section 73 of the Arbitration and Conciliation Act, 1996 provides that when it appears to the conciliator that a settlement may be reached by the parties, he shall formulate the terms of a possible settlement and submit them to the parties for their observations.

After submission of the observations of the parties, the conciliator may reformulate the terms of a possible settlement in their light. Further sub-section (2) provides that if the parties reach agreement on a settlement of the dispute, they may draw up and sign a written settlement agreement.

Learn and Read More CS Executive JIGL Question and Answers

The settlement can be drawn up by the conciliator or he may assist the parties in doing so. Sub-section (3) states that once the parties sign the settlement agreement it shall be final and binding on the parties and persons claiming under them.

The settlement agreement so reached shall be authenticated by the conciliator.

Foreign Awards Enforcement of Certain Foreign Arbitral Awards

Chapters I and II of Part II of the Arbitration and Conciliation Act, 1996 deal with the enforcement of certain foreign awards made under the New York Convention and the Geneva Convention, respectively.

Sections 44 and 53 of the Act define foreign awards as to mean arbitral awards issued on differences between persons arising out of legal relationship, whether contractual or not, considered commercial under the law then in force in India.

Section 46 states that any foreign award which would be enforceable under this Chapter shall be treated as binding for all purposes on the persons as between whom it was made.

Such an award rnay be relied upon by any of those persons in defence proceedings and cases relating to set off, and in any other legal proceedings in India.

Lien on Arbitral Award

Lien on arbitral award and deposits as to costs Section 39(1) of the Arbitration and Conciliation Act, 1996 provides that the arbitral tribunal shall have a lien on the arbitral award for any unpaid costs of the arbitration.

Section 39 (2) states that if in any case an arbitral tribunal refuses to deliver its award except on payment of the costs demanded by it, the Court may order that the arbitral tribunal shall deliver the arbitral award to the applicant on payment into Court by the applicant of the due costs.

The Court may also order that out of the money so paid into Court there shall be paid to the arbitral tribunal by way of costs such sum as the Court may consider reasonable and that the balance of the money, if any, shall be refunded to the applicant.

International Commercial Arbitration

As per Section 2(1)(f) of the Arbitration and Conciliation Act, 1996, ‘international commercial arbitration’ means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is the following:

1. An individual who is a national of, or habitually resident in any country other than India.
2. A body corporate which is incorporated in any country other than India,
3. A company or an association or a body of individuals whose central management and control is exercised in any country other than India, (iv) The Government of a foreign country.

The Arbitration and Conciliation (Amendment) Act, 2019 was passed by the Parliament in order to facilitate the positioning of India as an arbitration hub, both domestic and international.

The salient features of the Arbitration and Conciliation (Amendment) Act, 2019, are as follows:-

1. Section 11 of the Act relating to “Appointment of Arbitrators” now has the appointment by arbitral institutions instead of directly by the * Supreme Court or High Court. Such “arbitral institutions” would be designated by the Supreme Court or High Court.
2.  Amended section 23 now provides that the “Statement of claim and defence” shall be completed within a period of six months from the 24 date of the receipt of the notice of appointment by the arbitrator.
3.  All acts done in good faith in the course of arbitration proceedings by the arbitrator or arbitrators shall be protected from any suit or other legal proceedings. Moreover, the arbitrator(s), the arbitral institutions and the parties shall maintain confidentiality regarding the information pertaining to the arbitral proceedings.
4. A new Part 1A was inserted to the Act; it provides for the establishment and incorporation of an independent body, the Arbitration Council of India. Its task shall be the grading of arbitral institutions and accreditation of arbitrators, amongst other works.
5. Only in situations when no graded arbitral institutions are available would the Chief Justice of the concerned High Court be allowed to maintain a panel of arbitrators for discharging the same functions and duties as those of arbitral institutions.

Legal Representative

The definition of “legal representative” given under Section 2(1)(g) of the Arbitration and Conciliation Act, 1996 has been taken from that given in Section 2(11) of the Code of Civil Procedure.

As per that definition, the following are the persons who shall be deemed to be legal representatives:

• A person who in law represents the estate of a deceased person.
• A person who inter meddles with the estate of the deceased. (c) A person on whom the estate of a deceased person devolves on the death of the party acting in a representative’s capacity.

Fast track procedure

Section 29B, added by the Arbitration and Conciliation (Amendment) Act, 2015 provides the parties to a dispute with an option to choose fast track procedure, even if they do not wish to subject their arbitration to any institutional rules.

The parties can agree to fast-track procedure at the time of entering into arbitration agreement or at any stage either before or at the time of the appointment of the arbitral tribunal.

It is also noteworthy that the enabling provision in Section 26 of the amendment Act provides for fast track arbitration to be applied to the existing disputes if the parties mutually agree to apply this procedure.

Appealable Orders

Section 37(1) provides an appeal shall lie from the following orders (and from no others), to the Court authorised by law to hear appeals from original decrees of the Court passing the order –

refusing to refer the parties to arbitration under section 8; granting or refusing to grant any measure under section 9; setting aside or refusing to set aside an arbitral award under section 34.

Further Section 37(2) provides that appeal shall also lie to a court from an order of the arbitral tribunal-

• accepting the plea referred to in sub-section (2) or sub-section (3) of section 16; or
• granting or refusing to grant an interim measure under section 17.

Section 37(3) states that no second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court.

Confidentiality of information to

Section 42A provides that notwithstanding anything contained in any other law for the time being in force, the arbitrator, the arbitral institution and the parties to the arbitration agreement shall maintain confidentiality of all arbitral proceedings except award where its disclosure is necessary for the purpose of implementation and enforcement of award.

Protection of action taken in good faith

According to Section 42B of the Act, no suit or other legal proceedings shall lie against the arbitrator for anything which is in good faith done or intended to be done under this Act or the rules or regulations made thereunder.

Arbitration Council Of India (Aci)

Part IA as inserted in the Amendment Act, 2019 deals with Arbitration Council of India. Establishment and incorporation of Arbitration Council of India Section 43B empowers the Central Government to establish the Arbitration Council of India to perform the duties and discharge the functions under the Arbitration Conciliation Act, 1996.

The Council shall be a body corporate by the name aforesaid, having perpetual succession and a common seal, with power, subject to the provisions of this Act, to acquire, hold and dispose of property, both movable and immovable, and to enter into contract, and shall, by the said name, sue or be sued.

The head office of the Council shall be at Delhi. The Council may, with the prior approval of the Central Government, establish offices at other places in India.

Composition of Council

1. According to Section 43C of the Act, the Council shall consist of the following Members, namely:-
2. a person, who has been, a Judge of the Supreme Court or, Chief Justice of a High Court or, a Judge of a High Court or an eminent person, having special knowledge and experience in the conduct or administration of arbitration, to be appointed by the Central Government in consultation with the Chief Justice of India-Chairperson;
3. An eminent arbitration practitioner having substantial knowledge and experience in institutional arbitration, both domestic and international, to be nominated by the Central Government-Member;
4. an eminent academician having experience in research and teaching in the field of arbitration and alternative dispute resolution laws, to be appointed by the Central Government in consultation with the Chairperson-Member;
5. Secretary to the Government of India in the Department of Legal Affairs, Ministry of Law and Justice or his representative not below the rank of Joint Secretary-Member, ex office
6. Secretary to the Government of India in the Department of Expenditure, Ministry of Finance or his representative not below the rank of Joint Secretary- Member, ex officio;
7. one representative of a recognised body of commerce and industry, chosen on rotational basis by the Central Government-Part-time Member; and
8. Chief Executive Officer-Member-Secretary, ex officio.

The Chairperson and Members of the Council, other than ex officio Members, shall hold office as such, for a term of three years from the date on which they enter upon their office.

Chairperson or appears to appears not to be working out, a switch is made to arbitration.

The conciliation process is handled by an impartial individual known as a conciliator, who meets with the parties involved and works with the parties involved to arrive at a settlement or resolution.

Arbitration is much like a mini court in which the parties need to present their case to a panel of arbitrators, along with supporting evidence.hetaget vlags side of under attach nevig is ‘no enolalo sioitu

The “conciliator” is an impartial person that assists the parties by driving their negotiations and directing them towards a satisfactory agreement. It is unlike arbitration in that conciliation is a much less adversarial proceeding; it seeks to identify a right that has been violated and searches to find the optimal solution.

Arbitration is one step ahead; it seeks to come to a settlement acceptable to both the parties. In this the arbitrator has a greater say.

Conciliation is used almost preventively, as soon as a dispute or misunderstanding surfaces: a conciliator pushes to stop a substantial conflict from developing. Arbitration tries to intervene in a substantial dispute that has already occurred that is difficult to resolve without external assistance.

Descriptive Questions

Question 1: Comment the following: Making of additional award by arbitral tribunal.
Answer:

Making of additional award by arbitral tribunal

Additional award is the award that is given by the arbitral tribunal at the instance of either party. It allows for claims that were originally included in the arbitral proceedings but omitted from the award.

The request for such an additional claim can be submitted within thirty days of the original award being received. The tribunal will intimate its decision within a period of sixty days, which period can be extended upon need.

This is under Section 33, which is for Correction and interpretation of award and additional award. This Section says that – Within thirty days from the receipt of the arbitral award, unless another period of time has been agreed upon by the parties, a party, with notice to the other party, may request the arbitral tribunal to correct any computational, clerical or typographical errors or any other errors of a similar nature.

If so agreed by the parties, a party, with notice to the other party, may request the arbitral tribunal to give an interpretation of a specific point or part of the award.

Within thirty days of receiving the award, either party can request the arbitral tribunal to make an additional arbitral award as to claims presented in the arbitral proceedings but omitted from the arbitral award.

The arbitral tribunal shall make the additional arbitral award within sixty days from the receipt of such request.

Question 2: State the various alternative dispute resolution mechanisms.
Answer:

The various alternative dispute resolution mechanisms

Alternate Dispute Redressal or ADR is a fine substitute for the more common judicial process. ADR includes methods like negotiation, conciliation, mediation and arbitration. All these modes have some common features, which make ADR a very viable and preferable mode in dealing with disputes.

Most commonly, these have a shorter time duration as compared to the Court route. The cost is considerably less than the Court and legal fees.

Privacy, neutrality of the proceedings and of the decision and possibilities of customizing the procedures are some more attractive features.

Section 2 (1)(a) of the Arbitration and Conciliation Act, 1996, defines “Arbitration means any arbitration whether or not administered by permanent arbitral institution.”
ARBITRATION can be defined as a method by which parties to a dispute get the dispute settled through the intervention of a third independent person.

Parties can also settle their disputes through a permanent arbitral Institutions like, Indian Council of Arbitration, Chamber of Commerce, etc. Arbitration, a form of alternative dispute resolution (ADR), is a legal technique for the resolution of disputes outside the Courts, thus saving time and money.

In this, the parties to a dispute refer it to one or more persons (the “arbitrators” or “arbitral tribunal”), by whose decision (known as the “arbitral award”) they agree to be bound.

Conciliation: It is an informal process in which both the disputing parties appoint a neutral conciliator or a third person to bring them to an agreement and to help end the dispute.

This is done by sorting out any misinterpretations between the parties and removing the technical difficulties ard working out possible solutions. It is an alternative dispute resolution (ADR) process whereby the parties to a dispute using the help of a conciliator, resolve the issues bothering them. The conciliator meets with the parties separately in an attempt to resolve their differences.

They help by lowering tensions, improving communications, interpreting issues, providing technical assistance, exploring potential solutions and bringing about a negotiated, mutually acceptable settlement.

Negotiation is when the two parties to the dispute choose to settle the matter by themselves, by discussing and compromising.

Mediation is when the two parties appoint a mediator or a person who interacts with both parties, clarifying the views of one party to the other and vice versa. The mediator clarifies the matter and brings about an agreement by bringing greater understanding to it.

Question 3:Enumerate the grounds on which an arbitral award may be challenged before the Court.headl
Answer:

An arbitral award may be challenged in the following ways:

Under Section 33 of the Arbitration and Conciliation Act, 1996. It has been provided under this section that an arbitral award may be corrected or interpreted on application by someone who has been a party to the proceedings.

This application has to be given to the arbitral tribunal, with due notice to the other party, within thirty days of the receipt of the award. The reason for such correction might be existence of clerical, typographical or computational errors in the award.

Similarly, for interpretation of the award also, an application may be sent to the tribunal within 30 days of the receipt of the award. In both these cases, the tribunal may extend the time by a further period of thirty days. The tribunal can also correct an award suo moto within thirty days of passing that award.

As per Section 34(2), an arbitral award can be set aside on the following grounds

• Incapacity of parties
• Arbitration agreement is not valid under the law the parties to it have

subjected it to – the applicant was not given proper notice or was not able to properly

present his case – dispute or matters or decision not within the scope of submission to

arbitration-

• the composition of the arbitral tribunal not in accordance with agreement
• the subject matter is not a subject of arbitration
• It is against the public policy to India.

Question 4: Define ‘international commercial arbitration’.
Answer:

‘International commercial arbitration’

International Commercial Arbitration refers to arbitration proceedings in which one party is Indian and the other belongs to a foreign country. Such proceedings relate to disputes pertaining to matters strictly commercial thereby leaving out large category of cases related to a personal, domestic or non-commercial matters.

In such a situation, since the disputing parties belong to two different countries it is standard procedure to have the arbitrator from a neutral third country.

In the case of international commercial arbitration, the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, and in other cases, a High Court having jurisdiction to hear appeals from decrees of courts subordinate to that High Court.

“International commercial arbitration as per the Arbitration and Conciliation Act means “an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under law in force in India and where at least one of the parties is:

1. an individual who is a national of, or habitual resident in, any country other than India; or
2. a body corporate which is incorporated in any country other than India; or
3. a company or an association or a body of individuals whose central management and control is exercised in any country other than India; or
4. the Government of a foreign country.” [Section 2(1)(f)]

Question 5: What is ad hoc arbitration? How has the ‘Court’ been defined under the Arbitration and Conciliation Act, 1996?
Answer:

Ad hoc arbitration:

Arbitration is an effective form of alternative dispute resolution (ADR), which allows disagreements between two parties to be resolved outside of the traditional Court system, by agreeing upon an arbitrator or arbitrators to determine the matter.

In an arbitration case the parties to a dispute will refer it to the ‘arbitrators’ or an ‘arbitral tribunal’ – by whose decision or award they agree to be bound. Arbitration is often used to resolve commercial disputes, particularly in the context of international commercial transactions, as it saves time and legal cost.

An ad hoc arbitration is one which is not administered by an arbitral institution such as the ICC, LCIA, DIAC or DIFC. The parties, in such a case, have to settle upon the mandate or the terms of reference upon which the arbitration is to take place.

This includes the time, place and methodology to be used. If the parties approach the arbitration with open minds and a spirit of co-operation, ad hocproceedings have the potential to be more flexible, faster and cheaper than institutional proceedings.

There can be substantial cost and time savings as compared to institutional arbitration. Alternatively, the two can be combined, leading to a better structured process that benefits all involved.
Advantages of ad hoc arbitration is inatuomall

• Beneficial for smaller claims and for parties who cannot bear the financial rigours of institutional arbitration.
• More flexible process.
• Quicker as there are no set or regulated time lines.

Section 2 (1) (e) in The Arbitration And Conciliation Act, 1996 defines “Court” as the principal Civil Court of original jurisdiction in a district and includes the High Court in exercise of its ordinar original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any civil court of a grade inferior to such principal Civil Court, or any Court of Small Causes.

The definition comes into use when arbitration fails and the matter comes up before a Court for settlement. With the help of this definition, the relevant Court can then be selected for proceeding on the matter that could not be resolved by arbitration.

Question 6: Define ‘legal representative’ under the Arbitration and Conciliation Act, 1996.
Answer:

‘legal representative’ under the Arbitration and Conciliation Act, 1996

The definition of “legal representative” given under Section 2(1)(g) of the Arbitration and Conciliation Act, 1996 has been taken from that given in Section 2(11) of the Code of Civil Procedure.

As per that definition, the following are the persons who shall be deemed to be legal representatives: ONG

1. A person who in law represents the estate of a deceased person.
2. A person who inter meddles with the estate of the deceased.
3. A person on whom the estate of a deceased person devolves on the death of the party acting in a representative’s capacity.

The following persons are also generally included in the list of legal representatives as mentioned above:

• Executors and administrators duly appointed.
• Person who has taken on himself duties and responsibilities which belong to the executor or administrator though only in respect of a part of the estate.
• Heirs-at-law gaining rights either by succession or by survivorship.
• Revisioners at law, when the action has been brought by or against the widow representing her husband’s estate.
• Universal legatee, i.e. a person who has been named in a legacy as the beneficiary of all the effects of the testator.

Question 7: What is an ‘arbitral award’ under the Arbitration and Conciliation Act, 1996? Explain.
Answer:

‘Arbitral award’ under the Arbitration and Conciliation Act, 1996

The formalized outcome of arbitration; it outlines the final settlement between the parties. Section 2(1)(c) of the Arbitration and Conciliation Act, 1996 contains the definition of an arbitral award, which includes an interim award.

The essential ingredients of an arbitral award, however, are contained in Section 31 of the Act, which contains the details regarding the form and contents of such an award. It can be a ‘speaking award’ or a simple one, just giving the decision.

In case it is a speaking award, it will be more detailed, giving the reasons and justifications for the award. It will contain also the date and place of passing the award (Section 20). The prescribed form requires that the award be in writing and signed by the members of the tribunal.

Moreover, if th award includes decision regarding monetary payments, it has to contain details of payment, interest to be paid alongwith and the specifications regarding the period to which therse sums pertain. It will also speak of the allocation of the cost of arbitration, i.e. in what ratio are the parties to bear it, who should bear it etc.

