Solid Waste Management is defined as “the application of techniques that will ensure the orderly execution of the functions of collection, processing and disposal of solid waste. “Collection is the first fundamental function of solid waste management. It refers to the gathering of sold waste from places such as residences, commercial institutional and industrial establishments and other public places. Processing is the second fundamental function which refers to the activity applied to solid waste to prepare it for subsequent operation. Processing improves efficiency of solid waste disposal and prepares solid waste for subsequent recycling and recovery of matrials. Disposal is the third fundamental functions of solid waste management. It refers to the placing of solid waste in its ultimate resting place.

Solid waste is defined as “any garbage, refuse, sludge from a waste treatment plant, water supply treatment plant or air pollution control facility and other discarded material, including solid, liquid, semi-solid or contained gaseous material, resulting from industrial, commercial, mining and agricultural operations and from community Activities but does not include solid or dissolved material in domestic sewage. An example of such waste includes garbage, rubbish, ashes and residues, demolition and construction wastes, dead animals, radio-active waste etc. These different classification of solid waste is necessary to address the complex challenges of solid waste management in an effective manner. The term Municipal Solid Waste (MSW) is used to describe most of the non-hazardous solid waste from a city, town or village that requires routine collection and transport to a processing or disposal site. Sources of MSW includes private homes, commercial establishments and institutions. MSW does not include wastes from industrial processes, construction and demolition debris, sewage sludge, mining wastes or agricultural wastes. Municipal solid waste contains a wide variety of materials. It can contain food waste (like vegetable and meat material, left over food, egg shells etc.) which is classified as wet garbage as well as paper, plastic tetra packs, plastic eans, newspaper, glass bottles, cardboard boxes, aluminium foil, metal items, wood pieces etc. which is classified as dry garbage.

Modern society produces large quantities of hazardous waste that are generated by chemical manufacturing companies, petroleum refineries, paper mills, smelters and other industries. A waste is classified as a hazardous waste, if it exhibits any of four primary characteristics based on the physical or chemical properties of toxicity, reactivity, ignitability and corrosivity. In adition to this, waste products that are either infectious or radioactive are also calssified as hazardous. As most of the hazardous wastes are disposed of on or in land, the most serious environmental effect is contaminated ground water. Once groundwater is polluted with hazardous wastes it is very often not possible to reverse the damage. Pesticides are used increasingly to protect and increase food production. They form residues in the soil that are washed into streams, which then carry them forward. The residues, may persist in the soil or in the bottom of lakes and rivers. Exposure can occur through ingestion, inhalation and skin contact resulting in acute or chronic poisoning.

Most of the lead used in battenes, fuel, pesticides, paints, pipes are absorbed by people and wildlife is stored in the bones. Lead can affect red blood cells by reducing their ability to carry oxygen and shortening their lifespan. Lead may also damage nerve tissue resulting in brain disease. Mercury is used in the production of chlorine and as a catalyst in the production of some plastics. Industrial processes such as the production of chlorine and plastics are responsible for most of the environmental damage resulting from mercury. Our body has a limited ability to eliminate mercury. In the food web mercury becomes more concentrated as it is taken up by various organisms. In an aquatic environment, mercury can be absorbed by plankton, which are then consumed by fish. In addition, fish absorb mercury through their gills and by eating other fish contaminated with mercury. The older the fish, the greater the mercury concentration in its body. Birds that eat the fish concentrate even more mercury in their bodies. It is a cumulative poison (it builds up in the body ever long periods of time) and is known to cause brain damage.

The improper handling and transfer of municipal solid waste results in various health and environmental hazards such as diseases like diarrhoea and amoebic dysentery may result in humans from food and water contamination through flies, which breed on the refuse dump and solid waste. Rats depending upon these solid wastes may also cause plague, salmonellosis, endemic typhus like diseases through direct bite. The crops and water supply may also get contaminated and may result in large scale epidemic of cholera, jaundice, gastro intestinal diseases etc. Drain clogging due to uncollected waste leading to stagnant water and hence mosquito breeding and thus danger of malaria and dengue. Percolation of decomposed garbage dumped into soil may result into pollution of underground water and land. Noxious fumes may pollute air due to the burning of waste products especially plastic containers.

Control measures of urban and industrial waste management strategy includes three main components.

1. Source reduction

2. Re cycling

3. Disposal.

Source reduction is one of the fundamental ways to reduce wastes. This can be done by using less material when making a product, reusing products on site, designing products or packaging to reduce their quantity. On an individual level we can reduce the use of unnecessary items while shopping, buy items with minimal packaging avoid buying disposal items and also avoid asking for plastic carry bags. Recycling is resuing some components of the waste that may have some economic value. Recycling divertes items such as paper, glass, plastic and metals from the waste sream. These materials are sorted, collected and processed and then manufactured, sold and bought as new products. Recyling has readily visible benefits like conserving resources, reducing energy used during manufacture and reducing pollution levels. Disposal of solid waste is done most commonly through land filling incineration pulverization and composting. A modern sanitary landfill is a depression in an impermeable soil layer that is lined with an impermeable membrane. Here solid waste is placed in a suitably selected and prepared landfill site in a carefully prescribed manner. Then waste material is spread out and compacted with appropriate heavy machinery. The waste is covered each day with a layer of compacted soil. Incineration is the process of burning solid waste in a properly designed furnace under suitable temperature and operating conditions. In pulverisation solid waste is pulverized in grinding machines so as to reduce its volume and change its physical character. Composting is the biological decomposition of organic constituents of solid wastes such as leaves, grass and food scraps by micro organisms under controlled conditions.

Recently the Kerala State Pollution Control Board in its report to the High Court of Kerala has recommended some measures to make garbage plant at Vilappilsala (a waste dumping place in Thiruvananthapuram) function more effectively. They are

Ø Bringdown the quantity of biodegradable waste transported to the plant to 90 tonnes a day.

Ø Commission the permanent leachate treatment plant.

Ø Provide 100 meter bufferzone around the periphery of the plant.

Ø More frequent turning of windrows to control stench.

Ø Construction of dike between landfills and the nearby stream to prevent flow of leachate to the river.

Our personal actions can either worsen or improve our environmental quality. While a majority of individuals want a cleaner environment, not many of them want to make the major changes in their lifestyle that would contribute to a cleaner environment. Individuals should not only be aware of various environmental issues and the consequences of their actions on the environment but also make a firm resolve to develop environmentally ethical life styles. Some concepts that individuals can do themselves to effectively manage solid waste are

Ø Buy consumer goods in refillable glass containers instead of cans or throwaway bottles.

Ø Use rechargeable batteries.

Ø Try to avoid asking for plastic carrybags, when you buy groceries or vegetables or any other items. Use your own cloth bag instead.

Ø Use sponges and washable cloth, napkins, dish towels and handkerchiefs instead of paper.

Ø Don’t use disposable paper and plastic plates and cups when reusable versions are available.

Ø Recycle all newspaper, glass, aluminium and other items accepted for recycling in your area.

Ø Set up a compost bin in your garden or terrace and use it to produce manure for your plants to reduce the use of fertilizers.

Ø Choose items that have the least packaging or no packaging.

Ø Start individual or community composting or vermicomposting plants in your neighbourhood and motive people to join.

Ø Take care to put into practice what you preach. Remember environment protection begins with YOU.

The International Airport Authority of India (hereinafter referred to as “Respondent”) issued a notice on 3^rd January, 1977 for inviting tenders for putting up and running second class restaurant and two snack bars at the international airport of Bombay. Six tenders were received in response to the notice but only the tender of 4^th respondent was entertained by the 1^st respondent (International Airport Authority of India). But there was a condition in the notice that they have to satisfy the description of ‘registered IInd Class Hotelier’ having at least 5 years of experience. Now, the main issue was that the 4^th respondent were having an experience of 10 years in catering and running canteens and they even had a Eating House License which was issued to them by the Bombay Municipal Corporation, but not a registered IInd Class Hotelier. But still, the tender of 4^th respondent was accepted on 19^th April, 1977.

The 4^th respondent got prepared everything for the purpose of running the restaurant and snack bars. But the 1^st respondent was unable to hand over the possession of sites because A.S. Irani was running his restaurant and snacks bars on the same, under a previous contract with the 1^st respondent. The 4^th respondents requested repeatedly to the 1^st respondent and 2^nd respondent (Airport Director) to hand over the possession of the sites to them. On the other hand, K.S. Irani who also gave his tender filed Civil Suit No. 6544 of 1977 in the City Civil Court of Bombay against the respondents by challenging the decision of 1^st respondent to accept the tender of the 4^th respondents. Earlier, K.S. Irani obtained an ad interim injunction against the respondents but after hearing the respondents, the City Civil Court dismissed the notice by order dated on 10^th October, 1977. But he filed an appeal against this order, but the appeal was dismissed by the High Court on 19^th October, 1977. Now, the 1^st respondent handed over the possession of only two sites to the 4^th respondents, which was different from the sites occupied by A.S. Irani, because he refused to vacate the sites. The term of contract with the 1^st respondent was over, but still he was not willing to vacate the sites. So the 1^st respondent filed a suit No. 8032 f 1977 against A.S. Irani in the City Civil Court at Bombay and obtained an injunction to restrain A.S. Irani from running snack bars and restaurant. A.S. Irani preferred an appeal against the order but the appeal was rejected and then filed a petition for special leave to appeal the Court but that too was turned down.

Again, A.S. Irani filed another suit, No. 8161 of 1977 in the City Civil Court, Bombay on 24^th October, 1977 to prevent the 4^th respondents from obtaining the contract awarded to them by the 1^st respondent but still not succeeded and pending in the City Civil Court. All the attempts of A.S. Irani to prevent the 4^th respondents from obtaining the contract failed. The 4^th respondents started running the snack bars form 19^th October, 1977.

Later on, Ramana Dayaram Shetty (hereinafter referred to as “Appellant”) who  didn’t submitted any tender, was just a mere stranger but still he filed a Writ Petition No. 1582 of 1977 in High Court of Bombay by challenging their decision of accepting the tender of 4^th respondent. But, the writ petition was rejected and then he made an appeal to the Division Bench of the High Court against the order rejecting the writ petition but that too was rejected on 21^st February, 1978. Finally, the appellant filed a petition for special leave to appeal the Court, which is the final hearing by the court. Many issues were raised and discussed. The appeal was dismissed and the order of the High Court rejecting the writ petition was confirmed.

MATERIAL FACTS

The respondents herein, the International Airport Authority of India is a corporate body constituted under the International Airport Authority Act, 43 of 1971, who issued the Tender Notice for inviting Registered IInd Class Hotelier having at least 5 years of experience for putting up and running a IInd Class Restaurant and Two Snack bars at Bombay Airport for a period of 3 years. It was held that, this was the eligibility condition and the test of eligibility was laid down as an objective test not a subjective one .K.S. Irani and A.S. Irani who gave their tenders filed suits against the 4^th respondents to prevent the 4^th respondents from benefiting and obtaining the contract from 1^st respondent but their attempts failed and one of the suit is still pending in the City Civil Court of Bombay

The appellant herein, Ramana Dayaram Shetty did the same thing; he also filed a Writ petition No. 1582 of 1977 in the High Court of Bombay to prevent the 4^th respondents from obtaining the contract but his attempt also failed and he again filed a special leave to appeal the court but that too rejected by the court.

Finally, after the judgment of the court, the 4^th respondents started running the restaurant and snack bars at the Bombay International Airport.

KEY QUESTION

The following questions which the Court had to decide:-

v What is the meaning of “Registered IInd Class Hoteliers”? What category of persons falls within the meaning of this description?

v Whether the acceptance of tender of the 4^th respondents by the 1^st respondent was invalid and liable to be set aside at the instance of the appellant?

v What are the constitutional obligations on the State when it takes the action in exercise of its statutory or executive power?

v What are the parameters of its statutory or executive power in the matter of awarding a contract or dealing with its property?

DECISION

The Court decided that the aspect of grading is given by the Bombay Municipal Corporation only to the hotels or restaurants but not to IInd grade hotelier and the requirement which is given in the notice is that the tenderer must be a registered IInd grade hotelier was therefore a meaningless requirement and it could not be regarded as laying down any condition of eligibility. The 4^th respondents have the experience equivalent to the condition mentioned in the notice and that is the reason their tender was accepted by the 1^st respondent. There is no statutory or administrative law requiring the 1^st respondent to give a contract only by tenders, they could have given the contract directly to the 4^th respondent because it was clearly mentioned in the contract that there is no obligation on the 1^st respondent to accept all the tenders. But still they did not give the tender directly.

The appellant was just a mere stranger and didn’t submit any tender to the 1^st respondent but still he filed writ petition. There was no locus standi to maintain the petition. That means, if the appellant didn’t enter into the competition by submitting a tender, so nothing should be affected to him. The grievance was that 1^st respondent accepted the tender of the 4^th respondents and said that in the notice it is written that the non- fulfillment of eligibility will be no bar to consideration of a tender, which is not known by the appellant and that is the reason he didn’t submit the tender due to the eligibility criteria. It was violation of Article 14 of the Constitution of India which is Right to Equality.  Now, this was justified in law or not that the court had to decide. The court held that the power of license or accepting the tender is in the hands of the Government; here it is in the hands of the International Airport Authority of India and it was also given in the notice. The writ petition was dismissed by the court and then he filed an appeal in the High Court that too was rejected.

Ratio/Principles Applied

v Article 12 of the Constitution of India, which defines the word ‘State’.

v Article 14 of the Constitution of India, which is regarding ‘equality before law’.

v Section 10 of the Indian Contract Act, 1872, which is regarding ‘What agreements are contracts’.

v Section 10 of the International Airport Authority Act, 1971, which is regarding ‘appointment of employees and other officers’.

SUBJECTIVE DETAILS

The relevant case laws played a very important role in deciding this case. Many cases were involved in the decision of the case. On the basis of these cases the judgment was decided.

In Ajay Hasia v. Khalid Mujib (AIR 1981 SC 487)

It was emphasized that, where constitutional fundamentals vital to the maintenance of human rights are at stake, the Government may act through the instrumentality or agency or it may employ the instrumentality or agency of judicial persons to carry out its function. It is really the Government which acts through the instrumentality or agency of the corporation and for the purpose of convenience of management and administration. If the Government acting through its officers is subject to certain constitutional limitations it must follow a fortiori that the Government acting through the instrumentality or agency of a corporation should be equally subject to the same limitations.

It was held that Courts should be anxious to enlarge the scope and width of the fundamental rights by bringing within their sweep every authority which is an instrumentality or agency of the Government or through the corporate personality of which the Government is acting, whether through natural persons or through corporate entities to the basic obligation of the fundamental rights.

In Som Prakash v. Union of India (AIR 1981 SC 212)

The Hon’ble Court started to examine whether a private corporation such as Shriram comes within the ambit of Article 12 or not.

The Hon’ble Supreme Court held that under the Industrial Policy Resolution, 1956 industries were classified into three categories which are regarded to be a part which the State. The first category was to be the exclusive responsibility of the State. The second category comprised those industries which would be progressively State owned and in which the State would therefore generally take the initiative in establishing new undertakings but in which private enterprise would be expected to supplement the effort of the State by promoting and developing undertakings either on its own or with State participation. The third category would include all the remaining industries and their future development would generally be left to the initiative and enterprise of the private sector.

The policy resolution also mentions certain basic industries of importance that can be regulated by the Central Government for national interest. Among the eighteen industries so mentioned as requiring such Central control, heavy chemicals and fertilizers industries were included.

According to the objectives of the Policy Resolutions the Industries (Development and Regulation) Act of 1951 Section 2 of the Act declares that in the public interest the Union should take under its control the industries specified in the First Schedule. Chemicals and Fertilizers industries are placed in the First Schedule as Items 19 and 18 respectively.

The Supreme Court held that the activity of producing chemicals and fertilizers is deemed by the State to be an industry of vital public interest, whose public import necessitates that the activity should be ultimately carried out by the State itself, though there was State support and the industry was under State control, then private corporations may also be permitted to supplement the State.

It was pointed out on behalf of the applicants that as Shriram is registered under the Industries (Development and Regulation) Act, 1951, its activities are subject to extensive and detailed control and supervision by the Government. Under the Act a license is necessary for the establishment of a new industrial undertaking or expansion of capacity or manufacture of a new article by an existing industrial undertaking carrying on any of the Scheduled Industries included in the First Schedule of the Act.

The Supreme Court held that Shriram is required to obtain a license under the Factories Act and is subject to the directions and orders of the authorities under the Act. It is also required to obtain a license for its manufacturing activities from the Municipal authorities under the Delhi Municipal Act, 1957. It is subject to extensive environment regulation under the Water (Prevention and Control of Pollution) Act, 1974 and as the factory is situated in an air pollution control area, it is also subject to the regulation of the Air (Prevention and Control of Pollution) Act, 1981. It is true that control is not exercised by the Government in relation to the internal management policies of the Company. This functional control is of special significance as it is the potentiality of the fertilizer industry to adversely affect the health and safety of the community and it’s being impregnated with public interest which perhaps dictated the policy decision of the Government to ultimately operate this industry exclusively and invited functional control. Along with this extensive functional control, Shriram also receives sizable assistance in the shape of loans and overdrafts running into several cores of rupees from the Government through various agencies. Moreover, Shriram is engaged in the manufacture of caustic soda, chlorine etc. Its various units are set up in a single complex surrounded by thickly populated colonies. Chlorine gas is admittedly dangerous to life and health. If the gas escapes either from the storage tank or from the filled cylinders or from any other point in the course of production, the health and well-being of the people living in the vicinity can be seriously affected. Thus Shriram is engaged in an activity which has the potential to invade the right to life of large sections of people. The question was whether these factors are cumulatively sufficient to bring Shriram, within the ambit of Article 12.