Question 8: What is meant by ‘arbitration agreement’ under the Arbitration and Conciliation Act, 1996? Should the arbitration agreement be in writing and whether jurisdiction of civil court is barred?
Answer:

Arbitration agreement

“Arbitration agreement” means an agreement covered under section 7 of the Arbitration and Conciliation Act, 1996 [Section 2(1)(b)]. It has been defined to mean an agreement by parties to submit to arbitration disputes which have arisen or which may arise between them in respect of a defined legal relationship.

The legal relationship may arise out of a contract, although it is not essential that it be so. Sub-section (2) says that an arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

Sub-section (3) specifically states that an arbitration agreement shall be in writing.

Sub-section (4) spells out that an arbitration agreement can be deemed to be in writing if it is:

• created as a document signed by the parties; or
• an exchange of communication by any means which provides a record of the agreement and its terms;
• an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.

Sub-section (5) provides another alternative to the above mentioned condition, it states that even if there is a clause in contract referring to another contract in which an arbitration clause exists, that shall also be deemed to be an arbitration agreement.

Question 9: What are the grounds for setting aside an arbitral award under the Arbitration and Conciliation Act, 1996?
Answer:

Application for Setting Aside Arbitral Award

Section 34(1) provides that recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and subsection (3).

Section 34 (2) states that an arbitral award may be set aside by the Court only if,

the party making the application establishes on the basis of the record of the arbitral tribunal that-,

1. a party was under some incapacity, or
2. the arbitration agreement is not valid under the law to which the parties have subjected it or the law for the time being in force; or
3. the party making the application was not given proper notice of the has appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
   (RGA)
4. the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration. However, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
5. the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part; or

the Court finds that,

1. the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
2. the arbitral award is in conflict with the public policy of India. Explanation 1 to the Sub-section provides that –

An award is in conflict with the public policy of India, only if,

1. the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or
2. it is in contravention with the fundamental policy of Indian law; or
3. it is in conflict with the most basic ( notions of morality or justice.

Explanation 2 provides that –

For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.

As per Section 34(2A) an arbitral award arising out of arbitrations, other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award:

However, an award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciation of evidence.

Section 34 (3) provides that an application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal.

Although if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.

Under Section 34(4) on receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award.app

As per Section 34(5) an application under this section shall be filed by a party only after.issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement.

Under Section 34(6) an application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in sub-section (5) is served upon the other party.

Question 10: What is meant by alternative dispute resolution (ADR)? Which are the areas in which ADR works?
Answer:

Alternative dispute resolution

Alternate Dispute Redressal or ADR is a fine substitute for the more common judicial processes. ADR includes methods like negotiation, conciliation, mediation and arbitration. All these modes have some common features, which make ADR a very viable and preferable mode in dealing with disputes.

Most commonly, these have a shorter time duration as compared to the Court route. The cost is considerably less than the Court and legal fees. Privacy, neutrality of the proceedings and of the decision and possibilities of customizing the procedures are some more attractive features.

Section 2 (1)(a) of the Arbitration and Conciliation Act, 1996, defines “Arbitration means any arbitration whether or not administered by permanent arbitral institution.” ARBITRATION can be defined as a method by which parties to a dispute get the dispute settled through the intervention of a third independent person.

Parties can also settle their disputes through a permanent arbitral Institutions like, Indian Council of Arbitration, Chamber of Commerce, etc.

Arbitration, a from of alternative dispute resolution (ADR), is a legal technique for the resolution of disputes outside the Courts/Tribunal, thus saving time and money. In this, the parties to a dispute refer it to one or more persons (the “arbitrators” or “arbitral tribunal”), by whose decision (known as the “arbitral award”) they agree to be bound. Areas in which ADR operates: 100

ADR can be used in almost all types of disputes, including commercial, civil, labour and family disputes, in respect of which the parties are entitled to reach to a settlement. It is especially beneficial in the commercial and business environment, especially in respect of disputes involving joint ventures, construction projects, partnership differences, intellectual property, personal injury, product liability, professional liability, real estate, securities, contract interpretation and performance and in insurance claims.

Question 11: Explain briefly the terms ‘conciliation’ and ‘mediation’.
Answer:

‘Conciliation’ and ‘mediation’

Alternate Dispute Redressal or ADR is a fine substitute for the more common judicial process. ADR includes methods like negotiation, conciliation, mediation and arbitration.

Conciliation: It is an informal process in which both the disputing parties appoint a neutral conciliator or a third person to bring them to an agreement and to help end the dispute.

This is done by sorting out any misinterpretations between the parties and removing the technical difficulties and working out possible solutions. It is an alternative dispute resolution (ADR) process whereby the parties to a dispute using the help of a conciliator, resolve the issues bothering them.

Mediation: When the two parties appoint a mediator or a person who interacts with both parties, clarifying the views of one party to the other and vice versa. The mediator clarifies the matter and brings about an agreement by bringing greater understanding to it.

Question 12: Does the Alternate Dispute Resolution (ADR) processes provide procedural flexibility of a conventional trial? Explain.
Answer:

ADR is a substitute for the more common judicial process. ADR includes methods like negotiation, conciliation, mediation and arbitration. It avoids the cost and time involved in the normal Court procedures.

Alternate Dispute Redressal or ADR is a fine substitute for the more common judicial process. ADR includes methods like negotiation, conciliation, mediation and arbitration. All these modes have some common features, which make ADR a very viable and preferable mode in dealing with disputes.

Most commonly, these have a shorter time duration as compared to the Court/Tribunal route. The cost is considerably less than the Court/Tribunal and legal fees. Privacy, neutrality of the proceedings and of the decision and possibilities of customizing the procedures are some more attractive features.

Question 13: Discuss the provisions regarding the appointment of arbitrators under the Arbitration and Conciliation Act, 1996.
Answer:

The appointment of arbitrators under the Arbitration and Conciliation Act, 1996

Section 11 in The Arbitration And Conciliation Act, 1996, as amended by the 2019 amendment Act, provides the following for the appointment of arbitrators. –

1. The arbitrator can be a person of any nationality. The parties, may, however, decide otherwise.
2. Other than in cases covered under sub-section (6), the parties may agree on any procedure for appointment of the arbitrator(s).
3. If the parties are not able to come to a mutually acceptable decision under sub-section (2), and in an arbitration with three arbitrators, each party shall then appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator for that matter.
4. In case the appointment has been made under sub-section (3) and in case-
   • a party fails to appoint an arbitrator within thirty days of receiving a request for the same from the other party; or 20s
   • the two appointed arbitrators are unable to agree on the third Pomoble arbitrator within thirty days from the date of their own appointments, he/she will be appointed by the Chief Justice or any person or ebiatuo institution designated by him, upon a request for the same by the party/parties.
5. If the parties fail to come to an agreement as per sub-section (2) and in case of an arbitration with a sole arbitrator, if the parties fail to agree upon the name of the arbitrator within thirty days from receipt of a request by one party from the other party, the appointment shall be made by the Chief Justice or any person or institution designated by him.
6. This shall be done upon request of a party. If even after an appointment procedure agreed upon by the parties,-
   • a party fails to act as required under that procedure; or
   • the parties, or the two appointed arbitrators, fail to reach an agreement under that procedure; or
   • a person, including an institution, fails to perform any function entrusted to him or it under that procedure, then a party may request themin the Chief Justice or any person or institution designated by him to to take the necessary steps. If, however, the agreement on the (aham appointment procedure provides other means for securing the appointment, that can have precedence.
7. In relation to a decision on a matter under sub-section (4), (5) or (6), ane decision of the Chief Justice or the person or institution designated by end him is final.
8. The Chief Justice or the person or institution designated by him, in arst appointing an arbitrator, shall give credence to
   • any qualifications required of the arbitrator according to the agreement between the parties; and
   • other considerations essential to ensure that the arbitrator appointed is independent and impartial.goo
9. In the case of appointment of sole or third arbitrator in an international commercial arbitration, the Chief Justice of India or the person or te institution designated by him may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities, in case (s)he believes that it will serve better the de purposes of his/her appointment.
10. The Chief Justice may make any provisions/scheme for matters sub-section (4), (5) or (6) as (s)he deems essential or expedient.
11. Where multiple requests have been made under sub-section (4), (5) or (6) to the Chief Justices of different High Courts or their designates, the Chief Justice or his designate to whom the request was first made under the relevant sub-section shall have sole competency to decide upon the matter.
    • Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and (10) arise in an international commercial arbitration, the reference to “Chief Justice” in those sub-sections shall be construed as a reference to the “Chief Justice of India”. NO
    • Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and (10) arise in any other arbitration, the reference to “Chief Justice” in those sub-sections shall be construed as a reference to sine the Chief Justice of the High Court within whose local limits the principal Civil Court referred to in clause (e) of sub-section (1) of section 2 is situate and, where the High Court itself is the Court toale referred to in that clause, to the Chief Justice of that High Court.

Question 14 : Explain the provisions regarding the appointment of Conciliator under Arbitration and Conciliation Act, 1996. State the role of the Conciliator to settle the dispute. wote se nominion
Answer:

The appointment of Conciliator under Arbitration and Conciliation Act, 1996

It is an informal process in which both the disputing parties appoint a neutral conciliator or a third person to bring them to an agreement and to help end the dispute. This is done by sorting out any misinterpretations between the parties and removing the technical difficulties and working out possible solutions.

It is an alternative dispute resolution (ADR) process whereby the parties to a dispute using the help of a conciliator, resolve the issues bothering them. As per Sub-section (1) of section 64-b bnegebni ai

Appointment of conciliator

• in conciliation proceedings with one conciliator, the parties may agree on the sole conciliator;
• in conciliation proceedings with two conciliators, each party may appoint one conciliator;
• in conciliation proceedings with three conciliators, each party may appoint one conciliator each and the parties may agree on the name of the third conciliator who will be the presiding conciliator.
• As per Sub-section (2) of section 64, parties may take the help of a suitable institution or person in connection with the appointment of conciliators, and choose the conciliator on their recommendation, or may choose that the institution or person select the conciliator. In both these cases, the institution or person shall keep in mind that an independent and impartial conciliator be appointed.

Role of conciliator

• The conciliator meets with the parties separately in an attempt to resolve their differences.
• They help by lowering tensions, improving communications, interpreting issues, providing technical assistance, exploring potential solutions and bringing about a negotiated, mutually acceptable settlement.
• As per Sub-section (1) of section 67, the conciliator is to maintain independence and impartiality.
• Further Sub-section (2) of section 67 says that provides that the conciliator is to be objective, fair and just. He should be considerate of the rights and obligations of both the parties equally, the trade usages, kany business practices used and the circumstances pertaining to the dispute.
• As per sub-section (3) the conciliator should conduct the proceedings as per the circumstances of the case, the wishes of the parties, any special requests by either party for oral statements, or the expediency.
• As per Sub-section (4), the conciliator may, as he thinks fit, make proposals for a settlement of the dispute at any stage of the conciliation proceedings. It is not essential for such proposals to be in writing and accompanied by a statement of the reasons for the proposal.

Question 15: What is Conciliation? Bring out some differences between Arbitration and Conciliation.
Answer:

Conciliation

Conciliation is one of the non-binding procedures where an impartial third party, known as the conciliator, assist the parties to a dispute in reaching a mutually agreed settlement of the dispute.

As per the Halsbury Laws of England, conciliation is a process of persuading parties to each an agreement. Because of its non-judicial character, conciliation is considered to be fundamentally different from that of litigation.

The simplest meaning of conciliation is the settlement of the disputes outside the court .It is a process by which the discussion between the parties are kept going through the participation of a conciliator.

Conciliation is one of the non-binding procedures where an impartial third party, known as the conciliator, assist the parties to a dispute in reaching a mutually agreed settlement of the dispute.

The difference between arbitration and conciliation can be drawn clearly on the following grounds:

Arbitration refers to a method of resolving industrial disputes, wherein the management and the labour present their respective positions to the rie neutral third party, who takes a decision and imposes it.

Conciliation is a method of resolving the dispute, wherein an independent person, who not meet the parties jointly and severally and helps them to arrive at 32 negotiated settlement or resolve their differences.

The decision made by the arbitrator is acceptable to the parties concerned. On the other hand, the conciliator does not have the right to enforce his decision. [(S)St .nottoe2]

Arbitration requires a prior agreement between parties known as had arbitration agreement, which must be in writing. As against this, the process of conciliation doesn’t require any prior agreement.

Arbitration is available for the current and future disputes whereas the conciliation can be adopted for existing disputes only.

Arbitration is like a courtroom proceeding, wherein witnesses, evidence, cross-examination, transcripts and legal counsel are used. On the contrary, Conciliation is an informal way of resolving disputes between add the management and labor.

Question 16: Discuss in detail, the grounds for setting aside arbitral award with special reference to public policy doctrine under the Arbitration and Conciliation Act, 1996 Inamese notarsiche
Answer:

The grounds for setting aside arbitral award with special reference to public policy doctrine under the Arbitration and Conciliation Act, 1996 Inamese notarsiche

Section 34(2) of Arbitration and Conciliation Act, 199 states that an arbitral award may be set aside by the Court only if –

The party making the application furnishes proof that –

1. Party was under some incapacity, or
2. the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under wolle the law for the time being in force; or
3. the party making the application was not given proper notice of the
   entas tappointment of an arbitrator or of the arbitral proceeding or was otherwise unable to present his case; or 8-10
4. the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it tadighid contains decisions on matters beyond the scope of the submitted Vnackbird to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
5. the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of Part I from which the parties cannot derogate, or, failing such agreement, was not in accordance with Part I: or

the Court finds that,

1. the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
2. the arbitral award is in conflict with the public policy of India.

Question 17: Discuss briefly the grounds for opposing the ‘foreign award’ made under the Arbitration and Conciliation Act, 1996.
Answer:

The grounds for opposing the ‘foreign award’ made under the Arbitration and Conciliation Act, 1996

The grounds for opposing the enforcement of a foreign award are given in Section 48 of the Arbitration and Conciliation Act, 1996. The section provides that the party against whom the award is invoked can use the

following grounds for opposing its enforcement:

• The parties to the agreement were under some incapacity.
• The agreement itself is not valid.
• Proper notice period was not observed while sending a notice to the party against whom the award is now invoked, resulting in his inability to present his case properly.
• The subject matter is related to something that does not fall within the list of matters that can be submitted for arbitration.
• The decisions under the award are inclusive of beyond the scope of arbitration. If the decisions are severable, the part that can be allowed under arbitration can be enforced.
• The composition of the arbitral tribunal is faulty or the procedure is subject to question, because it is not as per the agreement or as per the law of the country where the procedure is taking place.
• The award has yet to become binding on the parties involved.
• It has been set aside by some competent authority or under some law of the country in which it has been passed.
• The subject matter is such that it cannot be referred to arbitration.
• The enforcement of such an award would be against the public policy of doIndia.

Question 18:Explain in brief the ‘International Commercial Arbitration’ under the Arbitration and Conciliation Act, 1996.
Answer:

‘International Commercial Arbitration’ under the Arbitration and Conciliation Act, 1996

International Commercial Arbitration: As per Section 2(1)(f) of the Arbitration and Conciliation Act, 1996, international commercial arbitration’ means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is the following:

• An individual who is a national of, or habitually resident in any country other than India.
• A body corporate which is incorporated in any country other than India,
• A company or an association or a body of individuals whose central management and control is exercised in any country other than India,
• The Government of a foreign country.

Question 19: Discuss in brief the provisions for challenging the arbitrator under the Arbitration and Conciliation Act, 1996.
Answer.

Grounds for challenge of an arbitrator – Section 12

This section provides that an arbitrator is to inform in writing any of the following facts, if they exist when he is approached by any party or parties regarding his appointment as an arbitrator in their matter:

• Direct or Indirect past or present relationship or interest in the parties or the subject matter, which puts his independence in doubt.
• His doubts regarding his ability to devote the required time for resolution of the matter under arbitration. [Section 12(1)]

Such information should be given at the time of appointment by the arbitrator if it already exists, or else, if it arises later, he should convey it to the parties as and when it arises. [Section 12(2)]

The third sub-section specifies that these are the only grounds for challenging an arbitrator, other than insufficiency of qualifications in the part of the arbitrator. Such a challenge can be affected by a party even against an arbitrator he himself has appointed, or in whose appointment, he has aided.

This can be done for reasons that he became privy to after the appointment of the arbitrator. [Section 12(4)] spet ons alghane noiterimaxe-alba.

Section 12(5) provides that if there exists any relationship with the parties as per the Seventh Schedule of the Act, the arbitrator’s appointment can be challenged.

Question 20: Explain the provisions for obtaining interim relief from Court, when there exists arbitration agreement among parties.
Answer:

Interim Measures Ordered by Arbitral Tribuna lo.