The judicial exposition on Article 12 was decisively settled in the case of Pradeep Kumar Biswas v. Indian Institute of Chemical Biology (AIR 1981 SC 221) wherein the a seven judge bench held that the ultimate test in determining whether an entity would be an instrumentality of the State would be whether functionally, financially and administratively the body was under the deep and pervasive control of the State. Mere regulatory control by the Government will not suffice to fulfill the requirements of Article 12.

The question that arose for consideration in this was whether the Council for Scientific and Industrial Research (CSIR), a body registered under the Societies Registration Act would fall under the definition of “other authorities” under Article 12. The CSIR was created by the Government of India to promote Industrial Research in India, with a majority of its members being nominated by the Central Government and most of its financial requirements supplied by the Government. Pradeep Kumar Biswas thus overruled the decision in Sabhajit Tewary v. Union of India. It is pertinent to note here that due to the strength of the Bench, the ratio in this case would be binding on all other Constitutional Benches, comprising of five judges unless the same were to be overruled by a larger bench.  The minority Court in the Pradeep Kumar Biswas case observed that merely because an entity was an instrumentality of the State, it would not come within the definition of “other authorities” under Article 12 as the entity has to create by statute or under a statute and have the power to make law or directions amounting to law under Article 13(2). Thus, the minority observed that the distinction between “authority” and “instrumentality of State” is fundamental, and in order to satisfy the test under Article 12, an entity must answer to the definitions of both.

In the case of Zee Telefilms v. Union of India (AIR 2005 SC 2677) wherein the Court was called upon to determine whether the Board of Cricket Control of India, the principle body regulating the sport of cricket in India, would fall within the definition of Article 12. On the basis of the “deep and pervasive State control” test laid down in Pradeep Kumar Biswas, the majority Court held that the BCCI would not come within the definition of State under Article 12. On the other hand, basing its reasoning on the “public function” doctrine, the minority Court held that the BCCI would fall within the ambit of the definition of “State” under Article 12. The minority in Zee Telefilms opined that keeping in view the fact that the BCCI discharges an important public function and that its actions may impinge on the fundamental rights of the players, the actions of the body are subject to judicial review. Interestingly, the minority Court in the same breath also opined that in times of privatization and liberalization wherein most of the Governmental functions are being relegated to private bodies; the actions of such private bodies would also be amenable to the writ jurisdiction of the Court.

In Sukhdev Singh V. Bhagat Ram (AIR 1975 SC 1331)

The question was whether the Oil and Natural Gas Commission, the Industrial Finance Corporation and the Life Insurance Corporation established under statutes of Parliament are authorities under Article 12 of the Constitution. The majority of the judges in this case held that

ü The State, being an abstract entity could undertake trade or business under Article 298 via an agency, instrumentality or a juristic person.

ü Statutory corporations are agencies/instrumentalities of the State for carrying on trade and business which would have been otherwise carried out by State itself.

ü Therefore the test must be to see whether a body is acting as an agency or instrumentality of the State. In this case the Court found that bodies like LIC, ONGC etc. were created by statutes, had statutory power to make binding rules and regulations and were under the pervasive control of the Government. In light of these facts plus the combination of State aid and furnishing of an important public service by these corporations, made the SC declare these corporations to be State under Article 12.

In Akhil Bhartiya Upbhokta Congress v. State of Madhya Pradesh (2011) 5 SCC 29

Justice G. S. Singhvi of the Supreme Court culled out the principles of administrative law and constitutional governance to declare that the State could not act in an arbitrary manner to grant favorable land allotments without following principles of public policy so as to grant equal opportunity to all the citizens.

REASONING

The Court held that there is no cut and dried formula which would provide the correct division of corporations into those which are instrumentalities or agencies of Government and those which are not. The Court made an analogy on the concept of State Action as developed in the United States wherein private agency if supported by extra-ordinary assistance given by the State may be subject to the same constitutional limitations as the State. The Court also held that if extensive and unusual financial assistance is given and the purpose of such assistance coincides with the purpose for which the corporation is expected to use the assistance and such purpose is of public character, it may be a relevant circumstance supporting an inference that the corporation is an instrumentality or agency of the Government.

The Court enumerated the following five factors which would determine whether a body comes under the definition of State as defined in Article 12 of the Constitution:

v Financial assistance given by the State and magnitude of such assistance.

v Any other forms of assistance whether of the usual kind or extraordinary.

v Control of management and policies of the corporation by the State - nature and extent of control.

v State conferred or State protected monopoly status and

v Functions carried out by the corporation, whether public functions closely related to governmental functions, would determine whether a corporation is an instrumentality or agency of the State or not.

The SC concluded International Airport Authorities undoubtedly an instrumentality or agency of the Central Government and falls within the definition of ‘State’. The Court went on to conclude that just as Government acting through its officers, is subject to constitutional and public law limitations, similarly Government acting through agency is subject to equal restrictions. Therefore, the International Airport Authority of India is subject to the limiting or restricting provisions of the Constitution and other public laws.

CRITIQUE OF THE CASE

Today the Government in a welfare State is the regulator and dispenser of special services and provider of a large number of benefits, including jobs, contracts, licenses, quotas, mineral rights, etc. The Government pours forth wealth, money, benefits, services, contracts, quotas and licenses. The valuables dispensed by Government take many forms, but they all share one characteristic. They are steadily taking the place of traditional forms of wealth. These valuables which derive from relationships to Government are of many kinds. They comprise social security benefits, cash grants for political sufferers and the whole scheme of State and local welfare. Then again, thousands of people are employed in the State and the Central Governments and local authorities. Licenses are required before one can engage in many kinds of businesses or work. The power of giving licenses means power to withhold them and this gives control to the Government or to the agents of Government on the lives of many people. Many individuals and many more businesses enjoy largesse in the form of Government contracts. These contracts often resemble subsidies. It is virtually impossible to lose money on them and many enterprises are set up primarily to do business with Government. Government owns and controls hundreds of acres of public land valuable for mining and other purposes. These resources are available for utilization by private corporations and individuals by way of lease or license. All these mean growth in the Government largesse and with the increasing magnitude and range of governmental functions as we move closer to a welfare State, more and more of our wealth consists of these new forms. Some of these forms of wealth may be in the nature of legal rights but the large majority of them are in the nature of privilege.

For achieving the goals of Justice and Equality set out in the Preamble, the State and its agencies/instrumentalities have to function through political entities and officers/officials at different levels. The laws enacted by Parliament and State Legislatures bestow upon them powers for effective implementation of the laws enacted for creation of an egalitarian society. The exercise of power by political entities and officers/officials for providing different kinds of services and benefits to the people always has an element of discretion, which is required to be used in larger public interest and for public good. In principle, no exception can be taken to the use of discretion by the political functionaries and officers of the State and/or its agencies/instrumentalities provided that this is done in a rational and judicious manner without any discrimination against anyone. In our constitutional structure, no functionary of the State or public authority has an absolute or unfettered discretion. The very idea of unfettered discretion is totally incompatible with the doctrine of equality enshrined in the Constitution and is an antithesis to the concept of rule of law.

The analysis demonstrates that in both the jurisdictions compared, the judicial choice pertaining to the extent of the State Action doctrine. In the US, a large part of the activism stemmed from the concern to control racial discrimination.

In India, on the other hand, the Courts have expanded the reach of the State Action doctrine whenever the Government has been perceived to be relegating its Constitutional obligations. In the words of Bhagwati J in the same case i.e. RD Shetty v. International Airport Authority of India, AIR 1979 SC 1628:

“With tremendous expansion of welfare and social service functions, increasing control of material and economic resources and large scale assumption of industrial and commercial activities by the State, the power of the executive Government to affect the lives of the people is steadily growing. The attainment of socio-economic justice being a conscious end of State policy, there is a vast and inevitable increase in the frequency with which ordinary citizens come into relationship of direct encounter with State power-holders. This renders it necessary to structure and restrict the power of the executive Government so as to prevent its arbitrary application or exercise.”

In India, as has been mentioned earlier, the focus of the Courts has to been to check the growth of Governmental power clothed as private conduct. As Mathew J. observes,

“The governing power wherever located must be subject to the fundamental Constitutional limitations. The need to subject the power centres to the control of Constitution require an expansion of the concept of State action.”

Though the controlling test in India remains the “deep and pervasive State control” test, the minority opinion in the Zee Telefilms, has left behind constitutional material for subsequent Courts to observe and possibly adopt. Importantly, the minority observes,

“There is no doubt that people will differ as to the cogency of these reasons. The line drawn by the cases considered within this section has, not surprisingly, been contested…has argued that the exercise of monopolistic power should serve to bring bodies within the ambit of judicial review. To speak of a consensual foundation for a body’s power is largely beside the point where those who wish to partake in the activity will have no realistic choice but to accent that power. Black has argued that the emphasis given to the contractual foundations for a body’s power as the reason for withholding review are misplaced. She contends that the courts are construing contract as an instrument of economic change exchange, with contract as a regulatory instrument. She argues further that the reliance placed on private law controls, such as restraint of trade and competition law, may also be misplaced here. Such controls are designed for the regulation of economic activity in the market place, and they may not be best suited to control potential abuse of regulatory power itself.”

The Courts concerned in both the jurisdictions have sought to locate the ‘governing power’ in the society, and have through ingenious tactics subjected the same to Constitutional limitations. In essence thus, the pursuit of the source of such power, has forced Courts to make a political choice of either heeding to the actions of the Government or fostering newer balances in the balance of power. Political decision making is an accepted phenomenon in both these jurisdictions, however, it makes any discussion on locating a concrete distinction between public and private domains futile - the boundaries will continually change as distinctions between governments acting privately and private entities acting governmentally continually erode.

BIBLIOGRAPHY

v ALL INDIA REPORTER, 1979[Vol.66], “Supreme Court Section”, Citation: A.I.R.1979 SC, Published by D.W. Chitaely for All India Reporter Ltd., Nagpur  pp 1628-1652

v M.P. Jain, Indian Constitutional Law, Sixth Edition , Reprint 2011, Published by LexisNexis Butterworths Wadhwa Nagpur, pp 467 and 1024

v Dr. J.N. Pandey, The Constitutional Law of India, 48^th Edition, 2011, Published by Central Law Agency, pp 61, 62 and 83

v V.N. Shukla’s, Constitution of Inida, Eleventh Edition, 2011, Published by Eastern Book Company, Lucknow, pp 27

v Judicial Reviews of the Law Institute.

v Universal, Bare act, “Indian Contract Act, 1872”, Published by Universal Law Publishing Co. Pvt. Ltd., pp 7-8

v Wikipedia

v www.google.com

v www.indiankanoon.org

v www.booksonlaw.com

v www.unilawbooks.com

v www.manupatra.com

v www.westlaw.com

v www.heinonline.com

‘Negligenceis the breach of a legal duty’s to care. It means carelessnessin amatter in which the law mandates carefulness.

‘A shorter definition is that ‘’Negligence’’ as a tort is the breach of legal duty to take care which results in damage, undesired by the defendant to the plaintiff.

Thus legal duty as defined above is the duty law gives to every person to respect the legal rights of other. Therefore the legal rights of a person can be defined as the provisions provided by law to protect the interests of its citizens. We must remember then where there is a legal right, there has to be a legal remedy for it. This is inferred from the maxim “Ubi Jus Ibi Remedium”.

ORIGIN.

Ever since the formation of human history, the inherent sickness is one form or the other and mortality of human beings have made the diagnosis and treatment of diseases pertaining to humans a high-risk profession. The ancient risk relating to physical retribution to the physician has been replaced by the modern risk of economic compensation for the harm occurred. Patient’s rights has been protected in various ways including creation of the institution of ‘’Patients Ombudsman’’ in seven European countries as an administrative system. It is also been suggested that in order to prevent physicians wrongs in the absence of enforceable international regulations, An International Medical Tribunal be constituted with authority to judge and punish health care professionals in cases of violation of International Human Rights and of norms of medical conduct. It is being argued that the independent body should be established with the sanction and authority of the United Nations and it could be based on the models of the International Criminal Code (I.C.C.). Man is the only animal who believes in keeping order in this world. This was one of the reasons that he invented the concept of law. Law help every man who suffered from an injury due to the acts committed by others, to seek remedy by means of compensation or punishment to the person committing that act. It was in this time that the field of medicine was developing. Since no man is perfect in this world, it is evident that a person who is skilled & has knowledge over a particular subject can also make a mistake during his practise. Such mistakes in medical profession may lead to minor injuries or serious type of ham rage which eventually causes death. In such circumstances there arises a need for a remedy to the injured people so that justice is upheld and this gave rise to the concept of medical negligence.

Winfield stated that a negligent act comprises of three main components. They are:

EXISTENCE OF LEGAL DUTY_ Whenever a person approaches another trusting him to possess certain, skill, or special knowledge on a given problem the second party is under an implied legal duty to exercise due diligence as expected to a in the ordinary course from his contemporaries. So it is not that the legal duty can also be contractual and not otherwise. Every time the patient visits a doctor for his ailments he does not enter into any written contract but there is a contract by implication and any lack of proper care can make the erring doctor liable for breach of professional duty.

BREACH OF LEGAL DUTY_ There is a certainly a breach of legal duty if the person exercising the skill does something which an ordinary man would not have done or fails to do that which an ordinary prudent man would have done in that situation.

Ø DAMAGES CAUSED BY THE BREACH_ while awarding compensation, the consumer forum has to take into account all relevant factors and access compensation on the basis of accepted legal principles on moderations.

In order to understand the correct meaning of medical negligence it is essential that we carefully analyse these components will we be able to understand the remedies that the law provides us.

1. That the defendant was under a duty to take a reasonable care towards the plaintiff to avoid the damage complained of or not to cause damage to the plaintiff by failure to use reasonable care.

2. That there was a breach of duty on the part of the defendant &

The Doctor Patient relationship in our country has undergone a sea change in the last decade and a half. The lucky doctors of the past were treated like God and people revered and respected them. We witness today a fast pace of commercialization and globalization on all spheres of life and the medical profession is no exception to these phenomena. As a result, the doctor-patients relationship has deteriorated considerably. Earlier too, doctors were covered by various laws i.e. the Law of Torts, IPC etc. but since the passing of the Consumer Protection Act 1986, litigation against doctors is on the increase. The medical profession is definitely perturbed by this and a rethink is necessary on standards of medical practise or ‘defensive medicine’.

Surgeons/Urologists busy themselves in acquiring knowledge, perfecting operative techniques and assimilating the newest technologies that are evolving so rapidly. Sometimes the course of the disease or therapeutic decisions does not run along predictable lines. The patient-doctor relationship is then put to test.

Doctors practising ethically and honestly should not have any reason for fear. Law whether civil, criminal or consumer law, can only set the outer limits of acceptable conduct i.e. minimum standard of professional care and skill, leaving the question of ideal to the profession itself. Case: Indian Medical Association _vs_ V.P Santha SC 1995.

RELEVANT CASES ON MEDICAL NEGLIGENCE:

1.) Poonam Verma _vs_ Ashwin Patel 1996- A homeopathic doctor prescribed an allopathic medicine to the patient. The patient died. The doctor was held to be negligent and liable to compensate the wife of the deceased on the ground that she was under a statutory duty not to enter any other system of medicine and since she trespassed into a prohibited field, her conduct amounted to negligence.

2.) Spring Meadows Hospital _vs_ Harjot Ahluwalia AIR (1998)- In this landmark case, sc held that the parents of the child who was treated by the hospital were hirers of the service while the child was the beneficiary and thus were consumers. Further held that patients treated by a medical profession is also a consumer of medical service and is covered by CPA.

1_ Sec 304(A) of Indian penal code of 1860 states that whoever causes death of a person by a rash or negligent act not amounting to culpable homicide shall be punished with imprisonment for a term of two years , or with a fine, or with both.

2_ Sec 80 &88 of Indian Penal Code, contains defences for doctors accused of Criminal Liability.

3_ Sec 337 of I.P.C codifies that, this particular sec deals with hurt caused by an act endangering life or personal safety of others.

4_ Sec 338 of I.P.C relates to grievous hurt by an act endangering life & personal liberty of others.

Medical Negligence inherits or incorporates in it the most important three questions of which most people are ignorant and which cannot be neglected.

1) Are doctors only liable for Medical Negligence?

2) Why Medical Negligence is growing at an abrupt rate in India?

The answer to the 2^nd questions refers a case recently happened in Malda Hospital. In Malda Hospital at least 6 babies died within 24hrs. After investigation it has been seen that the dead amount was abnormal.The hospital authority is trying to wash their hands off the incident by denying any fault on part of the doctors.

According to Director of health service Dr. S.P BASK, there where defects detected within the patient’s itself The hospital authority commented that it is due to lack of infrastructure.

Where in a hospital there is only one paediatric doctor instead of 4 so due to the inefficiency in the infrastructure negligence occurred on the part of the administration. The government & the whole Health sector are responsible for it.

In India Medical Negligence is increasing at an abrupt rate as because the diseases and patients are increasing day by day but the imputation of the doctors in the hospitals, nursing homes& other medical sectors are proportionately very poor. This occurs due to the negligence on the part of the government & administration. This type of situation can be avoided if they together take initiative to prepare a new infrastructure to renovate the present pathetic condition of the medical sectors and adopt new measures to increase the ratio of doctors in every medical ground and initiate new processes conducting treatment properly.

The third question goes through certain controversies. After my dialectic analysis on the subject matter I have reached at last to the conclusion. To some extent the government, administrative body of the Medical sector as well as all the members are responsible for Negligence on Medical grounds. The state & the Health sector both should co-operatively adopt certain measures to control Negligence. Imputation of efficient doctors, literate d persons must be appointed as nurses, ward boys and all other members attached to this sector, modernized brands of medicines must be used. In this manner Medical Negligence can be reduced. Moreover now a day, Hospitals are the place of horror or nightmare to patients due to certain reasons as for example:-

1). 12 crib death in the Burdwan hospital in the last year of 2011.

2). State’s only referral Hospital B.C ROY reports 13 crib death in the same period.