Section 17(1), as per the Arbitration and Conciliation (Amendment) Act, 2019, provides that a party may, during the arbitral proceedings apply to the arbitral tribunal for the following – appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings;

or if take an interim measure of protection in respect of any of the following matters, namely:-

1. the preservation, interim custody or sale of any goods which are the subject matter of the arbitration agreement, especially those of a wasting nature; om atuais any aleeb biswis isdichs ertt (w)
2. securing the amount in dispute in the arbitration;
3. the detention, preservation or inspection of any property or thing that to be is the subject-matter of the dispute in arbitration, or as to which any anekem question may arise. For this purpose, the court may authorise any person to enter upon any land or building in the possession of any cons peparty, or allow samples to be taken, or any observation to be made, (extion or for an experiment to be conducted, that they may deem expedient for the purpose of obtaining full information or evidence; and
4. interim injunction or the appointment of a receiver;
5. such other interim measure of protection as may appear to the arbitral tribunal to be just and convenient.omelle erif al printienice

To this end, the arbitral tribunal shall have the same power for making orders as the court has for these purposes. Also, as per Sub-section (2), subject to any orders passed in an appeal under section 37 of the Act.

any order issued by the arbitral tribunal under this section shall be deemed to be an order of the Court for all purposes and shall be enforceable under the Code of Civil Procedure, 1908, in the same manner as if it were an order of the Courtalo erit yolabam roilagelle

Question 21 : Explain the basic features of Arbitral Award under the Arbitration and Conciliation Act, 1996.be ett to
Answer:

The basic features of Arbitral Award under the Arbitration and Conciliation Act, 1996 be ett to

As per Section 2(1) (c) of the Arbitration and Conciliation Act, 1996, “arbitral award” includes an interim award. The definition does not give much detail of the ingredients of an arbitral award. However, taking into account other provisions of the Act, the following features are noticed:

1. The arbitral award is required to be made on stamp paper of prescribed value (as applicable at the place of making the award) and in writing.
2. The award is to be signed by the members of the arbitral tribunal.
3. The making of an award is a rational process which is accentuated by recording the reasons. The award should contain reasons.
4. The award should be dated i.e. the date of making of the award should be mentioned in the award.
5. Place of arbitration is important for the determination of rules applicable to substance of dispute, and recourse against the award. Place of arbitration refers to the jurisdiction of the Court of a particular city or State.
6. The arbitral tribunal may include in the sum for which award is made, interest upto the date of award and also a direction regarding future interest.
7. The award may also include decisions and directions of the arbitrator regarding the cost of the arbitration.
8. After the award is made. a signed copy should be delivered to each party for appropriate action like implementation or recourse against arbitral award.

Question 22: Describe “Arbitration Agreement” specified under Section 7 of the Arbitration and Conciliation Act, 1996.
Answer:

Arbitration Agreement

According to Section 2(1) (b) of the Arbitration and Conciliation Act, 1996, arbitration agreement means an agreement referred to in Section 7 of the Act.

Under Section 7, the Arbitration agreement has been defined to mean an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

• An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
• An arbitration agreement shall be in writing.
• An arbitration agreement is in writing if it is contained in:
  • a document signed by the parties;
  • an exchange of letters, telex, telegrams or other means of telecommunication including communication through electronic means which provide a record of the agreement; or
  • an exchange of statements of claim and defence in which the Texistence of the agreement is alleged by one party and not denied loved by the other.
• The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.

Question 23: Under the circumstances and arbitral award may be set aside by the Court under the provisions of Arbitration and Conciliation Act, Explain any four.

Answer:

Under the circumstances and arbitral award may be set aside by the Court under the provisions of Arbitration and Conciliation Act,

According to Section 34(2) of the Arbitration and Conciliation Act, 1996, an arbitral award may be set aside by the Court only if the party making the application furnishes
proof that-

a party was under some incapacity, or

the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the no time being in force; or

the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:

Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or  the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or

Further, the Court finds that the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or the Court finds that the arbitral award is in conflict with the public policy of India.

Question 24: State the provisions of Section 25 in Arbitration and Conciliation Act, 1996 regarding default of a party.

Answer:

As per Section 25 of the Arbitration and Conciliation Act, 1996, the following would count as defaults, unless the parties have agreed to something in the alternate:

If the claimant fails to communicate his statement of claim as per Section 23(1). In this situation, the arbitral tribunal shall terminate the proceedings;

If the respondent does not communicate his statement of defence as per Section 23(1). In this case, the tribunal shall continue the proceedings. The failure to communicate shall not be taken as an admission of the allegation made by the claimant.

If a party fails to appear a an oral hearing or to submit documentary evidence when asked to do so, the tribunal may continue the proceedings if they think fit. In this case, they shall make the arbitral award on the basis of the evidence already before them.

Question 25: Elaborate the provisions of Section 32 of Arbitration and Conciliation Act, 1996 regarding the termination of arbitral proceedings.
Answer:

As per Section 32 (1) of the Arbitration Act, 1996, the arbitral proceedings shall be terminated by –

• the final arbitral award or og lenoit sal brows ne
• the order of the arbitral tribunal under section 32 (2).

The arbitral tribunal shall issue an order for the termination of the arbitral proceedings in cases where –

• the claim stands withdrawn by the claimant, unless the respondent objects to the order. For this decision to be taken, the tribunal has to decide that a legitimate interest exists, in obtaining a final settlement of the dispute.
• the parties agree on the termination of the proceedings.
• the arbitral tribunal finds that the continuation of the proceedings has for become unnecessary or impossible, due to any reason whatsoever.

Section 32(3) decrees that the mandate of the arbitral tribunal comes to an end with the termination of the arbitral proceedings. This is subject to the provisions of Sections 33 and 34(4) of the Act, which may cause it to continue to a future point.

Question 26: Explain the interim measures of protection for which a party during the arbitral proceedings may apply to the arbitral tribunal under section 17(1) of Arbitration and Conciliation Act, 1996.
Answer:

Interim measures for protection of a party during arbitration:

Substitution of functionaries (Section 17) Section 17 of the Act as amended by the 2015 Amendment Act has specified the types of reliefs which a party could seek, which are as under:

1. appointment of a guardian,
2. securing the amount of dispute in the arbitration,
3. preservation, interim custody or sale of any goods or property which are the subject matter of the arbitration agreement.

This was done to equip the tribunal with the same powers as enjoyed by a civil court Under Section 9 of the Act, in context of grant of interim measures. The High Court at Madras declared that the power to pass interim measures creates a discretionary power in favour of the tribunal.

This power works as per the same principles governing the grant of such reliefs by the civil court. Moreover, the 2015 Amendment Act provides that an order passed by the arbitral tribunal under this Section would have the same importance as is accorded to a Court order.

Also, the same could be enforced under the Code of Civil Procedure, 1908. Such an order, although, can be passed even after the tribunal has made the award but necessarily before the enforcement of the order as per the provisions of Section 36.

The logic behind this is that as soon as the order is passed, the arbitral tribunal, by requirement, becomes functus officio, and thus, is not eligible for passing an interim order.

The following interim measures may be ordered by arbitral tribunal.:

“Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order a party to take any interim measure of protection as the arbitral tribunal may consider necessary in respect of the subject-matter of the dispute.

The arbitral tribunal may require a party to provide appropriate security in connection with a measure ordered under sub-section (1).

Question 27: What are the ways in which arbitral proceeding is terminated under the Arbitration and Conciliation Act, 1996? Explain.
Answer:

Termination of Proceedings

Section 32 of the Arbitration and Conciliation Act, 1996, provides for the termination of proceedings. As per the Section, the proceedings may be terminated by:

1. the final arbitral award or
2.  by an order of the arbitral tribunal under sub-section (2).

Sub-section (2) gives the arbitral tribunal the authority to issue an order for the termination of the arbitral proceedings if –

1. the claimant withdraws his claim, unless it is objected to by the respondent objects and in addition, the tribunal gives credence to a legitimate interest on the part of the respondent who intends to obtain a final settlement of the dispute,
2. the parties agree on the termination of the proceedings, or
3. the tribunal believes that the continuation of the proceedings has now become unnecessary or impossible, montelle minemi

Section 32(3)provides that the mandate of the tribunal shall end with the termination of the arbitral proceedings, unless situations subject to the provisions of Sections 33 and 34(4) of the Act provide otherwise.

Question 28: “Alternative Dispute Resolution is not an alternative to the court system but only meant to supplement the same aiming on less lawyering”. Comment.

Answer:

“Alternative Dispute Resolution is not an alternative to the court system but only meant to supplement the same aiming on less lawyering”.

The Alternative Dispute Resolution (ADR) processes provide procedural flexibility, save valuable time and money and avoid the stress of a conventional trial.

ADR can help in reducing the workload of regular courts and in long run can pave way in solving the problem of judicial arrears before the Courts of law.

ADR is not meant to supplant the court system because the conclusions arrived through these mechanisms are recognised by the Courts and there are provisions in law that allow for appeal against the ADR outcome in regular courts.

Arbitration, mediation and conciliation are three of the most popular means of ADR. Arbitration is the means by which parties to a dispute get the same settled through the intervention of a third person (or more persons) but without recourse to a Court of Law.

The parties repose confidence in the judgement of the arbitrator and show their willingness to abide by his decision.

Major Amendments as per October 2015 Ordinance Act

Part I of the Act has been made applicable on International Commercial Arbitration taking place outside India. This has the following effects

• Seeking interim relief from courts [Section 9] edenennu
• Seeking the assistance of the court in taking evidence [Section 27]
• Appealing against the order of a court where the court refuses to refer the parties to arbitration. [Section 37(1) (a)]
• Restricting the right to second appeal and preserving the right of parties to approach the Supreme Court in appeal. [Section 37 (3)]

Fast-track Arbitration red but abmudnimidis

Time limit for making award

Award within 12 months

The arbitral tribunal is statutorily obligated to deliver an award within 12 months from the date when arbitral tribunal enters into reference., which is the date on which the arbitrator(s) have received notice of their appointment.

Maximum delay of 6 months

The award can be delayed by a maximum period of 6 months only under the special circumstances where all parties give their consent to such extension of time.

Additional Fees for faster disposal

Where the Arbitral Tribunal delivers the award within a period of 6 months the arbitral tribunal shall be entitled to additional fees. The quantum of such additional fees shall be determined by the parties.

Fast-Track Procedure

The award in a fast track arbitration is to be made out within six
months. The salient features of the fast track arbitration are:

• Dispute are to be decided based on written pleadings only; no oral pleadings, unless specifically requested by all parties involved or if deemed necessary by the Tribunal.
• Arbitral Tribunal shall have the power to call for clarifications in addition to the written pleadings where it deems necessary.

Appointment of Arbitrators

Appointment within 60 days

A menenship dros erit tevos Whenever an application for appointment of Arbitrator(s) is moved before a court such application shall be disposed of as expeditiously as possible and an endeavor shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party.

Oral arguments to be held on a day-to-day basis

Oral arguments as far as possible shall be heard by the arbitral tribunal on a day to day basis and no adjournments shall be granted without sufficient cause. Provision for imposition of exemplary cost on the party seeking adjournment without sufficient cause has also been made, so as to make the procedure more current.

Interim Reliefs by courts

Arbitration to commence within 90 days of interim relief and no Interim relief by courts after commencement of arbitration.

Powers of Arbitral Tribunal

Interim Relief

The tribunal has now been granted the powers of a court while making interim awards in the proceedings before it.

Arbitral tribunal not bound to rule in accordance with terms of the contract

The arbitral tribunal is free to deviate from the terms of the agreement if the circumstances so warrant.

Independence, Impartiality and Accountability of Arbitrators

Fixed fees for arbitrators

The High Courts have been assigned the responsibility of framing the rules for determination of the fees and the manner of its payment. However it is clarified that such fees shall not be applicable in International Commercial Arbitration and in cases where parties have agreed for determination of fees as per the rules of an arbitral institution.

A fixed fee structure ensures the independence of the arbitral tribunal and also provides a reasonable cost estimate to the parties entering into arbitration.

Obligations of arbitrators at the time of appointment

Disclose conflict of Interest

An arbitrator who is approached for appointment is obligated to disclose the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality.

A fifth schedule has been added to the Act to enumerate instances which would be taken into consideration for determining any conflict of interest.

Disclose time constraints

An arbitrator shall disclose all circumstances which may affect his ability to deliver an award within 12 months.

Form of disclosure

A specific form of disclosure has been prescribed in the sixth schedule of the act and all disclosures are required to be made in the said format for the sake of removing any ambiguity and maintaining uniformity.

Disqualification from appointment

The specific circumstances which shall act as a bar against any person from being appointed as an arbitrator in a dispute, have been enumerated in the seventh schedule. However, the parties to the dispute have been given the opportunity to waive the applicability of the seventh schedule, if they so deem fit.

Arbitrations already commenced under the principal act of 1996

It has been clarified that nothing contained in the amended act shall be applicable on the arbitral proceedings that are under way under the principal act.

All arbitrations that commenced before 23rd October, 2015 will continue to be determined by the provisions of the previous Act and those after 23rd October, 2015 will be governed by the amended act.

The parties to the proceedings initiated under the principal act have also been given an option to adopt the procedure prescribed under the amended act, but only through mutual consent.

Section 17(1) gives either party the right to apply to the arbitral tribunal, even during the arbitral proceedings, for the following purposes related to the arbitral proceedings –

1. Appointment of a guardian for a minor or person of unsound mind;
2. Interim measure of protection in respect of any of the following matters, namely:-

Preservation, interim custody or sale of any goods which are the subject matter of the arbitration agreement;

To secure any amounts that are deemed to be the subject matter of dispute in the arbitration;

For detention, preservation or inspection of any property or thing deemed to be the subject-matter of the dispute.

For these purposes, any person can be permitted by the authorities to enter upon any land or building in the possession of any party, or any samples taken, or any observation made, or experiment tried, which may be essential to obtain full information or evidence;

Interim injunction or the appointment of a receiver;

Such other interim measures of protection as may be deemed essential by the arbitral tribunal. For such purposes, the arbitral tribunal shall have the same power for making orders as the court has for the same purposes.

Section 17 (2) states that an order issued by the arbitral tribunal under this section shall be deemed to be an order of the Court for all purposes and shall be enforceable under the Code of Civil Procedure, 1908, in the same manner as if it were an order of the Court.

Statements of Claim and Defence

Section 23(1) enjoins that the claimant is to state the facts supporting his claim, the points at issue and the relief or remedy sought, and the respondent has to state his defence in respect of these particulars within the period of time agreed upon by the parties or determined by the arbitral tribunal, unless the parties have otherwise agreed.

Sub-section (2) states that the parties may submit all documents they consider to be relevant with their initial statements. Alternatively, they may add a reference to the documents or other evidence they will submit later on.

Sub-section (3) states that unless otherwise agreed by the parties, both parties have the freedom to amend or supplement their claim or defence at any time during the course of the arbitral proceedings.

However, if the arbitral tribunal considers it inappropriate or as an unnecessary delaying tactic, it will not be allowed.

Section 23 (4) gives both the parties a period of six months from the date the arbitrator or all the arbitrators, as the case may be, received notice, in writing, of their appointment, to submit their statements of claim and defence.

Time Limit for Arbitral Award

Section 29A(1) gives the arbitral tribunal a maximum time of twelve months from the date of completion of pleadings under section 23(4), to announce the award. However, this time restriction does not apply to international commercial arbitrations.

In the matter of international commercial arbitration, awards may be made as expeditiously as possible and an attempt is to be made to dispose of the matter within a period of twelve months from the date of completion of pleadings as per section 23(4).

Section 29A (2) provides for receipt of additional fees by the arbitral tribunal if the award is made within a period of six months from the date the arbitral tribunal enters upon the reference. This amount of additional fees shall be agreed upon by the parties.

Under Section 29A(3), however, the parties have the right to extend the period specified in sub-section (1) for making of the award by the tribunal, by mutual consent. This can only be done for a further period not exceeding six months.

Section 29A(4) states that if the award is not made within the period as per Section 29A(1) or the extended period specified under Section 29A(3), the mandate of the arbitrator(s) shall terminate.

However, the Court may, either prior to or after the expiry of the period so specified, extend the period. While doing so, if the Court finds that the proceedings have been delayed for reasons attributable to the arbitral tribunal, then, it may order reduction of fees of arbitrator(s) by not exceeding five per cent for each month of such delay.

The arbitrator shall be given an opportunity of being heard before the fees is reduced. Also, where an application under Section 29A(5) is pending, the mandate of the arbitrator shall continue till the disposal of the said application.

As per Section 29A(5) the extension of period may be on the application of any of the parties and may be granted only for sufficient cause. The Court may impose additional conditions for giving effect to this extension.

Section 29A (6) provides that while extending the period referred to in sub-section (4), the Court may substitute one or all of the arbitrators. In such a situation, the arbitral proceedings shall continue from the stage already reached and on the basis of the evidence and material already on record. The new appointees shall be deemed to have received the said evidence and material.

Section 29A (7) provides that the reconstituted tribunal shall be deemed to be in all effects, a continuation of the previously appointed arbitral tribunal.

Section 29A (8) provides that it shall be open to the Court to impose actual or exemplary costs upon any of the parties under this section.

As per Section 29A (9) an application for extension of time under sub-section (5) shall be disposed of by the Court as expeditiously as possible and an attempt shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party, as per this Act.

Establishment and incorporation of Arbitration Council of India Arbitration Council of India (ACI)

The Amendment Act, 2019 deals with Arbitration Council of India.

A new section, Part IA has been inserted in the Act. Section 43A of Act contains definitions of terms used in Part IA such as Chairperson, Council and Member Section 43B empowers the Central Government to establish the Arbitration Council of India to perform the duties and discharge the functions under the Arbitration Conciliation Act, 1996.

The Council shall be a body corporate by the name aforesaid, having perpetual succession and a common seal, with power, subject to the provisions of this Act, to acquire, hold and dispose of property, both movable and immovable, and to enter into contract, and shall, by the said name, sue or be sued.

The head office of the Council shall be at Delhi. The Council may, with the prior approval of the Central Government, establish offices at other places in India.

Composition of Council

According to Section 43C of the Act, the Council shall consist of the following Members, namely:-

• a person, who has been, a Judge of the Supreme Court or, Chief Justice of a High Court or, a Judge of a High Court or an eminent person, having special knowledge and experience in the conduct or administration of arbitration, to be appointed by the Central Government in consultation with the Chief Justice of India-Chairperson;
• An eminent arbitration practitioner having substantial knowledge and experience in institutional arbitration, both domestic and international, to be nominated by the Central Government-Member;
• an eminent academician having experience in research and teaching in the field of arbitration and alternative dispute resolution laws, to be appointed by the Central Government in consultation with the Chairperson-Member;
• Secretary to the Government of India in the Department of Legal Affairs, Ministry of Law and Justice or his representative not below the rank of Joint Secretary-Member, ex office
• Secretary to the Government of India in the Department of Expenditure, Ministry of Finance or his representative not below the
  rank of Joint Secretary- Member, ex officio;
• one representative of a recognised body of commerce and industry, chosen on rotational basis by the Central Government-Part-time Member; and
• Chief Executive Officer-Member-Secretary, ex officio.

The Chairperson and Members of the Council shall hold office for a term of three years from the date on which they enter upon their office. The maximum age for them on reaching which they shall cease to hold office shall be seventy years in the case of Chairperson and sixty-seven years in the case of Member.

Both these rules do not apply to the ex-officio
members. The salaries, allowances and other terms and conditions of the Chairperson and Members as may be prescribed by the Central Government.

Duties and functions of Council

As per the newly inserted Section 43D, it shall be the duty of the Council to take all such measures as may be necessary to promote and encourage arbitration, mediation, conciliation or other alternative dispute resolution mechanism and for that purpose to frame policy and guidelines for the establishment, operation and maintenance of uniform professional standards in respect of all matters relating to arbitration.

For the above-mentioned purposes, the Council may-

1. frame policies governing the grading of arbitral institutions;
2. recognise professional institutes providing accreditation of arbitrators;
3. review the grading of arbitral institutions and arbitrators;
4. hold training, workshops and courses in the area of arbitration in collaboration of law firms, law universities and arbitral institutes;
5. frame, review and update norms to ensure satisfactory level of arbitration and conciliation;
6. act as a forum for exchange of views and techniques to be adopted for creating a platform to make India a robust centre for domestic and international arbitration and conciliation;
7. make recommendations to the Central Government on various measures to be adopted to make provision for easy resolution of commercial disputes;
8. promote institutional arbitration by strengthening arbitral institutions;
9. conduct examination and training on various subjects relating to arbitration and conciliation and award certificates thereof;
10.  establish and maintain depository of arbitral awards made in India;
11. make recommendations regarding personnel, training and infrastructure of arbitral institutions; and
12. Such other functions as may be decided by the Central Government.

General norms for grading of arbitral institutions

Section 43-1 gives the Arbitral Council the right to grade arbitral institutions on the basis of criteria relating to infrastructure, quality and calibre of arbitrators, performance and compliance of time limits for disposal of domestic or international commercial arbitrations. In doing some they shall follow the regulations as specified hereunder.

Norms for accreditation

Section 43J provides for the qualifications, experience and norms for accreditation of arbitrators. They are specified in the Eighth Schedule to the Act.

As per the Eighth Schedule, a company secretary within the meaning of the Company Secretaries Act, 1980 and who has ten years of practice experience as a company secretary can act as an arbitrator under the Act.

According to the ‘Eighth Schedule of the Act, a person shall not be qualified to be an arbitrator unless he-

1. is an advocate within the meaning of the Advocates Act, 1961 having ten years of practice experience as an advocate; or
2. is a chartered accountant within the meaning of the Chartered Accountants Act, 1949 having ten years of practice experience as a chartered accountant; or
3. is a cost accountant within the meaning of the Cost and Works Accountants Act, 1959 having ten years of practice experience as a cost accountant; or
4.  is a company secretary within the meaning of the Company Secretaries Act, 1980 having ten years of practice experience as a company secretary; or
5. Has been an officer of the Indian Legal Service; or
6. has been an officer with law degree having ten years of experience in the legal matters in the Government, Autonomous Body, Public Sector Undertaking or at a senior level managerial position in private sector; or
7. has been an officer with engineering degree having ten years of experience as an engineer in the Government, Autonomous Body, Public Sector Undertaking or at a senior level managerial position in private sector or self-employed; or
8. has been an officer having senior level experience of administration in the Central Government or State Government or having experience of senior level management of a Public Sector Undertaking or a Government company or a private company of repute;
9. is a person, in any other case, having educational qualification at degree level with ten years of experience in scientific or technical stream in the fields of telecom, information technology, Intellectual Property Rights or other specialised areas in the Government, Autonomous Body, Public Sector Undertaking or a senior level managerial position in a private sector, as the case may be.

Moreover, after the provisions of the Arbitration and Conciliation (Amendment) Ordinance, 2020 were adopted in the principal Act by virtue of the Arbitration and Conciliation (Amendment) Act, 2021, the qualifications for appointment as arbitrators, which were earlier prescribed in the principal Act, will now be through Regulations

General norms applicable to Arbitrator- As per the Amendment, the arbitrator shall be

• a person of general reputation of fairness, integrity
• capable of applying objectivity in arriving at settlement of disputes;
• impartial and neutral and avoid entering into any financial business or other relationship that is likely to affect impartiality or might reasonably create an appearance of partiality or bias amongst the parties;
• not involved in any legal proceeding and avoid any potential conflict connected with any dispute to be arbitrated by him;
• not convicted of an offence involving moral turpitude or economic offence;
• conversant with the Constitution of India, principles of natural justice, equity, common and customary laws, commercial laws, labour laws, eno law of torts, making and enforcing the arbitral awards;
• in possession of robust understanding of the domestic and international legal system on arbitration and international best enth practices in regard thereto;
• able to understand key elements of contractual obligations in civil and commercial disputes and be able to apply legal principles to a situation under dispute and also to apply judicial decisions on a given matter relating to arbitration; and
• capable of suggesting, recommending or writing a reasoned and nom enforceable arbitral award in any dispute which comes before him not for adjudication hit or abeen eto villlaslonom

Depository of awards

As per the newly added Section 43K, the Arbitral Council shall maintain an electronic depository of arbitral awards made in India and such other records related thereto in such manner as may be specified by the regulations.

Power to make regulations by Council

As per Section 43L of the Amendment Act, the Council may, in consultation with the Central Government, make regulations, consistent with the provisions of this Act and the rules made thereunder, for the discharge of its functions and perform its duties under the Act.

Right to receive information

The right to convey and receive information is a inherent in the right to freedom of speech and expression given under Article 19(1) (a) of our Constitution guarantees to all citizens as freedom of speech and expression.

This includes the right to propagate and circulate one’s views and opinions subject to reasonable restrictions. Such a right cannot be enjoyed except along with the right to knowledge and information, since a person has to have knowledge before he can give his opinion regarding anything.

Public authority

The definition includes any authority or body or institution of self government established or constituted by or under the following –

• The Constitution of India;
• Any other law made by Parliament;
• A law made by State Legislature;
• A notification issued or order made by the appropriate Govt. [Section 2(h)]

Record

It includes:

• any document, manuscript and file;
• any microfilm, microfiche and facsimile copy of a document;
• a reproduction of image(s) included in such microfilm; and
•  any other material produced by a computer or any other device; [Section 2(i)]

Learn and Read More CS Executive JIGL Question and Answers

Information

It means any material in any form, including:

• Records or documents,
• Office memos or e-mails,
• Opinions given or advices held,
• Press releases and circulars,
• Orders, logbooks or contracts,
• Reports and papers,
• Samples, models, data etc.
• Other material held in any electronic form. [Section 2(f)]

Right to information

It includes the right to information held by or under the control of any public authority and which is accessible under this Act. It includes the right to:

1. take notes, extracts, or certified copies of documents or records;
2. inspect work, documents, records;
3. take certified samples of material;
4. obtain information in the form of diskettes, floppies, tapes, video cassettes or in any other electronic mode or through printouts where such information is stored in a computer or in any other device. [Section 2(j)]

Third-party

The term ‘third party’ includes anyone other than the appellant or the respondent, and who is applying for information under this Act. [Section 2(n)]. In matters where an appellant is seeking information not regarding his or her own activities, information cannot be provided until the ‘third party’ consents to a disclosure.

In such a case, the Central Public Information Office (CPIO) will allow the disclosure of information after considering the implications of it. Section 11 (1) the Act provides for the procedure to access third party information.

The Section says that when the appellant needs to request for the third party’s consent, the CPIO will produce a written request to the ‘third party’, specifying a time for giving their assent. Such power is vested in the PIO who will then allow disclosure based on the merits of the case or in ‘larger public interest’.

Information not available for disclosure

As per Section 8 of the Act, the following information is not available for disclosure. Information that:

• might negatively affect the integrity and independence of the country.
• is likely to cause a breach of the restrictions put on its disclosure by a court, if disclosed.
• if disclosed will result in a leak of information that the Parliament or a State Legislature does not want to make public.
• if disclosed, can cause financial losses to the party that controls it, like IPR and trade secrets.
• is better not disclosed in the larger interests of the public.
• Is entrusted by the government of a foreign country to our nation or its government.
• Is related to the identity of an informant, which if disclosed would endanger the life or property of that person.
• Obstructs any judicial proceedings against a person.
• Counts as the inner deliberations of the Cabinet or Council of Ministers.
• Is of a personal nature.

If, however, the giving of the information has more benefits for the public than losses for the party who controls the information, the PIO will allow its disclosure.

Obligations of a public authority

Section 4(1)(b) requires every public authority to publish within one hundred and twenty days of the enactment of this Act, the following details:

• the details of its organization and the functions and duties performed by it;
• the powers and duties of its officers and employees;
• its decision making process, and information regarding its supervision and accountability;
• how it performs its functions
• its rules, regulations, instructions for employees etc.;
• the categories of the documents held by it directly or indirectly;
• the particulars of any arrangement that exists for consultation with the public, for formulation of policies or their implementation; to hotenst
• a directory of its officers and employees;
• the budget allocated to each of its agency, indicating the particulars of all plans, proposed expenditures and reports on disbursements made;
• particulars of recipients of concessions, permits or authorizations granted by it;
• details of the information available to, or held by it, in an electronic form;
• how the citizens can obtain information needed, zaitub ait abem
• the names, designations and other details needed to contact the Public Information Officers.
• Such other information as may be prescribed; Such information is to be updated every year.

Public information officers (PIO)

Section 5 requires every public authority to:

• Designate in all its administrative units or offices Central or State Public Information Officers in order to make available information to persons who have made a request for it.
• Designation of Central Assistant or State Assistant Public Information Officers at each sub-divisional level or sub-district level to receive the applications for information.
• Not ask for a reason to be given by the person making request for information and not to demand additional information except that which might be necessary for contacting him.

Request for information

The Act prescribes the manner in which requests may be made by a citizen to the authority for obtaining the information. It also provides for a transfer of the request to the other concerned public authority who may hold the information.

The application is to be submitted in writing or electronically to the Public Information Officerbie (PIO).

Duties of a PIO

The PIO’s work is to deal with requests from persons seeking information and to reduce the request to writing where it has not already so been made. His duties are as under:

If the information requested is held by another public authority, the PIO shall transfer the request to that other public authority within 5 days and inform the applicant immediately.

The PIO shail, either provide the information on payment of such fee as may be prescribed or reject the request for any of the reasons specified in Section 8 or Section 9. This he shall do as expeditiously as possible and maximum within 30 days of the receipt of the request.

Where the information requested for concerns the life or liberty of a person, it has to be given within forty-eight hours of the receipt of the request. If the PIO does not give decision on the request within the designated period, he shall be deemed to have refused the request.

Where a request has been rejected, the PIO shall communicate to the applicant –

• the reasons for such rejection,
• the period within which an appeal against such rejection may be preferred, and
• the particulars of the Appellate Authority.

The PIO shall provide information in the form in which it is sought unless it would be impracticable to do so or would be detrimental to the safety or preservation of the record in question.

If allowing partial access, the PIO shall give a notice to the applicant, informing that only part of the record requested, after severance of the record containing information which is exempt from disclosure, is being provided.

He will also give the reasons for the decision. If information sought has been supplied by third party or is treated as confidential by that third party, the PIO shall give a written notice to the third party within 5 days from the receipt of the request.

Central Information Commission (CIC)

The Central Information Commission is to be constituted by the Central Government through a Gazette Notification. The Central Information Commission consists of the Chief Information Commissioner and Central Information Commissioners not exceeding 10.

They shall be appointed by the President of India on the recommendations of a committee consisting of the Prime Minister who is the Chairman of the Committee; the leader of Opposition in the Lok Sabha; and a Union Cabinet Minister to be nominated by the Prime Minister.

The CIC/IC is not to be a Member of Parliament or Member of the Legislature of any State or Union Territory and is not to hold any other office of profit or be connected with any political party or carry on any business or pursue any profession.

The CIC is responsible for general superintendence, direction and management of the affairs of the Commission, and in this, is assisted by the Information Commissioners. [Section 13]

State Information Commission 

The State Government has the authority to constitute the SIC through a notification in the State Gazette. The State Information Commission comprises one State Chief Information Commissioner (SCIC) and not more than 10 State Information Commissioners (SICS).

These are to be appointed by the Governor on the recommendations of a committee consisting of the Chief Minister who is to be the Chairman of the Committee.

Powers of Information Commissions

The Central Information Commission/State Information Commission receive complaints from any person:

• who could not submit an information request because a PIO has not been appointed;
• who has been refused access to information requested;
• who has received no response to his/her information request within the specified time limits;
• who thinks unreasonable fees is being charged;
• who thinks that he has been given incomplete or false or misleading information given is; and
• on any other related matter under this law.

The CIC may initiate an enquiry; in doing so, the Commission has the same powers as are vested in a Civil Court. The CIC, during the inquiry of any complaint under this Act may examine any record which is under the control of the public authority, and no such record may be withheld from it on any grounds, nor can the authority refuse to share the records and information contained therein. (Section 18)

Offences and penalties under the Act

The Act imposes a penalty of 250 per day, up to a maximum of 25,000/- on a Public Information Officer (PIO) for failing to provide Information. The PIO can be charged for the following offences:

1. not accepting an application;
2. delaying access to the information without reasonable cause;
3. denying information with a mala fide intention;
4. knowingly giving incomplete, incorrect or misleading information;
5. destroying information that has been requested; and
6. obstructing the furnishing of information in any manner.

The Information Commission (IC) at the Centre and States can impose this penalty. They can also recommend further disciplinary action against the PIO, in case of repeated offences. [Section 20]

Role of Central/State Governments

The Governments have the following duties under the Act:

To develop educational programmes for the public in general, especially for the disadvantaged communities who have no knowledge of their rights under RTI.

Encourage Public Authorities to engage participate in the expansion of such programmes.

Encourage timely dissemination of correct information to the public.

Train officers and develop training materials for this purpose. So that the people involved in the implementation of this Act will have right knowledge regarding the procedures, their duties etc.

Prepare and propagate a User Guide for the public in the official language of the State.

Publish the details of PIOs of authorities and other information like fees to be paid, remedies if request for information is not entertained etc. [Section 26]

Descriptive Questions

Question 1: Explain the following: Salient features of the Right to Information Act, 2005
Answer:

Salient features of India’s Right to Information Act, 2005 

The RTI Act, 2005 empowers every citizen to:

• To ask for clarifications from any government department an
• Inspect any government documents.
• Take copies of any government documents onbetalen oli of
• Take samples of materials of any Government work, subject to certain facts remaining outside the scope of public purview.

Information can be sought from any department of the central or state government, from panchayati raj institutions, and from any other organization or institution (including NGOs) that is established, constituted, owned, controlled or substantially financed, directly or indirectly, by the state or central government (Section 2(a) & (h)).

In each department, at least one officer has been designated as a public information officer (PIOs). The work of this officer would be to provide the information sought by the applicant (Section 5(1)).

Each sub-district/divisional level there are to be assistant public information officers (APIOs) who receive requests for information and appeals against decisions of the public information officers, and then send them to the appropriate authorities (Section 5(2)).

Any person seeking information should file an application in writing or through electronic means in English or Hindi (or in the official language of the area) along with the application fees with the PIO/APIO (Section 6(1)).

Where a request cannot be made in writing, the PIO is supposed to render all reasonable assistance to the person making the request orally to reduce the same in writing (Section 6(1)).
The applicant need not give any reasons for requesting the information or any other personal details (Section 6(2)).

A fee will be charged for obtaining a copy of the documents. (The Central Government has prescribed fees of ₹ 2/- for each page created and copied. In some states the charges may vary.

Please see the fee rules chart). If the Information is not provided in the stipulated time limit then the information will be provided for free. (u/s 7(6)).

If the PIO feels that the sought information does not pertain to his department then it shall be his responsibility to forward the application to the related/relevant department within 5 days and also inform the applicant about the same.

In such instance, the stipulated time limit for provision of information would be 35 days (u/s 6(3)). In case PIO does not furnish information within the prescribed period or unreasonably troubles the applicant, then the applicant can file a complaint against him with the information commission.

In case a PIO without any reasonable cause fails to receive an application for information, malafidely denies a request for information, or knowingly gives incorrect, incomplete or misleading information, or asks for high fees for furnishing the information the applicant can file a direct complaint to the Central or the State Information Commission.

The PIO can deny information in some cases/matters. The various exemptions from disclosure of information are listed in Section 8 of the RTI Act, 2005. If the sought information is in public interest then the exemptions enumerated in Section 8 of the RTI Act, 2005 can also be disclosed.

Any information that cannot be denied to parliament or legislative assembly cannot be denied to a common citizen. In case a person fails to get a response from the PIO within the prescribed period or is aggrieved by the response received, or misuses Section 8 of the Act, then he/she can file an appeal within 30 days with an officer superior in rank to the PIO (first appellate authority) (Section 19(1)).

If the appellant is not happy with the 1st appeal then he/she can file a 2nd appeal with the State Information Commission or the Central Information Commission within 90 days (u/s 19(3).