The State was acceded to the Dominion of India by Maharaja Hari Singh, who was the ruler of the State in 1947 at the time when India was itself burning in the flames of communal riots. Jammu and Kashmir is also the only Indian state that has its own flag and constitution, and Indians from other states cannot purchase land or property in the state. Designed by the then ruling National Conference, the flag of Jammu and Kashmir features a plough on a red background symbolizing labour substituted the Maharaja’s state flag.

The internal position of the Jammu and Kashmir was also not far better than India. Communal disturbances and hunger for power in the sub-continent were provocating the religious feelings of community in order to fulfil their long awaited desire to assume political supremacy. The division of the sub-continent on the basis of the religion was creating hindrances in achieving the very objective of “Independence”.

HISTORICAL BACKGROUND

There are some Constitutional changes that took place in the State of Jammu and Kashmir. The letter dated October 27, 1947, the Governor-General, the Maharaja of Jammu and Kashmir, Hari Singh, offered to accede the Dominion of India. On March 5, 1948 the Maharaja issued a proclamation forming a responsible government of the Council of Ministers headed by the Prime Minister which was to take steps to constitute a National Assembly bases on adult franchise to frame a Constitution for the State. On November 25, 1949, Yuvraj Khan Singh, to whom the power was entrusted by the Maharaja, issued a proclamation directing that the Constitution of India to be adopted by the Constituent Assembly of the State insofar as it was applicable in Jammu and Kashmir in order to govern the relationship of the State and the contemplated Union of India. The Constitution of India was adopted on November 26, 1949, and on the same day some of it provisions came into force and the remaining provisions came into force on January 26, 1950. In October 1947, the accession was made by the ruler in favour of India in consideration of certain commitments made by Pt. Jawahar Lal Nehru (the then Prime Minister of India). It was in the pursuance of those commitments that Article 370 was incorporated in the Constitution of India. Article 370 of the Constitution of India dealt with the relationship of the State of Jammu and Kashmir with the Union of India. On January 26, 1950 the Constitution which was applicable to Jammu and Kashmir Order, 1950, was made by the President. On April 20, 1951, the Maharaja issued a proclamation in pursuance of which the Constituent Assembly of the State submitted the interim report recommended that —-

À The form of the future Constitution of Jammu and Kashmir shall be wholly democratic;

À The institution of hereditary ruler ship shall be terminated;

À The office of the Head of the State shall be elective.

RECOMMENDATIONS ADOPTED BY THE CONSTITUENT ASSEMBLY

The Constituent Assembly of the State by a resolution adopted these recommendations. The relevant part of the resolution is as follows:

(1)

(i) that the Head of the State shall be the person recognised by the President of the Union      on the recommendations of the Legislative Assembly of the State;

(ii) he shall hold office during the pleasure of the President;

(iii) he may, by writing under his hand addressed to the President resign his office;

(iv) subject to the foregoing provisions, the Head of the State shall hold office for a term of five years from the date he enters upon his office;

Provided that he shall, notwithstanding the expiration of his term, continue to hold office until his successors enters upon his office;

(2) that the recommendations of the Legislative Assembly of the State in respect of the recognition of the Head of the State specified in sub-para (1) of paragraph 1, shall be made by elections..

(3) that the Head of the State shall be designated as the Sadar-i-Riyasat.

On May14, 1954, in exercise of the power conferred by Article 370 (1) of the Constitution of India, the president, with the concurrence of the government of the State, made the Constitution of (Application to Jammu and Kashmir) Order, 1954. It superseded the earlier Order of 1950, and extended the application of various provisions of the Constitution of India to the State. One such provision was Article 368 but a proviso was added to the effect that “no State of Jammu and Kashmir unless applied by order of the President under clause (1) of Article370”. On November 17, 1956, the Jammu and Kashmir Constitution was adopted. Some sections of the Constitution came into force on January 26, 1957.

The State of Jammu and Kashmir is a part of Indian Territory and is included in the List of States in the First Schedule of the Constitution.

HOW SPECIAL POSITION OF JAMMU AND KASHMIR IS DIFFERENT FROM OTHER STATES ?

The position of this State differs from other States in the following respects:-

GIST OF SPECIAL PROVISIONS
À LEGAL POWER OF THE PARLIAMENT.	À The legislative authority dealing of the Union Parliament in respect of this State is limited to those matters in the Union List and Concurrent List which are declared by the President, in consultation with the government of the State, to conform the term of the Instrument of Accession.
À SEPARATE CONSTITUTION.	À The only State in India i.e. Jammu and Kashmir has a separate Constitution which was adopted on November 17, 1956 and came into force on 26thJanuary, 1957.
À PROVISIONS RELATED TO EMERGENCY.	À The power does not vest with the Union to declare Financial Emergency in the state. The Union can declare emergency in the state only in case of War or External Aggression. No proclamation of emergency made on the grounds of internal disturbance or imminent danger thereof shall have effect in relation to the state unless the following situations arises:- it is made at the request or with the concurrence of the government of the state; or where it has not been so made, it is applied subsequently by the President to that state at the request or with the concurrence of the government of that state.
À FUNDAMENTALS RIGHTS, DIRECTIVE PRINCIPLES OF STATE POLICY AND FUNDAMENTAL DUTIES.	À Article 19 (1) (f) and Article 31(2) of the Constitution are still applicable to Jammu and Kashmir. À Supplementary to above, Directive Principles of State Policy and Fundamental Duties are also not applicable to Jammu and Kashmir.
À HIGH COURT OF JAMMU AND KASHMIR.	À The High Court of J&K has very limited powers as compared to other High Courts within India. À It can’t declare any law unconstitutional. Unlike High Courts in other states, under Article 226 of the Constitution, it can’t issue writs except for enforcement of Fundamental Rights.
À OFFICIAL LANGUAGES.	À The official language for communication between one state and another; or between a state and the Union; À The official language of the Union; À The language of the proceedings in the Supreme Court; À Urdu is the official language of Jammu. and Kashmir but use of English is permitted for official purposes unless the state legislature provides otherwise.
À PREVENTIVE DETENTION LAWS.	À The power of legislation regarding preventive detention laws vests in the State Legislature alone and not in the Parliament.
À OTHER PROVISIONS OF THE CONSTITUTION OF INDIA.	À The other provisions of the Constitution of India shall apply to Jammu and Kashmir as the President may by order specify.

POWER OF THE PRESIDENT UNDER ARTICLE 370

Article 370 clearly states that due to the special position given to State of Jammu and Kashmir, the President is given the power to apply the provisions of the Constitution to that State subject to such exceptions and modifications as the President may by order specify. The President has power to say by order that certain provisions of the Constitution will be expected from application to the State of Jammu and Kashmir and on such order being made those provisions would not apply to that State. Besides this power of making exceptions, the President is also given power to apply the provisions of the Constitution with such modifications as he thinks fit. The meaning of the word ‘modification’ used in Article 370 (1) must be given the widest effect, including making racial modifications.

HOW CAN WE AMEND ARTICLE 370 WHEN THE CONSTITUENT ASSEMBLY OF JAMMU AND KASHMIR NO LONGER EXISTS?

According to the provision enshrined under Article 370 (3) of the Constitution of India, consent of the Constituent Assembly of the State and State Legislature are required to amend Article 370.

This issue has been raised at par. Various constitutional experts and jurists are silent on this aspect. Some of them say it can be amended by an amendment Act under Article 368 of the Constitution of India and the amendment extended under Article 370 (1), but the proper answer is yet to come.

In reality, this is the actual status of Article 370 which is still a very debatable and mooted question and remains unanswered.

JUDICIAL APPROACH

Now, let us see the vital role played by the Judiciary in the light of the following decided cases which are related to Article 370 of the Constitution of India.

In the case of Sampat Prakash v.State of J&K:

The main issue which was raised by the petitioner was based on the fact that Article 35 (c) of Jammu and Kashmir Constitution as initially introduced by the Constitution (Application to Jammu and Kashmir) Order, 1954, had given protection any law relating to preventive detention in Jammu and Kashmir against invalidity on the ground of infringement of any one of the fundamental rights guaranteed by Part III of the Constitution for a period of five years only.

Subsequently this period was extended to ten years and later to fifteen years by the Presidential Orders dated 1959 and 1964. These extensions were challenged by the petitioner on the ground that the orders making such modifications could not be validly passed by the President under Article 370 (1). Article 370 could only have been intended to remain effective until the Constitution of the State was framed and thereafter it must be held to become ineffective that any modification made by the President subsequent to the enforcement of the Constitution would be without the authority of law.

The above argument was rejected by the Supreme Court and held Article 370 should be held to be continuing in force because the situation had existed when this article was incorporated in the Constitution had materially altered, and the purpose of introducing this article was to empower the President to exercise his discretion in applying Indian Constitution and a reference was also made that Article 368 of the Constitution in its application to State of J&K under which an amendment to the Constitution under Article 368 is of no consequence in the State of J&K unless applied by the President under Article 370 (1).