In case a PIO fails to furnish the information asked for under the Act or fails to communicate the rejection order, within the time specified, he will be liable to pay a penalty of ₹ 250 per day for each day of delay, subject to a maximum of 25,000 (Section 20(1)).

The information commission can also recommend disciplinary action against the concerned PIO (Section 20(2)).

Question 2: Discuss in brief the composition and the powers of Central Information Commission (CIC) given under the right to Information Act, 2005.
Answer:

The composition and the powers of Central Information Commission (CIC) given under the right to Information Act, 2005

Term of Office and Conditions of Service of Central Information Commission Section 13 of the Right to Information Act provides that –

the Chief Information Commissioner shall hold office for such term as may be prescribed by the Central Government and shall not be eligible for reappointment. No Chief Information Commissioner shall hold office as such after he has Joer attained the age of sixty-five years.

Every Information Commissioner shall hold office for such term as may be prescribed by the Central Government or till he attains the age of sixty-five years, whichever is earlier.

A CIC shall not be eligible for reappointment as such Information Commissioner. However, every CIC shall, on vacating his office under this sub-section be eligible for appointment as the Chief Information Commissioner in the manner specified in Section 12(3).

Where the Information Commissioner is appointed as the Chief Information Commissioner, his term of office shall not be more than five years in aggregate as the Information Commissioner and the Chief Information Commissioner.

The Chief Information Commissioner or an Information Commissioner shall, make and subscribe before the President or some other person appointed by him in that behalf, an oath or affirmation according to the form set out for the purpose in the First Schedule, before he enters upon his office.

The Chief Information Commissioner or an Information Commissioner may, at any time, by writing under his hand addressed to the President, resign from his office.

A Chief Information Commissioner or an Information Commissioner may be removed in the manner specified under section 14.

The salaries and allowances payable to and other terms and conditions of service of the Chief Information Commissioner and the Information Commissioners shall be such as may be prescribed by the Central Government.

Power to make rules by appropriate Government

Section 27 of the Right to Information Act states that the appropriate Government may, by notification in the Official Gazette, make rules to carry out the provisions of this Act, providing for all or any of the following matters, namely:

• the cost of the medium or print cost price of the materials to be disseminated under section 4(4);
• the fee payable under section 6(1);
• the fee payable under section 7(1) & section 7(5);
• the term of office of the Chief Information Commissioner and Information Commissioners under sub-sections (1) and (2) of section 13 and the State Chief Information Commissioner and State Information Commissioners under sub-sections (1) and (2) of section 16;
• the salaries, allowances and other terms and conditions of service of the Chief Information Commissioner and the Information Commissioners under sub-section (5) of section 13 and the State Chief Information Commissioner and the State Information
  Commissioners under sub-section (5) of section 16;
• the salaries and allowances payable to and the terms and conditions of service of the officers and other employees under sub-section (6) of section 13 and sub-section (6) of section 16;
• the procedure to be adopted by the Central Information Commission or State Information Commission, as the case may be, in deciding the appeals under sub-section (10) of section 19; and
• any other matter which is required to be, or may be, prescribed. Space to write important points for revision

Question 3: Explain the provisions for appeal under the Right to Information Act, 2005.
Answer:

The provisions for appeal under the Right to Information Act, 2005

Any person who does not receive a decision within the specified time or is aggrieved by a decision of the Public Information Officer (PIO) may file an appeal under Section 19 of the Right to Information Act, 2005.

First Appeal: First appeal to the officer senior in rank to the PIO in the concerned Public Authority within 30 days from the expiry of the prescribed time limit or from the receipt of the decision (delay may be condoned by the Appellate Authority if sufficient cause is shown).

Second Appeal: Second appeal to the Central Information Commission or the State Information Commission as the case may be, within 90 days of the date on which the decision was given or should have been made by the First Appellate Authority (delay may be condoned by the Commission if sufficient cause is shown).

Question 4: Explain any four categories of ‘information’ which have been exempted from disclosure under the Right to Information Act, 2005. 
Answer:

Categories of information which have been exempted from disclosure under the Right to Information Act, 2005. These are:

Where disclosure prejudicially affects the sovereignty and integrity of India, the security, strategic, scientific or economic interests of the State, relation with foreign State or lead to incitement of an offence;

Information which has been expressly forbidden by any court or tribunal or the disclosure of which may constitute contempt of court;

Where disclosure would cause a breach of privilege of Parliament or the State Legislature;

Information including commercial confidence, trade secrets or intellectual property, where disclosure would harm competitive position of a third party, or available to a person in his fiduciary relationship, unless larger public interest so warrants;

Information received in confidence from a foreign government;

Information the disclosure of which endangers life or physical safety of any person or identifies confidential source of information or assistance;

Information that would impede the process of investigation or apprehension or prosecution of offenders;

Cabinet papers including records of deliberations of the Council of Ministers, Secretaries and other officers.

Question 5: State any four obligations of Public Authority prescribed under section 4 (1)(b) of the Right to lnformation Act,2005.
Answer:

Public authority:

The definition includes any authority or body or institution of self government established or constituted by or under the following:

• The Constitution of India.
• Any other law made by Parliament.
• A law made by State Legislature.
• A notification issued or order made by the appropriate Govt. [Section 2(h)]

Obligations of a Public Authority:

Section 4(1)(b) requires every public authority to publish within one hundred and twenty days of the enactment of this Act, the following details:

• the details of its organization and the functions and duties performed by it.
• the powers and duties of its officers and employees.
• its decision making process, and information regarding its supervision and accountability.
• how it performs its functions.

Question 6: Section 20 of the Right to Information Act, 2005 deals with the penalties imposed on a Public Information Officer (PIO). Explain.
Answer:

The Act imposes a penalty of ₹ 250 per day, up to a maximum of 25,000/- on a Public Information Officer (PIO) for failing to provide Information.

The PIO can be charged for the following offences:

• not accepting an application.
• delaying access to the information without reasonable cause.
• denying information with a mala fide intention.
• knowingly giving incomplete, incorrect or misleading information.
• destroying information that has been requested; and
• obstructing the furnishing of information in any manner.

The Information Commission (IC) at the Centre and States can impose this penalty. They can also recommend further disciplinary action against the PIO, in case of repeated offences. [Section 20]

Question 7: In R. P. Ltd. Vs. Indian Express Newspapers, the Supreme Court read into Article 21 – the right to know. Discuss how right to know is related to Right to Information under The Right of Information Act, 2005.
Answer:

Article 21 of the Constitution ensures personal liberty. The dimensions of personal liberty were extended by the case of R.P. Ltd. v. Proprietors Indian Express Newspapers, Bombay Pvt. Ltd., in which the Court observed that in a democracy, the people have a right to know and a right to be informed about the conduct of affairs of the State.

Moreover, generally knowledge is considered to be power, and the right information can bring to a person such power as well as it creates an environment of transparency in governance. When the administration is functioning transparently, the trust of the people is enhanced, and things in general, go more smoothly.

It is this right that is largely considered to be included in Article 21 that grew into the act known as the ‘Right to Information Act, 2002’. This Act accords to every citizen to request for information from a public authority, which is in turn, bound to furnish within a stipulated time of 30 days, generally.

Question 8: Discuss the term of office and conditions of service of Chief Information Commissioner and Information Commissioner under the Right to Information Act, 2005.
Answer:

Term and conditions of service of the CIC: The Central Information Commission consists of the Chief Information Commissioner and Central Information Commissioners not exceeding 10.

They shall be appointed by the President of India on the recommendations of a committee consisting of the Prime Minister who is the Chairman of the Committee; the leader of Opposition in the Lok Sabha; and a Union Cabinet Minister to be nominated by the Prime Minister.

The CIC/IC is not to be a Member of Parliament or Member of the Legislature of any State or Union Territory and is not to hold any other office of profit or be connected with any political party or carry on any business or pursue any profession.

The CIC is responsible for general superintendence, direction and management of the affairs of the Commission, and in this, is assisted by the Information Commissioners. [Section 13 of the Right to Information Act, 2005 ] The CIC is to be appointed for a term of 5 years from date of entering into office or till the person attains the age of 65 years, whichever is earlier.

The CIC shall not be eligible for reappointment. The salary shall be the same as that of the Chief Election Commissioner. This will not be varied to the disadvantage of the CIC during the continuity of his/her service. (Section 13)

Some other important points to be noted in this regard:

Every Information Commissioner shall be eligible for appointment as the Chief Information Commissioner upon having vacated his office under this sub-section.

If the Information Commissioner is appointed as the Chief Information Commissioner, his term of office shall not be more than five years in aggregate, considering both the office of the Information Commissioner and that of the Chief Information Commissioner.

The Chief Information Commissioner or an Information Commissioner is required to take an oath or affirmation as per the First Schedule, before he enters upon his office.

The Chief Information Commissioner or an Information Commissioner has the right to resign from his office at any time, upon giving a notice to this effect in writing to the President.

The Chief Information Commissioner or an Information Commissioner may also be removed. The manner and the methodology for the same is provided in section 14.

The salaries and allowances and other terms and conditions of service of the Chief Information Commissioner and the Information Commissioners shall be determined by the Central Government.

Such officers and employees may be provided to the CIC or IC as are deemed essential for them to be able to perform efficiently their services; this shall be the prerogative of the Central Government. The salaries and no allowances and the terms and conditions of service of the officers and other.

Practical Questions

Bimal made an application in writing with prescribed fee to the Public Information Officer (PIO) for obtaining the information which is permissible under the relevant statute. The PIO neither provided the required information nor rejected the application of Bimal for providing the required information although a period of 45 days elapsed from the date of submitting the aforesaid application to the PIO. Bimal wants to file a suit in the civil court for not providing the required information to him. Advise Bimal.
Answer:

According to the Right to Information Act, 2005, no lower court is allowed to hear petition regarding suits or applications against any orders made under this Act (Section 23).

Under this Act, the Public Information Officer (PIO) has to provide the information within thirty days (Forty eight hours if the matter pertains to the life or liberty of another). If he takes no action, it is presumed to be deemed refusal (Section 7).

Bimal would be recommended not to file any suit in the civil court for not providing the required information to him. He may, however, approach the next higher authority in the public authority or organization within thirty days of deemed refusal or from expiry of the time required for making the decision or giving the information (Section 19).

He may also approach the State Information Commission, which may decide to impose penalty on the PIO (Section 20).

Special Courts, Tribunals Under Companies Act

Tribunal

It is an administrative body established for the purpose of discharging quasi-judicial duties. It is neither a Court nor an executive body.

Delegation of powers

The Tribunal or the Appellate Tribunal may direct any of its officers or employees or any other person to inquire into any matter connected with any proceeding. They may also specify such conditions as they think fit. This can be done by a general or special order.

Right to legal representation

A party to any case or proceeding or appeal before the Tribunal or the Appellate Tribunal may either appear in person or authorize one or more chartered accountants or company secretaries or cost accountants or legal practitioners or any other person to present his case before the Tribunal or the Appellate Tribunal.

Special courts

Section 435 of the Companies Act gives the Central Government the power to establish or designate as many Special Courts as may be necessary. This is done for the purpose of providing speedy trial of offences under this Act. The establishment of such special courts is done by passing a notification and publishing it I the Official Gazette.

Learn and Read More CS Executive JIGL Question and Answers

Lodging of caveat

A caveat is a specific limitation, stipulation or condition.

Any person may lodge a caveat, which is to be filed in triplicate. It can be filed in case of any appeal or petition or application that may be instituted before this Tribunal by paying the prescribed fee after forwarding a copy by registered post or serving the same on the expected petitioner or appellant.

In cases of emergencies, the Tribunal may pass interim orders too.

The validity of a caveat is for a period of ninety days from the date of its filing.

Benches of tribunal

A bench is a forum comprised of the judges of a court. Generally There shall be constituted such number of Benches of the Tribunal, as are specified by the Central Government.

The Principal Bench of the Tribunal shall be at New Delhi which shall be presided over by the President of the Tribunal.

Generally, the powers of the Tribunal are exercisable by Benches consisting of two Members out of whom one is a Judicial Member and the other shall be a Technical Member:

Interlocutory applications

An interlocutory application is an application usually filed for some urgent relief or to bring certain new facts to the knowledge of the court.

It has been defined in the Civil Rules of Practice, Section 2(j) as, “Application to the court in any suit, appeal or proceedings already instituted in such court, other than a proceeding for the execution of a decree or order.”

it can be for stay, directions, condonation of delay, exemption from production of copy of order appealed against or extension of time etc. It shall be in prescribed form and accompanied by an affidavit supporting the application.

Descriptive Questions

Question 1: Explain provisions for contempt and caveat under Companies Act, 2013.
Answer:

Provisions for contempt and caveat under Companies Act, 2013

According to Section 425 of the Companies Act, 2013, the National Company Law Tribunal and the National Company Law Appellate Tribunal shall have the same jurisdiction, powers and authority in respect of contempt of themselves as the High Court has and may exercise, for this purpose, the powers under the provisions of the Contempt of Courts Act, 1971, which shall have the effect subject to modifications that (a) the reference therein to

a High Court shall be construed as including a reference to the Tribunal and the Appellate Tribunal; and (b) the reference to Advocate-General in section 15 of the said Act shall be construed as a reference to such Law Officers as the Central Government may, specify in this behalf.

Rule 25 of the National Company Law Tribunal Rules, 2016 provides that any person may lodge a caveat in triplicate in any appeal or petition or application that may be instituted before this National Company Law Tribunal by paying the prescribed fee after forwarding a copy by registered post or serving the same on the expected petitioner or appellant and

The caveat shall be in the form prescribed and contain such details and particulars or orders or directions, details of authority against whose orders or directions the appeal or petition or application is being instituted by the expected appellant or petitioner or applicant with full address for service on other side.

So that the appeal or petition or application could be served before the appeal or petition or interim application is taken up. The caveat shall remain valid for a period of ninety days from the date of its filing.

Question 2: Explain the powers of Special Courts for offences triable by it under Special Courts, Tribunal under Companies and other legislations.
Answer:

The powers of Special Courts for offences triable by it under Special Courts, Tribunal under Companies and other legislations

According to Section 436(1) of the Companies Act, 2013, notwithstanding anything contained in the Code of Criminal Procedure, 1973,-

all offences specified under Section 435(1) shall be triable only by the Special Court established for the area in which the registered office of the company in relation to which the offence is committed or where there are more Special Courts than one for such area, by such one of them as may be specified in this behalf by the High Court concerned;

where a person accused of, or suspected of the commission of, an offence under this Act is forwarded to a Magistrate under Section 167(2) or Section 167(2A) of the Code of Criminal

Procedure, 1973, such Magistrate may authorise the detention of such person in such custody as he thinks fit for a period not exceeding fifteen days in the whole where
such Magistrate is a Judicial Magistrate and seven days in the whole where such Magistrate is an Executive Magistrate.

Where such Magistrate considers that the detention of such person upon or before the expiry of the period of detention is unnecessary, he shall order such person to be forwarded to the Special Court having jurisdiction.

the Special Court may exercise, in relation to the person forwarded to it ( under clause (b), the same power which a Magistrate having jurisdiction to try a case may exercise under section 167 of the Code of Criminal Procedure, 1973 in relation to an accused person who has been forwarded to him under that section; and

a Special Court may, upon perusal of the police report of the facts constituting an offence under this Act or upon a complaint in that behalf. no take cognizance of that offence without the accused being committed to it for trial.

Section 436 (2) of the Act provides that when trying an offence under this Act, a Special Court may also try an offence other than an offence under this Act with which the accused may, under the Code of Criminal Procedure, 1973 be charged at the same trial.

As per Section 436 (3) of the Act, notwithstanding anything contained in the Code of Criminal Procedure, 1973, the Special Court may, if it thinks fit, try in a summary way any offence under this Act which is punishable with imprisonment for a term not exceeding three years.

With the new amendments, the Central Government may establish or designate as many Special Courts as may be necessary, by notification. This is to ensure speedy trials of offences under this Act.

This does not include the cases as presented by section 452., i.e. the new provision exempts the offences under section 452-Punishment for wrongful withholding of property out of the jurisdiction of Special Courts.

Question 3: Discuss in brief the provisions for filing an appeal before the National Company Law Appellate Tribunal (NCLAT) under the Companies Act, 2013.
Answer:

The provisions for filing an appeal before the National Company Law Appellate Tribunal (NCLAT) under the Companies Act, 2013

Section 421 of the Companies Act, 2013 deals with appeal from orders of National Company Law Tribunal and provides as under:

The NCLAT is constituted under Section 410 of the Companies Act, 2013. It has been given the powers to hear appeals against any direction, decision or order covered under Section 53A of the Competition Act, 2002.

Moreover, existing restrictions on the appointment of judicial and technical members in the Appellate Tribunal, as put in force by the Central Government, have henceforth been eliminated.

Any person aggrieved by an order of the National Company Law Tribunal may prefer an appeal to the National Company Law Appellate Tribunal.

No appeal shall lie to the National Company Law Appellate Tribunal from an order made by the National Company Law Tribunal with the consent of parties.

Every appeal shall be filed within a period of forty-five days from the date 1 on which a copy of the order of the National Company Law Tribunal is made available to the person aggrieved and shall be in such form, and accompanied by such fees, as may be prescribed:

Provided that the National Company Law Appellate Tribunal may entertain an appeal after the expiry of the said period of forty-five days from the date aforesaid, but within a further period not exceeding forty-five days, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within that period.

On the receipt of an appeal, the National Company Law Appellate Tribunal shall, after giving the parties to the appeal a reasonable opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against.

The National Company Law Appellate Tribunal shall send a copy of every order made by it to the National Company Law Tribunal and the parties to appeal.