In the case of Mohd. Damnoo v. State of J&K

The petitioner challenged the validity of his detention under the J&K Preventive Detention (Amendment) Act, 1967, on the ground that the Act is invalid as it has not been assented to by the Sadar-i-Riyasat of the State. On November 16, 1952, the President had made an order substituting another Explanation for the existing one in clause (1) of Article 370, as “For the purpose of this article, the Government of the State means the person for this time being recognised by the President on the recommendation of the Legislative Assembly of the State as the Sadar-i-Riyasatof J&K, acting on the advice of Council of Ministers of the State for the time being in office.”

According to the counsel on behalf of the petitioner, neither the State Assembly nor the President were competent to impair the functioning of the Sadar-i-Riyasat of the State unless the Constitution of India was amended under Article 368 and 370 (3) or a fresh Constituent Assembly was convened to  amend the Explanation.

The above argument was not accepted by the Supreme Court and the Court explained the following feature of Article 370 (1) (b) and (d) is the necessity of the concurrence of the State Government. Article 370 (1) merely recognised a constitutional position in the State. It was contended Article 370 (1) (b) and (d) places no limitation on the framing or amendment of the Constitution of J&K. basically, it was pointed out that the change in the designation and the mode of the appointment of the Head of the State, the constitutional position in the State remains basically the same and the Governor is the successor to the Sadra-i-Riyasat and can validly exercise his powers as Head of the State.

CONCLUSION

Now, it is crystal clear that the State of J&K has a different Constitution because Kashmir is not a part of India. It is a disputed territory, rather a foreign nation. Legally speaking, as per International Law and UN Charter, any differences between two nations are decided under the UN Charter. Kashmir was always an independent nation, never a part of India in the history too and i.e. the only reason it always leads to a tussle between Pakistan and India. Specifically, related to recognition of Kashmir.

The question of plebiscite doesn’t arise till Pakistan doesn’t withdraw its forces from POK (Pakistan Occupied Kashmir). India has taken a stand that after lapse of so much time, the circumstances within state have changed. Under the changed circumstances, the plebiscite can’t be held and hence, the demand for it is completely unjustified. The view is accepted by most of the nations of the world like USA, UK, France, etc.

With the passage of time, The Constitution (Application to Jammu and Kashmir) Order, 1954 was promulgated by the President of India in consultation with the Government of J&K, regulating the constitutional status of the State; and apart from it several Central laws got extended to the J&K State and even the nomenclature of Sadar-i-Riyasat and Prime Minister were changed to Governor and Chief Minister on March 30, 1965.

The State of Jammu and Kashmir which is a constituent unit of the Union of India, shall, in its relation with the Union, continue to be governed by Article 370 of the Constitution of India.

Despite of continuous efforts by various political parties, Article 370 of the Indian Constitution could neither be made permanent nor abolished, so it continues to be as such in the Indian Constitution with J&K having its own Constitution and State flag and resulting into non-application and non-extension of Central laws without approval of the State Legislature

BIBLIOGRAPHY

À P.M. Bakshi, The Constitution of India 336-353, (Universal Law Publishing Co., New Delhi-India, 11^thedn., 2011).

À The Constitution of India 312-313, (Eastern Book Company, Lucknow, 3^rd edn., 2011).

À S. Anand, The Constitution of Jammu and Kashmir its Developments and Comments, 4^th edn., 2003.

À V.N. Shukla, The Constitution of India 1015-1016, (Eastern Book Company, Lucknow, 11^th edn., 2011)

À M.P. Jain, The Constituion of India 859, (Lexis Nexis Butterworths Wadhwa Nagpur,6^th edn., 2011).

À P.M. Bakshi, Part XVIII, Article 352-360,  The Constitution of India 319-327, (Universal Law Publishing Co., New Delhi-India, 11^th edn., 2011)

À Article 360, The Constitution of India 294-296, (Eastern Book Company, Lucknow, 3^rd edn., 2011).

À Wikipedia.

À www.google.com.

À www.unilawbooks.com

À http://www.indiankanoon.org/

À http://www.manupatra.com/

À www.westlaw.com

À www.heinonline.com

Sexual abuse of children can take place in the family, in the neighbourhood,in school, in institutions and on the street. The “Study on Child Abuse India 2007” conducted by the Ministry of Women and Child Development acknowledges that child sex abuse take place in schools also. One out of the two children in schools has faced sexual abuse in one form or the other. From the overall point of view more boys than girls face various forms of sexual abuse. It is shocking to know that abuser could be from the peer groups or an older student. According to World Health organisation (WHO) one in every four girls and one in every seven boys in the world are sexually abused. Louis J Engelbrecht a researcher working on the problems of child sexual abuse quotes studies showing that over 50 percent of children in India are sexually abused a rate that is higher than in any other country. According to Mumbai based Journalist writer Pinki Virani two institutions which play a very important role in a childs life when it comes to sexual abuse is protection and prosecution. Protection is the Job of the parent and prosecution is the job of the state. Child abuse in Kerala seems to have reached epidemic levels with the Sarva Shiksha Abhiyan helpline reporting over 1000 complaints since June 2011. A ground breaking study conducted recently by EQUATIONS (Equitable Tourism Options) with support from ECPAT International focusing on male children in prostitution in three of India’s major pilgrimage centres - Tirupati in Andhra Pradesh, Puri in Orissa and Guruvayoor in Kerala has found that the sexual exploitation of male children in the form of child abuse, child trafficking, child prostitution child pornography and child labour in these tourist hot spots is pervasive and reportedly on the rise. No effective steps are there to help the children in need. There are cases where the child has to be removed from his or her house. There is a woeful shortage of rescue homes or short stay homes where the child could at least be temporarily lodged. Child abuse victims who have been shifted from their homes are now housed under Mahila Shikshan Kendras (MSKs) run by the Kerala Mahila Samkhya Society (KMSS). But the MSKs which contain more than 30 inmates are now cramped with 60 odd victims ie KMSS is now stretched beyond a point. According to KMSS direction Dr. Seema Bhaskar the cause would be better served if child protection units are formed in every district. If a parent cannot take care of the child it is the responsibility of the state to provide him care and protection.

Child sexual abuse scars the victim for life. Physical and mental damages are beyond explicable. Apart from the common effects like bruises and injuries to private parts it also cause things like anxiety, depression, poor self esteem, destructive behavior, refusal to stay alone, self hatred, learning disorders, not trusting others easily, addictions, running away, refusal to interact with others, suicidal tendencies etc. At present there is no comprehensive law on child sexual abuse. The constitution of India contains provisions for the protection of children. Under the constitution of it is the duty of the state to secure that children of tender age are not abused and forced by economic necessity to enter vocations unsuited to their age and strength, (Article 39(e)) and to ensure that children are given opportunities and facilities to develop in a healthy manner and in conditions of freedom and dignity (Article 39(f)). The Constitution directs the state to enact special legislation and policies for protecting the children and youth against exploitation of moral and material abandonment. Now only legal intervention on sexual abuse of children is in the form of

v The Juvenile Justice (Care and Protection of Children) Act 2000 – provision for protection, treatment and rehabilitation of children.

v Child Marriage Restraint Act 1929 Sec 3 and Sec 4- punishing male for marrying a female below 18.

v Prohibition of Child Marriage Act 2006 Section 9- punishing male for marrying a female below 18.

v Suppression of Immoral Traffic in Women and Girls Act 1956- Sec 5 to Sec 10- punishes prostitution, inducing, taking woman or girl for prostitution.

v The Indian Penal Code – Sec 376 rape, Sec 372 & 373 selling and buying minor girls for prostitution punishable.

There is no law in India that cover child abuse in all respects. The problem originates from the law enforcing agencies itself. Even though law goes its own way the victim child has to suffer mental agony not only when the act is committed but while narrating the incident, during medical examination and then in court also where the child is cross examined over a dozen times. For boys only proven sodomy is punishable offence but other that there is no clear definition of sexual abuse. The picture becomes more worst when the act “committed by a child against a child”. Here though the Juvenile Justice Act comes into force the law is not clear to whom the victim reports.

Shocked by the alarming rise of sexual abuse against children (Recent Government Reports showed more than half of India’s Children have been subjected to sexual abuse) the cabinet on 4^th March 2011 cleared a first of its kind legislation which threatens stringent action against the offenders. The Protection of Children from Sexual Offences Bill is aimed at protecting the young ones from sexual abuse, sexual harassment and child pornography. For the first time the draft Bill distinguishes a sexual offence committed against children by persons in position of trust and authority over children including a police officer, a remand home warden, hospital staff and school authorities. It categorises those crimes as being of “aggravated” nature with stringent punishment. The punishment for “aggravated sexual assault” is imprisonment up to seven years with a fine while a penalty for “penetrative’ sexual assault is at least five years in jail and a minimum penalty of Rs. 50,000. Crime against children has been classified into that of penetrative ‘sexual assault which could be of aggravated nature also and that of non-penetrative kind which could again be of aggravated nature.

As rightly pointed out by the Delhi High Court recently in Tara Dutt’s Case (May 2, 2009) the offence of child sexual abuse is an extremely grave one which leave a deep scar on the psyche of the child and has the potential of adversely affecting the child’s emotional and mental development. The court also criticized the attitude of parliament in not taking sufficient legal action on the basis of Report of Law Commission of India in 2004. The court emphasized the need for a stringent law so that such crimes against children should not go undeterred.

The Indian Penel code, the Criminal procedure code and the Indian Evidence Act must be amended so that young children are presumed to be competent witnesses and video recorded testimony of the child victim of sexual abuse are admissible as evidence in the special courts that deal exclusively with cases of child sexual abuse and exploitation. The special courts must have powers to grant protection orders in cases where there is a reasonable apprehension that a child is in vulnerable position and is likely to be abused or exploited. There must be a Joint Investigating Team (JIT) in every district consisting of a police officer, a medical doctor, a psychiatrist, an educational psychologist, a social worker, a lawyer, a child welfare officer from the Department of Women and Child Development and a school teacher. Each member of the team must have training in child rights and experience and attitude of dealing with children. When a victim of sexuel abuse is brought before the JIT, a sensitive and trained doctor must do the medical examination in a very child friendly clime. Examination of the victim should be done in a specially designed room attached to the pediatrician’s clinic and it must be in the presence of social worker, women police, parents or others who have trust or confidence of the child. Women police officers should not be in uniform while examining the child. Questioning must be done by women police officers. The venue of the trial should be in safe place other the usual court buildings. Criminal Compensation Injuries Board should be setup. The burden of proof should be shifted to the accused. Parents need to know that sexual abuse is punishable offence under several sections of the law and such incidents should be reported to the police instead keeping it under wraps for fear of social stigma. The most significant role parents can play is preventive in nature in all aspects.

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“Child labor” is, generally speaking, work for children that harms them or exploits them in some way (physically, mentally, morally, or by blocking access to education).but There is no universally accepted definition of “child labor”. Varying definitions of the term are used by international organizations, non-governmental organizations, trade unions and other interest groups. Writers and speakers don’t always specify what definition they are using, and that often leads to confusion.

Child labour by now is an all-India evil, though its acuteness differs from area to area. So, without a concerted effort both of the Central Government and various State Governments, this ignominy would not get wiped out. It is hoped that the opening years of the twenty-first century would see us keeping the promise made to our children by our Constitution about half-century ago. Let the child of twenty first century find himself into that “heaven of freedom” of which our poet laureate Rabindranath Tagore has spoken in Gitanjali.

The rights of the child are always mediated by the adults, either those who are working for child rights or others. However, invoking the rather mean perception of the question whether women should have rights, prevalent during the French Revolution, Emma Rothschild also leaves the space open for an evolution of thought, understanding and negotiating instruments for making a more genuine articulation of children’s rights, as if it came from the minds and voices of children themselves.

UNICEF’s mission is to advocate for the protection of children’s rights, to help meet their basic needs and to expand their opportunities to reach their full potential. UNICEF is guided in doing this by the provisions and principles of the Convention on the Rights of the Child. Built on varied legal systems and cultural traditions, the Convention is a universally agreed set of non-negotiable standards and obligations. These basic standards also called human rights set minimum entitlements and freedoms that should be respected by governments. They are founded on respect for the dignity and worth of each individual, regardless of race, colour, gender, language, religion, opinions, origins, wealth, birth status or ability and therefore apply to every human being everywhere. With these rights comes the obligation on both governments and individuals not to infringe on the parallel rights of others. These standards are both interdependent and indivisible; we cannot ensure some rights without or at the expense of other rights.

A legally binding instrument The Convention on the Rights of the Child is the first legally binding international instrument to incorporate the full range of human rights civil, cultural, economic, political and social rights. In 1989, world leaders decided that children needed a special convention just for them because people under 18 years old often need special care and protection that adults do not. The leaders also wanted to make sure that the world recognized that children have human rights too.

The Convention sets out these rights in 54 articles and two Optional Protocols. It spells out the basic human rights that children everywhere have: the right to survival; to develop to the fullest; to protection from harmful influences, abuse and exploitation; and to participate fully in family, cultural and social life. The four core principles of the Convention are non-discrimination; devotion to the best interests of the child; the right to life, survival and development; and respect for the views of the child. Every right spelled out in the Convention is inherent to the human dignity and harmonious development of every child. The Convention protects children’s rights by setting standards in health care; education; and legal, civil and social services.

By agreeing to undertake the obligations of the Convention (by ratifying or acceding to it), national governments have committed themselves to protecting and ensuring children’s rights and they have agreed to hold themselves accountable for this commitment before the international community. States parties to the Convention are obliged to develop and undertake all actions and policies in the light of the best interests of the child.

INTRODUCTION

“We are guilty of many errors and faults, But our worst crime is abandoning the children, Neglecting the foundation of life, Many of the things we need can wait, The child cannot, Right now is the time his bones are being formed, His blood is being made, And his senses are being developed, To him we cannot answer “Tomorrow” His name is Today…
Dare we answer “Tomorrow”? “ –Gabriel Mistral

Children are the blooming flowers in the garden of society. They are the most valuable assets of the nation as “Children of today are the potential citizens of tomorrow”. The quality of life, they relish today would categorically determine the quality of life of future population of the nation. The children have rights like other human beings, to be respected with regard to their integrity, dignity, interests and opinions. But significantly enough, children in India are deprived of even the basic human rights due to them, as they ought to be in any civilized society.

There is no denying the facts that children being defenseless and voiceless have suffered throughout the ages at the hand of society, community and parents. Millions of children, for example, are physically or sexually abused or economically exploited by those who are presumed to bestow them security and love. Despite hectic planning, welfare programmes, legislation and administrative actions in past five decades; especially after 1979 - International year of the child; the majority of Indian children continue to remain in distress and turmoil. We still score first rank in world when highest number of child labourers is talked about.

DEFINITION OF CHILD LABOUR

It is difficult to define child labour since the terms “child” and “labour” both resist universal definition because of cultural and social differences from one country to another. ILO (International Labour Office) has specified the concept through its – Minimum Age convention 1973 – Where it encourages member states to set a minimum age that is not less then the completion age for compulsory schooling, or in any case not less than 15 years. So in India a child labourer is one who is below 18 years of age, out of school and has no avocation other than work. Although child work is not synonymous to child to labour, most children, in whatever society they live, work in one way or another. For example, in rural areas of India most of the children are involved in agriculture, cultivation forestry etc. Work of this kind is not considered child labour.

“Child labor” is, generally speaking, work for children that harms them or exploits them in some way (physically, mentally, morally, or by blocking access to education).but There is no universally accepted definition of “child labor”. Varying definitions of the term are used by international organizations, non-governmental organizations, trade unions and other interest groups. Writers and speakers don’t always specify what definition they are using, and that often leads to confusion.

Not all work is bad for children. Some social scientists point out that some kinds of work may be completely unobjectionable except for one thing about the work that makes it exploitative. For instance, a child who delivers newspapers before school might actually benefit from learning how to work, gaining responsibility, and a bit of money. But what if the child is not paid? Then he or she is being exploited. As UNICEF’s 1997 State of the World’s Children Report puts it, “Children’s work needs to be seen as happening along a continuum, with destructive or exploitative work at one end and beneficial work - promoting or enhancing children’s development without interfering with their schooling, recreation and rest - at the other. And between these two poles are vast areas of work that need not negatively affect a child’s development.” Other social scientists have slightly different ways of drawing the line between acceptable and unacceptable work.

International conventions also define “child labor” as activities such as soldiering and prostitution. Not everyone agrees with this definition. Some child workers themselves think that illegal work (such as prostitution) should not be considered in the definition of “child labor.” The reason that these child workers would like to be respected for their legal work, because they feel they have no other choice but to work. .

Thus “Child labor” is work for children under age 18 that in some way harms or exploits them physically, mentally, morally, or by blocking children from education.

STATUS OF CHILDREN IN INDIA

1. 2.5 million Children die in India every year, accounting for one in five deaths in the world, with girls being 50% more likely to die.

2. The National Aids Control Organization has estimated 55,000 HIV infected children (0–14 years) in the Country in 2003, according to UNAIDS, it is 0.16 million children.

3. The very existence of the girl child is under threat. Defying the normal male-female balance, and the higher survival capacity of girl babies and greater life expectancy of women to men prevalent in human populations, the female to male balance in India has been adverse to females for at least the past 100 years. The 1901 National Census recorded a female to male ratio of 972 to 1000, for all ages. Virtually every subsequent census showed a worsening decline.

4. The Government of India in its report to the UN Committee on the Rights of the Child said, “Every year” 12 million girls are born – three million of whom do not survive to see their 15^th birthday. About one-third of these deaths occur in the first year of life and it is estimated that every sixth female death is directly due to gender discrimination.

5. Almost all government’s health policies seem to have an underlying family planning agenda. Health activists have analyzed that with its emphasis on population control; the rural health mission is no different. Over the years it has become quite clear that if people are forced to limit the size of the families, they shall do so at the cost of the girl baby, even if it means that they have to “import” brides from outsides their states or their communities.