Question 4: Explain the rights of a party to appear before the National Company Law Tribunal.
Answer:

Rights of a party to appear before the National Company Law Tribunal are as under:

1. Every party may appear before a Tribunal in person or through an authorised representative, duly authorised in writing in this behalf.
2. The authorised representative shall make an appearance through the filing of Vakalatnama or Memorandum of Appearance in specified Form representing the respective parties to the proceedings.
3. The Central Government, the Regional Director or the Registrar of Companies or Official Liquidator may authorise an officer or an Advocate to represent in the proceedings before the Tribunal.
4. The officer authorised by the Central Government or the Regional Director or the Registrar of Companies or the Official Liquidator shall be an officer not below the rank of Junior Time Scale or company prosecutor.

Question 5: Describe the constitution of Special Court established under Section 435 of the Companies Act, 2013.
Answer:

The Central Government may, for the purpose of providing speedy trial of offences under Section 435 of the Companies Act, 2013 by notification, establish or designate as many Special Courts as may be necessary.

A Special Court shall consist of-

a single judge holding office as Session. Judge or Additional Session Judge, in case of offences punishable under this Act with imprisonment of two years or more; and

a Metropolitan Magistrate or a Judicial Magistrate of the First Class, in the case of other offences, who shall be appointed by the Central Government with the concurrence of the Chief Justice of the High Court within whose jurisdiction the judge to be appointed is working.

Question 6: Explain any four rights of a party to appear before the National Company Law Tribunal, under the Companies Act, 2013.
Answer:

Rights of a party to appear before the Tribunal:

The Act provides the following rights to a party regarding the right to appear before the Tribunal:

A party may appear before a Tribunal in person or through an authorized representative, who has been specially authorized in writing for this very purpose.

The authorized representative shall make get his appearance registered by filing a Vakalatnama or a Memorandum of Appearance in Form No. NCLT – 12 representing the respective parties to the proceedings.

The Central Government, the Regional Director or the Registrar of Companies or Official Liquidator may authorize an officer or an Advocate to represent in the proceedings before the Tribunal.

The officer authorized by the Central Government or the Regional Director or the Registrar of Companies or the Official Liquidator shall be an officer not below the rank of Junior Time Scale or company prosecutor.

During any proceedings before the Tribunal, it may call upon the Registrar of Companies to submit information on the affairs of the company on the basis of information available in the MCA21 portal. Reasons for such directions shall be recorded in writing.

Generally it is done for the purpose of its knowledge. Audio or video recording of the Bench proceedings by the parties or their authorised Representatives are not permitted. [Rule 45 of the NCLT Rules]

Question 7: Explain the procedure for lodging of caveat before National Company Law Tribunal and what is the validity period of such caveat?
Answer:
Lodging of Caveat:

A caveat is a specific limitation, stipulation or condition. It can also be defined as a legal warning to the judicial officer to suspend a proceeding until the opposition has been given a fair chance of a hearing or appropriate counter measure. The following important points need to be kept in mind regarding it –

1. Any person may lodge a caveat, which is to be filed in triplicate.
2. It can be filed in case of any appeal or petition or application that may be instituted before NCLT.
3. The prescribed fee has to be paid after forwarding a copy of the caveat by registered post or serving the same on the expected petitioner or appellant.
4. In cases of emergencies, the Tribunal may pass interim orders too.
5.  It can be filed in Form NCLT 3C. 6) The validity of a caveat is for a period of ninety days from the date of its.

Question 8: What is meant by Tribunal? Explain the object of Tribunals. 
Answer:

Tribunal:

It is an administrative body established for the purpose of discharging quasi-judicial duties. It is neither a Court nor an executive body. It is a quasi-judicial institution established for a number of functions like adjudicating disputes, for settling rights between parties claiming property or other matter, making and reviewing administrative decisions, etc.

It is an administrative body established for the purpose of discharging quasi-judicial duties. The term is used to refer to any person or body or institution that has been given the power to adjudicate claims or disputes – whether or not it is called a ‘tribunal’.

It has quasi-judicial duties; hence it is neither a Court nor an executive body.

Why make tribunals?

Specialized tribunals have been created in order to lessen the burden on courts. They have been created under various statutes, viz the NCLT under the Companies Act, 2013.

Legal vs. domestic tribunals:

A legal ‘tribunal’ is different from a domestic tribunal. A ‘domestic tribunal’ is an administrative agency that regulates the professional conduct and imposes discipline amongst the members of a particular stream or profession.

It has powers to investigate and to adjudicate. On the other hand, legal tribunals are the quasi-judicial bodies established to adjudicate disputes related to specified matters. These derive their authority from the Statute establishing them.

They are bound by the principles of natural justice and the statutory provisions under which the Tribunal is established. The tribunal/authority may have to determine the rights and liabilities of the parties, hence their function is known as a quasi-judicial function.

Question 9: Briefly discuss the Constitution of National Company Law Tribunal. 
Answer:

Constitution of the NCLT: The NCLT and the NCLAT were conceptualized with the enactment of the Companies (Second Amendment) Act, 2002 that amended the Companies Act, 1956.

The Supreme Court finally decided the matter in the case of Union of India v. R. Gandhi, President, Madras Bar Association (2010), upholding the constitutional validity of the Tribunal and the Appellate Tribunal.

Finally, the Central Government notified the Tribunal and Appellate Tribunal under the provisions of the Companies, 2013, which were notified by the Central Government w.e.f. 1th June, 2016.

The new fora, will take over powers from the Company Law Board (CLB), the Board of Industrial and Financial Reconstruction (BIFR) and the High Courts, wherein they dealt with company restructuring matters.

The new Tribunal is meant to be an efficient and effective alternate institutional forum, as it deals with matters in a simpler, speedier and more accessible manner. Section 8 of the Companies Act, 2013 gives the Central Government the authority to constitute a Tribunal to be known as the National Company Law Tribunal consisting of a President and such number of Judicial and Technical members, as the Central Government may deem necessary.

These are to be formed by notification, and the members are also to be appointed by notification, to exercise and discharge such powers and functions as are, or may be, conferred on it by or under this Act or any other law for the time being in force.

The National Company Law Tribunal (NCLT) & the Appellate Tribunal have been constituted by the Central Govt. under section 408 & 410 of the Companies Act, 2013. The NCLT is a quasi-judicial body which resolves matters pertaining to companies in India.

The NCLT has eleven benches, two at New Delhi (one being the principal bench) and one each at Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata and Mumbai.

Distinguish Between

Question.1: What is the difference between a court and a tribunal?
Answer:

The difference between a court and a tribunal

Tribunal: A Tribunal is a quasi-judicial institution established for a number of functions like adjudicating disputes, for settling rights between parties claiming property or other matter, making and reviewing administrative decisions, etc.

Court: A court is essentially a judicial body set up by the government for adjudicating disputes between two or more parties. It has a pre-determined formal process for dispute resolution. It deals with civil, criminal and administrative matters. The decisions in a court may be taken by a single judge or a panel of judges or magistrate(s).

Important Differences between Administrative Tribunals and Courts

Special Courts, Tribunals Under Companies Act Descriptive Questions

Question.1: Define a ‘tribunal’. Why are tribunals made?
Answer:

‘Tribunal’

It is an administrative body established for the purpose of discharging quasi-judicial duties. The term is used to refer to any person or body or institution that has been given the power to adjudicate claims or disputes – whether or not it is called a ‘tribunal’.

It has quasi-judicial duties; hence it is neither a Court nor an executive body.

Why make tribunals?

Specialized tribunals have been created in order to lessen the burden on courts. They have been created under various statutes, viz the NCLT under the Companies Act, 2013.

Legal vs. domestic tribunals:

A legal ‘tribunal’ is different from a domestic tribunal. A ‘domestic tribunal’ is an administrative agency that regulates the professional conduct and imposes discipline amongst the members of a particular stream or profession.

It has powers to investigate and to adjudicate. On the other hand, legal tribunals are the quasi-judicial bodies established to adjudicate disputes related to specified matters. These derive their authority from the Statute establishing them.

They are bound by the principles of natural justice and the statutory provisions under which the Tribunal is established. The tribunal/authority may have to determine the rights and liabilities of the parties, hence their function is known as a quasi-judicial function.

Question 2: Explain the setting up of the NCLT and the NCLAT.
Answer:

The setting up of the NCLT and the NCLAT

The NCLT and the NCLAT were conceptualized with the enactment of the Companies (Second Amendment) Act, 2002 that amended the Companies Act, 1956.

The Supreme Court finally decided the matter in the case of Union of India v. R. Gandhi, President, Madras Bar Association (2010), upholding the constitutional validity of the Tribunal and the Appellate Tribunal.

Finally, the Central Government notified the Tribunal and Appellate Tribunal under the provisions of the Companies, 2013, which were notified by the Central Government w.e.f. 1st June, 2016.

The new fora, will take over powers from the Company Law Board (CLB), the Board of Industrial and Financial Reconstruction (BIFR) and the High Courts, wherein they dealt with company restructuring matters.

The new Tribunal is meant to be an efficient and effective alternate institutional forum, as it deals with matters in a simpler, speedier and more accessible manner.

The National Company Law Tribunal (NCLT) & the Appellate Tribunal have been constituted by the Central Govt. under Sections 408 & 410 of the Companies Act, 2013.

The newly inserted Section 418A w.r.t. “Benches of Appellate Tribunal”-provides that the powers of the Appellate Tribunal may be exercised by the Benches thereof, which are to be constituted by the Chairperson of the Tribunal.

The provisions pertaining to the benches are as under-

A Bench of the Appellate Tribunal shall have at least one Judicial Member and one Technical Member.

The Benches of the Appellate Tribunal shall ordinarily sit at New Delhi or such other places as the Central Government may, in consultation with the Chairperson, notify.

The Central Government has the power to notify, after consultation with the Chairperson, the establishment of such number of Benches of the Appellate Tribunal, as it may consider necessary, to hear appeals against any direction, decision or order referred to in section 53A of the Competition Act, 2002 and under section 61 of the Insolvency and
Bankruptcy Code, 2016.

Question.3: What are the powers exercisable by the NCLT and the NCLAT?
Answer:

The powers exercisable by the NCLT and the NCLAT

The Tribunal and the Appellate Tribunal are bound by the rules of natural justice and equity laid down in the Code of Civil Procedure and the other provisions of this Act and of any rules that are made by the Central

Government. The Tribunal and the Appellate Tribunal have the power to establish their own procedures. No civil court has jurisdiction over any matter which the Tribunal or the Appellate Tribunal is empowered to decide.

Some of the important powers that are presently vested with NCLT are as follows:

Class Action:

It is an action brought about by one or more persons representing a particular class. This is under Section 245 that has been introduced in the new Act to provide relief to the investors against the wrongful actions committed by the company management or other people associated with the company.

Such actions can be brought about against any type of companies, whether in the public sector or in the private. Moreover, they can be filed against any company which is incorporated under the Companies Act, 2013 or any previous Companies Act. There is only one exemption – banking companies.

Deregistration of Companies:

The procedural errors at the time of registration can now be corrected; the Tribunal can even cancel the registration of a company or dissolve it. The Tribunal can declare this in certain circumstances when the registration of a company is obtained in an illegal or wrongful manner. It is a remedy that is distinct from winding up and striking off.

Reopening of Accounts and Revision of Financial Statements:

This can be ordered in case of falsification of books of accounts. Sections 130 and 131. provide the instances where financial statements can be revised/reopened. Section 130 is mandatory, where the Tribunal or Court may direct the company to reopen its accounts when certain circumstances are shown.

Section 131 allows company to revise its financial statement but does not permit reopening of accounts. The company can itself approach the Tribunal under Section 131, through its director for revision of its financial statement.

Tribunal Ordered Investigations:

These are under Chapter XIV of the new Act:

1. Power to order investigation: On application by 100 members, for an investigation into the affairs of a company.
2. Power to investigate into the ownership of the company.
3. Power to impose restriction on any securities. (
4. Power to freeze assets of the company.
   • Power to seek assistance of Chief Metropolitan Magistrate.
   • De-registration of Companies.
   • Declare the liability of members unlimited.
   • De-registration of companies in certain circumstances when there is registration of companies is obtained in an illegal or wrongful manner.
   • Remedy of oppression and mismanagement.
   • Power to hear grievance of refusal of companies to transfer securities and rectification of register of members.
   • Protection of the interest of various stakeholders, especially non-promoter shareholders and depositors.
   • Power to provide relief to the investors against a large set of wrongful actions committed by the company management or other consultants and advisors who are associated with the company.
   • Aggrieved depositors have the remedy of class actions for seeking redressal for the acts/omissions of the company which hurt their rights as depositors.
   • Power to freeze assets of the company. Conversion of public limited company into private limited company.
   • If the company cannot or has not held an Annual General Meeting as required under the Companies Act or a required Extraordinary General Meeting, then the Tribunal has powers to call for a General Meetings.
   • Power to alter the financial year of a company registered in India.

National Company Law Appellate Tribunal (NCLAT) Appeals from orders of the Tribunal can be raised with the National Company Law Appellate Tribunal (NCLAT). Appeals can be made by any person aggrieved by an order or decision of the NCLT, within a period of 45 days from the date on which a copy of the order or decision of the Tribunal is received by him.

On the receipt of an appeal from an aggrieved person, the Appellate Tribunal would pass such orders as it considers fit, after giving an opportunity of a hearing. They can confirm, modify or set aside the order that is appealed against.

The Appellate Tribunal is required to dispose the appeal within a period of six months from the date of its receipt. The NCLAT is constituted under Section 410 of the Companies Act, 2013.

It has been given the powers to hear appeals against any direction, decision or order covered under Section 53A of the Competition Act, 2002. Moreover, existing restrictions on the appointment of judicial and technical members in the Appellate Tribunal, as put in force by the Central Government, have henceforth been eliminated.

The newly inserted Section 418A w.r.t. “Benches of Appellate

Tribunal”-provides that the powers of the Appellate Tribunal may be exercised by the Benches thereof, which are to be constituted by the Chairperson of the Tribunal. The provisions pertaining to the benches are as under –

A Bench of the Appellate Tribunal shall have at least one Judicial Member and one Technical Member.

The Benches of the Appellate Tribunal shall ordinarily sit at New Delhi or such other places as the Central Government may, in consultation with the Chairperson, notify.

The Central Government has the power to notify, after consultation with the Chairperson, the establishment of such number of Benches of the Appellate Tribunal, as it may consider necessary, to hear appeals against any direction, decision or order referred to in section 53A of the Competition Act, 2002 and under section 61 of the Insolvency and
Bankruptcy Code, 2016.

Question.4: Explain the concept of ‘benches’.
Answer:

Benches of Tribunal

There shall be constituted such number of Benches of the Tribunal, as the Central Government may, by notification, specify. The Principal Bench of the Tribunal shall be at New Delhi which shall be presided over by the President of the Tribunal.

The Benches are to consist of two Members, out of whom one shall be a Judicial Member and the other shall be a Technical Member. It may also have a single Judicial Member for such class of cases or such matters as the President may, by general or special order, specify.

If at any stage of the hearing of any such case or matter, it appears to the Member that the case or matter is of such a nature that it ought to be heard by a Bench consisting of two Members, the case or matter may be transferred by the President, or, as the case may be, referred to him for transfer, to such Bench as the President may deem fit.

The Central Government shall notify and establish such number of benches of the Tribunal as it may consider necessary, to exercise the jurisdiction, powers and authority of the Adjudicating Authority conferred on such Tribunal by or under Part II of the Insolvency and Bankruptcy Code, 2016.

If there is a difference of opinion amongst the members of the tribunal, it shall be decided according to simple majority. If the Members are equally divided, the case shall be referred by the President for hearing.

The newly inserted Section 418A w.r.t. “Benches of Appellate Tribunal”-provides that the powers of the Appellate Tribunal may be exercised by the Benches thereof, which are to be constituted by the Chairperson of the Tribunal.

The provisions pertaining to the benches are as under. A Bench of the Appellate Tribunal shall have at least one Judicial Member and one Technical Member.

The Benches of the Appellate Tribunal shall ordinarily sit at New Delhi or such other places as the Central Government may, in consultation with the Chairperson, notify.

he Central Government has the power to notify, after consultation with the Chairperson, the establishment of such number of Benches of the Appellate Tribunal, as it may consider necessary, to hear appeals against any direction, decision or order referred to in section 53A of the Competition Act, 2002 and under section 61 of the Insolvency and Bankruptcy Code, 2016.

Question.5: Can the NCLT punish a party for contempt?
Answer:

Power to Punish for Contempt

Section 425 of the Act gives the NCLT the power to punish for contempt. In this context, the Tribunal and the Appellate Tribunal shall have the same jurisdiction, powers and authority in respect of contempt of themselves as the High Court has.

To this end, they may exercise the powers under the provisions of the Contempt of Courts Act, 1971. This means that the reference in the Act to a High Court shall be construed as including a reference to the Tribunal and the Appellate Tribunal; and wherever the Advocate-General is referred to, it will be taken as a reference to such Law Officers as the Central Government may, specify in this behalf.

Question.6: Explain the procedure for institution of proceedings before the NCLT.
Answer:

Institution of proceedings, petition, appeals etc. before NCLT Part III of the National Company Law Tribunal Rules, 2016 deals with the institution of proceedings, petitions, appeals etc. before the NCLT.

The procedure of Appeal is as under:

Every appeal or petition or application to be in English. If it is in some other Indian language, it shall be accompanied by a copy translated in English.

The title shall state “Before the National Company Law Tribunal” and Joe shall also specify the Bench to which it is presented.

It will mention the cause title and the provision of law under which it is preferred.

Appeal or petition or application or counter objections shall all be divided 2. 918 into paragraphs and shall be numbered consecutively. Each paragraph shall contain a separate fact or allegation or point.

Full name, parentage, age, description of each party, address and in case a party sues or is being sued in a representative character, whom he represents shall also be specified at the beginning of the appeal or petition or application.

Every petition, application and appeal shall be presented in triplicate by the appellant or applicant or petitioner or respondent, as the case may be, in person or by his duly authorised representative or by an advocate duly appointed in this behalf in the prescribed form with stipulated fee at the filing counter of the relevant bench of the NCLT.

Question.7: Explain the concept of special courts and also the differences between a Special Court and the NCLT.
Answer:

Special Courts

For speedy trial of offences, the Central Government is empowered to establish special courts in consultation with the Chief Justice of the High Court within whose jurisdiction the judge is to be appointed. (Section 435 of the Companies Act, 2013).

They shall be presided over by a single judge. All offences under this Act shall be triable by the Special Court established for the area as may be specified in this behalf by the High
Court concerned. (Section 436)

Such courts can give decisions regarding offences punishable with imprisonment for a term not exceeding three years. It has the discretion to order a regular trial instead of proceeding with the case itself.

Differences between NCLT and Special Court:

Jurisdiction: A Special Court has limited jurisdiction or special jurisdiction, and only covers cases related to bankruptcy, family matters etc., whereas, the NCLT is a quasi-judicial body which resolves matters pertaining to companies in India.

Authority: The Special Court derives power from its constituting authority, like the constitution or a statute. On the other hand the NCLT was established under the Companies Act.

Number of benches: The NCLT has eleven benches, two at New Delhi (one being the principal bench) and one each at Ahmedabad, Allahabad,
Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata and Mumbai, whereas there is a single Special Court for each matter.

Appeals: Decisions of the NCLT may be appealed to the National Company Law Appellate Tribunal. Appeals against the orders of the Special Court can only be filed to the Supreme Court.

Question.8: What are the details to be set out in the address of the party, for delivery of summons?
Answer:

Particulars to be set out in the address for service of summons

The address for service of summons is provided by the parties at the time of filing of the appeal, petition, application or caveat. It is to include the following details –

• The full and proper name of the road, street, lane and Municipal Division or Ward, Municipal door and other number of the house;
• The name of the town or village;
• The post office, postal district and PIN Code, and
• Any other details that might be deemed essential to locate and identify the addressee such as fax number, mobile number, valid e-mail address, if any, etc.

Question.9: What are the requirements related to the presentation of petition or appeal?
Answer:

Presentation of petition or appeal

The requirements as per the Act are as under –

Every petition, application, caveat, interlocutory application, documents and appeal shall be filed in triplicate by the appellant, applicant, petitioner or respondent..

He can do so in person or through his duly authorized representative or by an advocate duly appointed in this behalf in the prescribed form. It has to be filed with the stipulated fee at the designated filing counter. Non-compliance of this may constitute a valid ground to refuse to give it due recognition.

Every petition or application or appeal is to be accompanied by documents duly certified by the authorized representative or duly verified from the originals by the advocate filing the petition, application or appeal.

The documents filed in the Tribunal shall be accompanied by an index in triplicate containing their details and the amount of fee paid thereon. Required number of copies of the appeal or petition or application shall also be filed for being served to the opposite party as prescribed under these rules.

In case of pending matters, all applications shall be presented after serving copies thereof in advance on the opposite side or his authorized
representative.

The processing fee prescribed by these rules, the required size and number of envelopes and notice forms shall be filled along with memorandum of appeal (MoA).

Question.10: What is the rule regarding production of authorization for and on behalf of an association?
Answer:

Production of authorization for and on behalf of an association

Where an appeal, application, petition or other proceeding is filed or initiated on behalf of an association, the person who signs or verifies the same has to produce along with such application a true copy of the resolution of the association that authorizes such person to do so.

This is for the purpose of verification by the Registry. The Registrar may, at any time, call upon the party to produce such further materials as he deems fit for satisfying himself
about due authorization.

Moreover, the resolution shall set out the list of members for whose benefit or on whose behalf the proceedings are instituted.

Question.11: Comment on the rights of a party to appear before the National Company Law Tribunal.
Answer:

Rights of a party to appear before the Tribunal

The Act provides the following rights to a party regarding the right to appear before the Tribunal – A party may appear before a Tribunal in person or through an authorized
representative, who has been specially authorized in writing for this very purpose.

The authorized representative shall make get his appearance registered by filing a Vakalatnama or a Memorandum of Appearance in Form No. NCLT-12 representing the respective parties to the proceedings.

The Central Government, the Regional Director or the Registrar of Companies or Official Liquidator may authorize an officer or an Advocate to represent in the proceedings before the Tribunal.

The officer authorized by the Central Government or the Regional Director or the Registrar of Companies or the Official Liquidator shall be an officer not below the rank of Junior Time Scale or company prosecutor.

During any proceedings before the Tribunal, it may call upon the Registrar of Companies to submit information on the affairs of the company on the basis of information available in the MCA21 portal.

Reasons for such directions shall be recorded in writing. Generally it is done for the purpose of its knowledge. Audio or video recording of the Bench proceedings by the parties or their authorised Representatives are not permitted.

Question.12: Which types of offences are triable by Special Courts?
Answer:

Offences Triable by Special Courts (Section 436)

These are provided in Section 436, which provides that – Regardless of anything contained in the Code of Criminal Procedure, 1973, All offences specified under sub-section (1) of Section 435 shall be triable only by the Special Court established for the area in which the registered office of the company situated.

Where there are multiple such courts, cases shall be tried by the one specified in this behalf by the concerned High Court.

When an accused or one suspected of the commission of an offence under this Act is referred to a Magistrate under Section 167 (2A) of the Code of Criminal Procedure, 1973, such Magistrate may authorise the detention of such person in such custody as he thinks fit.

Such detention shall be for a period not exceeding fifteen days in toto where such Magistrate is a Judicial Magistrate and seven days in the whole where such Magistrate is an Executive Magistrate.

If the concerned Magistrate feels that the detention of such person upon or before the expiry of the period of detention is unnecessary, he shall refer such person to the Special Court having proper jurisdiction in the matter.

Special Court may exercise the same power which a Magistrate having jurisdiction to try a case may exercise under section 167 of the Code of Criminal Procedure, 1973 in relation to an accused person who has been forwarded to him under that Section.

A Special Court has the right to take cognizance of the offence without the accused being committed to it for trial, upon perusal of the facts presented in the police report or in the complaint made in that behalf.

When trying an offence under this Act, a Special Court may also try an offence other than an offence under this Act with which the accused may be charged under the Code of Criminal Procedure, 1973, at the same trial.

A Special Court may try in a summary way any offence under this Act which is punishable with imprisonment for a term not exceeding three years. In such a case, in the case of any conviction, no sentence of imprisonment for a term exceeding one year shall be passed.

If, at the commencement of, or in the course of a summary trial, the Special Court believes that the nature of the case is such that the sentence of imprisonment for a term exceeding one year may have to be passed or if it is not desirous of trying the case summarily, the Special Court shall, after hearing the parties, record an order to that effect.

In doing so, it may also recall any witnesses who may have been examined and proceed to hear or rehear the case in accordance with the procedure for the regular trial.

Application of Code to Proceedings before Special Court As per Section 438, “the provisions of the Code of Criminal Procedure, 1973 shall apply to the proceedings before a Special Court and for the purposes of the said provisions, the Special Court shall be deemed to be a Court of Session or the court of Metropolitan Magistrate or a Judicial Magistrate of the First Class, as the case may be, and the person conducting a prosecution before a Special Court shall be deemed to be a Public Prosecutor.”

Circumstantial evidence in Indian Evidence Act, 1872

Circumstantial evidence is that derived from the surrounding facts. For example, if in a room, an attempt to murder has taken place, the state of the things in the room will be taken into consideration as circumstantial evidence.

For although, the state of things by itself is not sufficient proof that a murder took place, but it can strongly indicate to it, through the signs of struggle in the room, the sight of blood, a weapon lying on the ground etc. In the absence of primary evidence, circumstantial or secondary evidence can be relied upon to give an idea about the situation.

Res gestae in Indian Evidence Act, 1872

Section 6 of the Indian Evidence Act, 1872 opines the inclusion of res gestae in a case as relevant facts. They can be defined as those facts that were although incidental to the main fact but were explanatory of it, and hence to be included as relevant facts.

They have to form part of the same transaction in order to be included within this definition. Res gestae is based on the belief that because certain statements are made naturally, spontaneously, and without deliberation during the course of an event, they carry a high degree of credibility and leave little room for misunderstanding or misinterpretation.

The doctrine held that such statements are more trustworthy than other secondhand statements and therefore should be admissible as evidence.

Primary evidence in Indian Evidence Act, 1872

‘Primary evidence’ as per the Indian Evidence Act, 1872 means the very document itself, not a copy of it. The provision of primary evidence is based on the ‘Best Evidence’ principle, i.e. if there is better evidence available, then that must be provided.

If the person capable of providing. superior evidence supplies an inferior one, it creates an unfavorable stance against him. (Section 62)

Secondary evidence in Indian Evidence Act, 1872

‘Secondary evidence’ means certified or compared copies of, or counterparts of, or oral accounts of documents. (Section 63) According to Section 65 of the Act, where primary evidence can be provided, secondary evidence should not be used.

It should only be given where the original document is not available because it has been lost or destroyed, or it is otherwise unavailable because it cannot easily be moved because of bulk, or because it is under the control of some public authority’s control.

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Opinions of experts in Indian Evidence Act, 1872

Section 45 of the Indian Evidence Act, 1872 makes the opinions of experts important on points of specialized areas like handwriting analysis, fingerprints, artistic impressions, scientific principles and foreign legal positions.

Anyone possessing specialized knowledge in the above mentioned fields would be deemed to be an expert. Section 73 opines that comparison of signature, seal or handwriting of a
person is allowed to see whether they actually belong to the said person.

The Court may even ask that person to write before it in order to prove his handwriting. For this purpose, the help of an expert might be taken. The statement of an expert can even be admitted as evidence in documentary form without his presence being stressed upon; this is known as ‘hearsay evidence’.

Presumptions in Indian Evidence Act, 1872

Presumptions are used in the interpretation of statutes only when the intention of the legislature is not clear; when it is clear, they are to be avoided. Conjecture or suppositions are used when it becomes difficult to comprehend the statute in its own light.

The basic presumptions used in the interpretation of statutes are as follows –

1. The words used in the statute have been used in the literal sense with precise meanings unless otherwise defined.
2. There has been effected no change in the rights of the people unless the statute prescribe such a change expressly.
3. Liability only attaches where there is mens rea (guilty mind).
4. The state or governmental institutions, unless expressly covered, are deemed to be exempted.
5. The legislature, while passing the new statute was aware of the manner of functioning of the judiciary and the executive as well as the legal condition in the country and unless stated, has not caused any changes in it.
6. No mistakes have been committed by the legislature in drafting the statute.
7. No pointless activity would be enjoined on the people.

Facts in issue in Indian Evidence Act, 1872

According to Section 3 of the Indian Evidence Act, 1872, the expression “facts in issue” means and includes-any fact from which, either by itself or in connection with other facts, the existence, non-existence, nature or extent of any right, liability, or disability, asserted or denied in any suit or proceedings, necessarily follows.

Issue of fact in Indian Evidence Act, 1872

Whenever, under the provisions of the law for the time being in force relating to Civil Procedure, any Court records an “issue of fact”, the fact to be asserted or denied in the answer to such issue is a “fact in issue”.

The principle of estoppel in Indian Evidence Act, 1872

The principle of estoppel implies that a person who states certain facts must not be allowed to state something contrary to the facts stated by him earlier.

It follows from the generally accepted rule that a person cannot approbate and reprobate at the same time. This is specially the case when another has relied on the information or statement given by one and done something that he otherwise would not have done.

This is to prevent undue hardship for others who depend on the statements previously made by that person.

Admissions in Indian Evidence Act, 1872

‘Admissions’ have been defined in Section 17 of the Indian Evidence Act, 1872 as oral or documentary statements, or those in electronic form that imply or lead to any fact that is relevant or to any circumstances that are relevant.

Only those statements that fit the description given in Sections 18-20 are included in this definition.

Confessions in Indian Evidence Act, 1872

‘Confessions’, on the other hand, are defined under Sections 24 to 30 of the Act. The term ‘confession’ has been defined by the Judicial Committee in Pakala Narayanaswami v. Emperor, 66 Ind App 66: (AIR 1939 PC 47):

“A confession is a statement made by an accused which must either admit in terms of the offence, or at any rate substantially all the facts which constitute the offence.”

Primary evidence in Indian Evidence Act, 1872

‘Primary evidence’ as per the Indian Evidence Act, 1872 means the very document itself, not a copy of it. The provision of primary evidence is based on the ‘Best Evidence’ principle, i.e. if there is better evidence available, then that must be provided.

If the person capable of providing superior evidence supplies an inferior one, it creates an unfavorable stance against him. (Section 62)

Secondary evidence in Indian Evidence Act, 1872

‘Secondary evidence’ means certified or compared copies of, or counterparts of, or oral accounts of documents. (Section 63). According to Section 65 of the Act, where primary evidence can be provided, secondary evidence should not be used.

It should only be given where the original document is not available because it has been lost or destroyed, or it is otherwise unavailable because it cannot easily be moved because of bulk, or because it is under the control of some public authority’s control.

Circumstantial Evidence in Indian Evidence Act, 1872

‘Circumstantial Evidence’ is a kind of derived evidence, that can be gained from sources seen as secondary. For example, a copy of a document or a record in a public file can be taken as evidence in the absence of the original documents.

Another example could be that of the state of things in a particular room, where a crime has taken place. They can be considered when no eye-witness account is available.
Circumstantial or secondary evidence is used only in case the primary evidence is missing or unavailable.

Fact in Indian Evidence Act, 1872

According to Section 3, ‘fact’ means and includes:

1. anything-either state of things or relation of things – capable of being perceived by the senses;
2. any mental condition of which a person is aware. Facts can be of two types physical and psychological.

Relevant Fact in Indian Evidence Act, 1872

A fact can be said to be relevant to another when it is connected with the other in any of the ways referred to in Section 3 of this Act. Usually, in a case direct evidence is preferred.

If it is not available to prove a fact in issue, then circumstantial evidence may be resorted to and in such a case circumstantial evidence would also be a ‘relevant fact’.

Logical relevancy and legal relevancy in Indian Evidence Act, 1872

It includes facts holding logical relevance, i.e. facts that are so linked with other acts that they might affect their existence. Legal relevance of facts might be defined as the importance of some facts necessary to assert the existence or state of other facts.

Relevance depends on the case and the state of things. For example, a fact may be relevant for one case, but completely irrelevant for another.

Oral evidence in Indian Evidence Act, 1872

Spoken testimony that witnesses give in a court, usually upon oath. Oral evidence is always direct. “Oral evidence means statements which the court permits or requires to be made before it by witnesses in relation to matters of fact under inquiry.

But, if a witness is unable to speak he may give his evidence in any manner in which he can make it intelligible as by writing or by signs.” (Section 119)

Hearsay evidence in Indian Evidence Act, 1872

It is evidence given by someone other than a witness, and that too, out of court. As a rule, it is not admissible as evidence. It is information received from someone else; not what the witness knows personally.

Estoppel by attestation in Indian Evidence Act, 1872

If a person attests a document with notice of its contents, only then his attestation would operate as an estoppel. Generally, this is not applicable.

Estoppel by contract in Indian Evidence Act, 1872

Wen once a party has entered into a contract, they cannot later retract; it would be counted as a breach.

Constructive estoppel in Indian Evidence Act, 1872

It applies when the state of things is different from what it appears to be. For example, any documents pertaining to immovable property are necessarily registered because under the Transfer of Property Act, registration of a document operates as constructive notice of its contents.

Even though a person might not be aware of the contents of the sale deed or transfer or even of their existence, but he is deemed to have knowledge regarding them, if they are registered.

Estoppel by-election in Indian Evidence Act, 1872

Such an estoppel is used when there are multiple gifts to the same person. He has to choose, as they are in the alternative; not all can be enjoyed. Once he has chosen, he cannot retract from his choice. It also means that a person cannot approbate or reprobate under the same instrument.

Equitable estoppel in Indian Evidence Act, 1872

Section 116 of the Act deals with the estoppel that arises against a tenant or licensee. A similar estoppel has been said to arise against a mortgagee, an executor, a legatee, a trustee, or an assignee of property that forbears him from denying the title of the mortgagor, the testator, the author of the trust, the assignor, etc.

It can also be defined as an estoppel that is not covered by the Evidence Act.

Estoppel by negligence in Indian Evidence Act, 1872

Such estoppel leads another party dealing with a party or operating under a contract to claim property that in fact, the other party does not own. Such estoppel is known as estoppel by negligence or by conduct or representaton or by a holding out of ostensible authority.

Estoppel by silence in Indian Evidence Act, 1872

Such estoppel arises in situations that demand or require a duty to speak or disclose some facts. This estoppel stops a party from claiming or asserting that he could have claimed when he had the right earlier, but did not, in fact, so claim.

His not claiming it earlier put another party at a disadvantage, hence he is stopped from making the claim later.

Indian Evidence Act, 1872 Distinguish Between

Question 1: Distinguish between ‘Admission’ and ‘Confession’ under Indian Evidence Act, 1872.
Answer:

‘Admissions’ have been defined in Section 17 of the Indian Evidence Act, 1872 as oral or documentary statements, or those in electronic form that Imply or lead to any fact that is relevant or to any circumstances that are relevant.

Only those statements that fit the description given in Sections 18 to 20 are included in this definition. ‘Confessions’, on the other hand, are defined under Sections 24 to 30 of the Act.

The term ‘confession’ has been defined by the Judicial Committee in Pakala Narayanaswami vs Emperor, 66 Ind App 66: (A.I.R 1939 P.C. 47): “A confession is a statement made by an accused which must either admit in terms of the offence, or at any rate substantially all the facts which constitute the offence.”

Their differences are as follows:

Question 2: Distinguish between ‘Primary Evidence’ and ‘Secondary Evidence’ under the Indian Evidence Act, 1872.
Answer:

Difference between ‘Primary Evidence’ and ‘Secondary Evidence’ under the Indian Evidence Act, 1872

Indian Evidence Act, 1872 Descriptive Questions

Question 1: Explain the following: need (iv) ‘Expert opinion’ under the Indian Evidence Act, 1872 
Answer:

‘Expert opinion’ under the Indian Evidence Act, 1872 

Expert opinion under the Indian Evidence Act, 1872 24199 This is covered under Sections 45 to 51 in the Indian Evidence Act, 1872.

They prescribe as under –

Section 45 This makes the opinions of experts important on points of specialized areas like handwriting analysis, fingerprints, artistic impressions, scientific principles and foreign legal positions.

Anyone possessing specialized knowledge in the above mentioned fields would be deemed to be an expert. However, the court is not bound by the opinion of the expert. It might or might not give weightage to the opinion of the expert while adjudicating the issue.

This is allowed since an expert has detailed knowledge vis-à-vis a judge who is not equipped with the technical knowledge and hence not capable of drawing inferences from the facts presented before him.

For example – An expert can be considered when the analysis of someone’s handwriting is to be done, or when it is to be found whether someone was killed by a particular poison.

Question 2: What is ‘documentary evidence’ under Indian Evidence Act, 1872? Explain briefly.
Answer:

Documentary evidence:

Document: It means and includes any written matter, or matter recorded upon any material by way of letters, figures or marks, or by multiple means. The documents that are produced for the inspection of a Court are known as documentary evidence.

Examples of such could be copies of deeds, receipts, signed agreements etc. Such evidence is classified as Primary and Secondary evidence.

Primary Evidence is the document itself (Section 62 of the Evidence Act, 1872). The production of such documents follows the rule that if a better or the best evidence is present that should be given in evidence.

This enhances the credibility of the evidence. Conversely, if inferior evidence is offered, it will reflect negatively on the person giving it to the Court.

Secondary evidence, on the other hand, includes the certified or compared copies, or those made with the help of some mechanical process (Section 63). Even oral accounts of documents and photographs of the original are acceptable in this category.

Section 65 of the Act provides that usually primary evidence must be given, but where it is not available, secondary evidence may be resorted to, like in cases where the primary evidence has been destroyed or is not readily available or movable.

Question 3: Explain in brief ‘Principle of Estoppel’ under Indian Evidence Act, 1872.
Answer:

‘Principle of Estoppel’ under Indian Evidence Act, 1872

The Principle of Estoppel is covered in Chapter VIII of the Indian Evidence Act, 1872. Section 115 says that when a person declares or leads others to believe a fact or thing to be true, he and his legal representatives are stopped from denying its non-veracity afterwards.

Section 116 says that tenant or anyone claiming under him cannot deny the title of the landlord during the period of his tenancy. Same is the case with a license, when a person to whom it was given cannot deny that the person who gave it does not possess proper title during the continuance of the license.

Section 117 pronounces that an acceptor of a bill of exchange cannot deny that the drawer had no authority to draw or endorse if he has accepted it without demurring earlier. The same condition would apply to a bailee and licensee.

The conditions in which this principle is applied are when a person is alluding to contrary facts at the same time, as a person cannot be allowed to approbate and reprobate at the same time.

Question 4: The ‘Privileged Communications’ are based on Public Policy and a witness cannot be compelled to answer the same during the evidence in the Court or before any other authority. Explain in brief.
Answer:

The ‘Privileged Communications’ are based on Public Policy and a witness cannot be compelled to answer the same during the evidence in the Court or before any other authority.

There are some facts of which evidence cannot be given though they are relevant, such as facts coming under Sections 122, 123, 126 and 127 of the Indian Evidence Act, 1872, where evidence is prohibited.

They are also referred to as ‘privileged communications’. A witness though compellable to give evidence is privileged in respect of particular matters within the limits of which he is not bound to answer questions while giving evidence.

These are based on public policy and are (i) Evidence of a Judge or Magistrate in regard to certain matters (Section 121) (ii) Communications during marriage (Section 122) (iii) Affairs of State (Section 123) (iv) Official Communications (Section 124) (v) Source Information of a Magistrate or Police Officer or Revenue Officer as to commission of an offence or crime (Section 125) (vi) In the case of Professional Communication between a client and his barrister, attorney or other professional or legal advisor (Sections 126 and 129).

But this privilege is not absolute and the client is entitled to waive it.

Under Section 122 of the Act, communication between the husband and the wife during marriage is privileged and its disclosure cannot be enforced. This provision is based on the principle of domestic peace and confidence between the spouses.

Question 5: ‘Confession caused by inducement, threat or promise is irrelevant’. Explain briefly. (4 marks)
Answer:

According to Section 24 of the Indian Evidence Act, 1872 confession caused by inducement, threat or promise is irrelevant. To attract the prohibition contained in Section 24 of the Evidence Act the following six facts must be established:

1. that the statement in question is a confession
2. that such confession has been made by an accused person
3. that it has been made to a person in authority
4. that the confession has been obtained by reason of any inducement, threat or promise proceeded from a person in authority such inducement, threat or promise, must have reference to the charge against the accused person
5. the inducement, threat or promise must in the opinion of the Court be sufficient to give the accused person grounds, which would appear to him reasonable for supposing that by making it he would gain any advantage or avoid any evil of a temporal nature in reference to the proceedings against him.

To exclude the confession it is not always necessary to prove that it was the result of inducement, threat or promise. It is sufficient if a legitimate doubt is created in the mind of the Court or it appears to the Court that the confession was not voluntary.

It is however for the accused to create this doubt and not for the prosecution to prove that it was voluntarily made. A confession if voluntary and truthfully made is an efficacious proof of guilt.

Question 6: Opinion of experts under section 45 of the Indian Evidence Act, 1872.
Answer:

Section 45 of the Indian Evidence Act, 1872 deals with opinions of experts. It provides that when the Court has to form and opinion upon a point of foreign law or of science or art, or as to identity of handwriting or finger impressions, the opinions upon that point of persons specially skilled in such foreign law, science or art, or in questions as to identity of handwriting or finger impressions are relevant facts.

Such persons are called experts. Illustrations The question is, whether the death of A was caused by poison, The opinions of experts as to the symptoms produced by the poison by which A is supposed to have died, are relevant.

The question is, whether A, at the time of doing a certain act, was, by reason of unsoundness of mind, incapable of knowing the nature of the Act, or that he was doing what was either wrong or contrary to law.

The opinions of experts upon the question whether the symptoms exhibited by A commonly show unsoundness of mind, and whether such unsoundness of mind usually renders persons incapable of knowing the nature of the acts which they do, or of knowing that what they do is either wrong or contrary to law, are relevant.

The question is, whether a certain document was written by A. Another document is produced which is proved or admitted to have been written by A.

The opinions of experts on the question whether the two documents were written by the same person or by different persons are relevant.

Question 7: Explain the special provisions as to Evidence relating to Electronic Record under the provisions of the Indian Evidence Act, 1872.
Answer:

The special provisions as to Evidence relating to Electronic Record under the provisions of the Indian Evidence Act, 1872

Section 65A of the Indian Evidence Act, 1872 provides that the contents of electronic records may be proved in accordance with the provisions of Section 65B.

As per Section 65B(1) of the Indian Evidence Act, 1872, any information contained in an electronic record which is printed on a paper, stored, recorded or copied in optical or magnetic media produced by a computer (hereinafter referred to as the computer output) shall be deemed to be also a document, if the conditions mentioned in this Section are satisfied in relation to the information and computer in question and shall be admissible in any proceedings, without further proof or production of the original, as evidence of any contents of the original or of any fact stated therein of which direct evidence would be admissible.

The conditions in respect of a computer output related above, have been stipulated under Section 65B (2) of the Evidence Act.

Question 8: Section 3 of the Indian Evidence Act, 1872 deals with the term ‘Evidence’. Explain it. (4 marks)
Answer:

According to Section 3 of the Indian Evidence Act, 1872, which is the ‘interpretation clause’, the definition of ‘evidence’ includes the following:

Oral evidence statements which the Court permits or requires to be made before it by witnesses, relating to matters under inquiry.

Documentary evidence documents including electronic records produced for the inspection of the Court.

The expression “facts in issue” means and includes-any fact from which, either by itself or in connection with other facts, the existence, non-existence, nature or extent of any right, liability, or disability, asserted or denied in any suit or proceedings, necessarily follows.

Whenever, under the provisions of the law for the time being in force relating to Civil Procedure, any Court records an “issue of fact”, the fact to be asserted or denied in the answer to such issue is a “fact in issue”.

A “fact in issue” is called as the principal fact to be proved or factum probandum and the relevant fact the evidentiary fact or factum probans from which the principal fact follows. The fact which constitutes the right or liability called “fact in issue” and in a particular case the question of determining the “facts in issue” depends upon the rule of the substantive law which defines the rights and liabilities claimed.vn

Under Civil Procedure Code, the Court has to frame issues on all disputed facts which are necessary in the case. These are called “issues of fact’ but the subject matter of an issue of fact is always a “fact in issue”. Thus, when described in the context of Civil Procedure Code, it is an “issue of fact’ and when described in the language of Evidence Act it is a “fact in issue”.

Question 9: When the opinion of any person is relevant except experts under the Indian Evidence Act, 1872?
Answer:

This is covered Under Sections 45 to 51 in the Indian Evidence Act, 1872. They prescribe as under:

Section 45-This makes the opinions of experts important on points of specialized areas like handwriting analysis, fingerprints, artistic impressions, scientific principles and foreign legal positions. Anyone possessing specialized knowledge in the above mentioned fields would be deemed to be olent to an expert.

Section 46- Facts that provide support to the opinions mentioned in Section 45 will also be relevant, oriolowW

Section 47-In case of an opinion regarding handwriting verification, the opinion of someone who was familiar with it would be relevant.

Section 47A -When it is a case of identifying someone’s digital signature, the opinion of the Certifying Authority under the Information Technology Act,
2000 would be a relevant fact.

Section 48 -When it is a question of establishing facts regarding existence of a right or custom, the opinion of someone who knows about them would be relevant.

Section 49-When it is a matter of opinion regarding meaning of words or particular terms and their usages in certain areas, or the set-up or running of a religious/charitable foundation, the opinion of a person who knows facts regarding them would be deemed to be relevant.

Section 50 -When it is a question of the relationship between two persons, i.e. its existence or nature, the opinion of someone who knows facts about it would be relevant.

Section 51-When an opinion is considered relevant, the facts it is based on also become relevant.

Question 10: Extra-Judicial confession was made before a witness who was a close relative of accused and the testamony of said witness was reliable and truthful. Examine the relevancy of this confession.
Answer:

In Vinayak Shivajirao Pol v. State of Maharashtra’s case, the Supreme Court has held that the law does not require that the evidence of an extra-judicial confession should be corroborated in all cases.

When such confession is proved by an independent witness who is a responsible officer and one who bears no animus against the accused, there is hardly any justification to disbelieve it.

Also, where the Court finds that the confession made by the accused to his close relative was unambiguous and unmistakably conveyed that the accused was the perpetrator of the crime and the testimony of said close relative was truthful, reliable and trustworthy, a conviction based on such extra-judicial confession is proper and no corroboration is necessary.

Much importance could not be given to minor discrepancies and technical errors. It was determined in the case of Ram Khilari v. State of Rajasthan by the Supreme Court that “where an extra-judicial confession was made before a witness who was a close relative of the accused and the testimony of said witness was reliable and truthful, the conviction on the basis of extra judicial confession is proper.”

Question 11: What is Professional Communications? In a case Ramesh, a client, says to Ashwin, his Advocate, “I stole a bike and I whish you to defend me” Ashwin refused to plead his case. Later on Ashwin gives evidence against Ramesh about this communication. Is this communication protected from disclosure under the Indian Evidence Act, 1872? Explain.
Answer:

Sections 126 to 129 of the Indian Evidence Act, 1872 deal with privileged communications, i.e. between a legal adviser and a client. Such communication is protected from disclosure, and the client cannot be forced to disclose the information he has communicated to his lawyer or legal adviser. However, if the client himself gives his express consent, the information can be disclosed.

The rule has been made to aid the unhindered communication between client and lawyer, to further the interests of the legal relationship between them. This covers both oral and documentary communications between the two parties.

Under Sections 126 and 127 a legal adviser i.e. a barrister, attorney, pleader and vakil (Section 126) and his interpreter, clerk and servant (Section 128) are all covered.

In this case, Ramesh says to Ashwin, his advocate, that he stole a bike and that he wants him to take up his case, which Ashwin refuses. Later on, Ashwin cannot give evidence against Ramesh for this same offence.

This would only be permitted if Ramesh had given his express approval for the same. If not, the communications between the two are protected under the Indian Evidence Act.

Indian Evidence Act, 1872 Practical Questions

Question 1: Ragini told Rajendra in the year 2007 that she had committed theft of the jewellery of her neighbour Asha. Thereafter, Ragini and Rajendra were married in the year 2008. In the year 2009, criminal proceedings were instituted against Ragini in respect of the theft of the said jewellery. Rajendra is summoned to give evidence in the said criminal proceedings.  Decide whether Rajendra can disclose the communication made to him by Ragini in the year 2007, in the criminal proceedings in respect of the theft of the jewellery.
Answer:

Section 122 of the Indian Evidence Act, 1872 says that no one can be compelled to disclose private conversations with his/her spouse that took place during marriage, as the information is privileged information. This can be done with the consent of the spouse.

According to the case of Nagaraj vs. State of Karnataka, Section 120 allows a spouse to bear witness against a spouse if the case is not between them, or does not arise out of criminal prosecutions. However, the privilege under

Section122 of the Indian Evidence Act extends to all communications made to a spouse during subsistence of marriage; the communication need not be confidential. Moreover, the privilege is not accorded to the witness, but to the spouse.

in M.C. Verghese v. T J. Ponnam it was said that if the marriage was subsisting at the time when the communications were made, the bar prescribed by Section 122 will operate. In Moss v. Moss 15 it was held that in criminal cases, subject to certain common law and statutory exceptions, a spouse is incompetent to give evidence against the other, and that incompetence continues after a decree absolute for divorce or a decree of nullity. ho

Hence, such a communication cannot be treated as privileged information, and Rajendra can disclose such communication made to him by Ragini. Space to write important points for revision

Question 2: ‘A’ is accused of the murder of ‘B’ by beating him. Discuss the rule of relevancy of fact of the statement said or done by ‘A’ or, ‘B’ or the bystanders at the beating, or so shortly before or after it.
Answer:

Relevant Fact:

A fact can be said to be relevant to another when it is connected with the other in any of the ways referred to in Section 3 of the Indian Evidence Act, 1872. Usually in a case direct evidence is preferred.

If it is not available to prove a fact in issue, then circumstantial evidence may be resorted to and in such a case circumstantial evidence would also be a ‘relevant fact’. Relevance depends on the case and the state of things. For example, a fact may be relevant for one case, but completely irrelevant for another.

Section 6 embodies the rule of admission of evidence relating to what is commonly known as res gestae, and stresses on the inclusion of res gestae in a case as relevant facts. They can be defined as those facts that were although incidental to the main fact but were explanatory of it, and hence to be included as relevant facts.

They have to form part of the same transaction. in order to be included within this definition.  Secondhand statements considered trustworthy for the purpose of admission as evidence in a lawsuit when repeated by a witness because they were made spontaneously and concurrently with an event.

Res gestae describes a common-law doctrine governing testimony. Under the Hearsay rule, a court normally refuses to admit as evidence statements that a witness. Traditionally, two reasons have made hearsay inadmissible: unfairness and possible inaccuracy.

Allowing a witness to repeat hearsay does not provide the accused with an opportunity to question the speaker of the original statement, and the witness may have misunderstood or misinterpreted the statement. Thus, in a trial, counsel can object to a witness’s testimony as hearsay.

Res gestae is based on the belief that because certain statements are made naturally, spontaneously, and without deliberation during the course of an event, they carry a high degree of credibility and leave little room for misunderstanding or misinterpretation.

The doctrine held that such statements are more trustworthy than other secondhand statements and therefore should be admissible as evidence.

Hence, when in this case, A is accused of the murder of B by beating him, things said or done by A or B or the by-standards at the beating, or before or after form part of the transaction, and are hence relevant facts.

Indian Evidence Act, 1872 Descriptive Questions

Question.1: Explain the principle of estoppel.
Answer:

The principle of estoppel

The Principle of Estoppel is covered in Chapter VIII of the Indian Evidence Act, 1872. Section 115 of this chapter says that when a person declares or leads others to believe a fact or thing to be true, he and his legal representatives are stopped from denying its non-veracity afterwards.

Section 116 says that tenant or anyone claiming under him cannot deny the title of the landlord during the period of his tenancy. Same is the case with a license, when a person to whom it was given cannot deny that the person who gave it does not possess proper title during the continuance of the license.

Section 117 pronounces that an acceptor of a bill of exchange cannot deny that the drawer had no authority to draw or endorse if he has accepted it without demurring earlier. The same condition would apply to a bailee and licensee.

The conditions in which this principle is applied are when a person is alluding to contrary facts at the same time, as a person cannot be allowed to approbate and reprobate at the same time.