CAUSES OF CHILD LABOUR

Poverty is widely considered the top reason why children work at inappropriate jobs for their ages. But there are other reasons as well and not necessarily in this order:

1. family expectations and traditions
2. abuse of the child
3. lack of good schools and day care
4. lack of other services, such as health care
5. public opinion that downplays the risk of early work for children
6. uncaring attitudes of employers
7. limited choices for women

“The parents of child labourers are often unemployed or underemployed, desperate for secure employment and income. Yet it is their children - more powerless and paid less - who are offered the jobs. In other words, says UNICEF, children are employed because they are easier to exploit,” according to the “Roots of Child Labor” in Unicef’s 1997 State of the World’s Children Report.

The report also says that international economic trends also have increased child labor in poor countries. “During the 1980s, in many developing countries, government indebtedness, unwise internal economic policies and recession resulted in economic crisis. Structural adjustment programmes in many countries accentuated cuts in social spending that have hit the poor disproportionately. ” Although structural adjustment programs are being revised to spare education from deep cuts, the report says, some countries make such cuts anyway because of their own, local priorities. In many countries public education has deteriorated so much, the report declared, that education itself has become part of the problem because children work to avoid going to school. This conclusion is supported by the work of many social scientists, according to Jo Boyden, Birgitta Ling, and William Myers, who conducted a literature search for their 1998 book, What Works for Working Children (Stockholm: Radda Barnen, Unicef, 1998).

Children do some types of low-status work, the report adds, because children come from minority groups or populations that have long suffered discrimination. ” In northern Europe, for example, child labourers are likely to be African or Turkish; in Argentina, many are Bolivian or Paraguayan; in Thailand, many are from Myanmar. An increasingly consumer-oriented culture, spurring the desire and expectation for consumer goods, can also lead children into work and away from school”

CHILD AND THE UNITED NATIONS CONVENTION ON THE RIGHTS OF CHILD, 1989

Child Rights in India: An Introduction

India is a party to the UN declaration on the Rights of the Child 1959. Accordingly, it adopted a National Policy on Children in 1974. The policy reaffirmed the constitutional provisions for adequate services to children, both before and after birth and through the period of growth to ensure their full physical, mental and social development. Accordingly, the government is taking action to review the national and state legislation and bring it in line with the provisions of the Convention. It has also developed appropriate monitoring procedures to assess progress in implementing the Convention-involving various stake holders in the society.

India is also a signatory to the World Declaration on the Survival, Protection and Development of Children. In pursuance of the commitment made at the World Summit, the Department of Women and Child Development under the Ministry of Human Resource Development has formulated a National Plan of Action for Children. Most of the recommendations of the World Summit Action Plan are reflected in India’s National Plan of Action- keeping in mind the needs, rights and aspirations of 300 million children in the country.
The priority areas in the Plan are health, nutrition, education, water, sanitation and environment. The Plan gives special consideration to children in difficult circumstances and aims at providing a framework, for actualization of the objectives of the Convention in the Indian context.

Status of Children in India

Recent UNICEF report on the state of the world’s children under the title “Childhood Under Threat” , speaking about India, states that millions of Indian children are equally deprived of their rights to survival, health, nutrition, education and safe drinking water. It is reported that 63 per cent of them go to bed hungry and 53 per cent suffer from chronic malnutrition.

The report says that 147 million children live in kuchcha houses, 77 million do not use drinking water from a tap, 85 million are not being immunized, 27 million are severely underweight and 33 million have never been to school. It estimates that 72 million children in India between five and 14 years do not have access to basic education. A girl child is the worst victim as she is often neglected and is discriminated against because of the preference for a boy child.

Child Rights

The Convention on the Rights of the Child defines basic rights of children covering multiple needs and issues. India endorsed it on December 11, 1992. Following are a few rights in the immediate purview of Smile Foundation as well as India

The right to Education: 50% of Indian children aged 6-18 do not go to school
Dropout rates increase alarmingly in class III to V, its 50% for boys, 58% for girls.

The right to Expression: Every child has a right to express himself freely in which ever way he likes. Majority of children however are exploited by their elders and not allowed to express.

The right to Information: Every child has a right to know his basic rights and his position in the society. High incidence of illiteracy and ignorance among the deprived and underprivileged children prevents them from having access to information about them and their society.

The right to Nutrition: More than 50% of India’s children are malnourished. While one in every five adolescent boys is malnourished, one in every two girls in India is undernourished.

The right to Health & Care: 58% of India’s children below the age of 2 years are not fully vaccinated. And 24% of these children do not receive any form of vaccination. Over 60% of children in India are anemic. 95 in every 1000 children born in India, do not see their fifth birthday. 70 in every 1000 children born in India, do not see their first birthday.

The right to protection from Abuse: There are approximately 2 million child commercial sex workers between the age of 5 and 15 years and about 3.3 million between 15 and 18 years. They form 40% of the total population of commercial sex workers in India. 500,000 children are forced into this trade every year.

The right to protection from Exploitation: 17 million children in India work as per official estimates. A study found that children were sent to work by compulsion and not by choice, mostly by parents, but with recruiter playing a crucial role in influencing decision. When working outside the family, children put in an average of 21 hours of labour per week. Poor and bonded families often “sell” their children to contractors who promise lucrative jobs in the cities and the children end up being employed in brothels, hotels and domestic work. Many run away and find a life on the streets.

The right to protection from Neglect: Every child has a right to lead a well protected and secure life away from neglect. However, children working under exploitative and inhuman conditions get neglected badly.

The right to Development: Every child has the right to development that lets the child explore her/his full potential. Unfavorable living conditions of underprivileged children prevents them from growing in a free and uninhibited way.

The right to Recreation: Every child has a right to spend some time on recreational pursuits like sports, entertainment and hobbies to explore and develop. Majority of poor children in India do not get time to spend on recreational activities.

The right to Name & Nationality: Every child has a right to identify himself with a nation. A vast majority of underprivileged children in India are treated like commodities and exported to other countries as labour or prostitutes.

The right to Survival: Of the 12 million girls born in India, 3 million do not see their fifteenth birthday, and a million of them are unable to survive even their first birthday. Every sixth girl child’s death is due to gender discrimination.

NATIONAL COMMISSION FOR PROTECTION OF CHILD RIGHTS

In order to ensure child rights practices and in response to India’s commitment to UN declaration to this effect, the government of India set up a National Commission for Protection of Child Rights.

The Commission is a statutory body notified under an Act of the Parliament on December 29, 2006. Besides the chairperson, it will have six members from the fields of child health, education, childcare and development, juvenile justice, children with disabilities, elimination of child labour, child psychology or sociology and laws relating to children.
The Commission has the power to inquire into complaints and take suo motu notice of matters relating to deprivation of child’s rights and non-implementation of laws providing for protection and development of children among other things.Aimed at examining and reviewing the safeguards provided by the law to protect child rights, the Commission will recommend measures for their effective implementation. It will suggest amendments, if needed, and look into complaints or take suo motu notice of cases of violation of the constitutional and legal rights of children.

The Commission is to ensure proper enforcement of child rights and effective implementation of laws and programmes relating to children- enquiring into complaints and take suo motu cognizance of matters relating to deprivation of child rights; non-implementation of laws providing for protection and development of children and non-compliance of policy decisions, guidelines or instructions aimed at their welfare and announcing relief for children and issuing remedial measures to the state governments.

CASE LAWS:

Following are some of the important cases on welfare of children.

1. Public interest litication and child labour in match factory

M.C. Mehta Vs. State of Tamil Nadu and others (Constitution of India – Art 32 39(f) and 45)

Facts in Brief:

The petition under Art 32 of constitution has been brought by the way of public interest litigation and is connected with employment of children in match factories at sivakasi.

Decision:

The manufacturing process of matches and fireworks is hazardous one. Direction given that children to be employed only in packing and not in manufacturing operations wages for children to be fixed. Employees children to be insured and welfare funds to be created.

2. Labourers working on satal hydro-project Vs. state of Jammu and Kashmir (Constitution of India Art.24)

Fact of case:

Among the workmen on the site of the satal Hydro-project were a number of minor who allegedly accompanied the made members of their family on their on own and demanded employment.

Decision:

It is accepted that child labour is socio-economic problem that its prohibition would be socially and economically unacceptable to large masses of society. But this why Art. 24 limits the prohibitions against employment of child labour in hazardous undertaking. Construction has been to be a hazardous occupation and hence children should not be permitted to work but persuaded to go short.

3. Nezeranbhai Vs. State of Madhya Bharat (Constitution of India Art. 5)

Facts of Case:

The father of minor daughter was domicile in India and one of minor daughter was born in Pakistan, the question came up for consideration was shelter the daughter could be said to be citizen of India under Article 5 of Indian Constitution.

Decision:

They are citizen of India because being minor they take the domicile of their father.

Not necessarily in this order:

1. Increased family incomes

2. Education — that helps children learn skills that will help them earn a living

3. Social services — that help children and families survive crises, such as disease, or loss of home and shelter

4. Family control of fertility — so that families are not burdened by children

CONCLUSION

The child labour is a great evil to our country. The Union Government has enacted The Child (Prohibition and Regulation) Act, 11986 which provides restriction for use of a child below 14 years of the age as labour. Similarly the Labour Apprentices Act, 1951 and Factories Act, 1948 provide no child below the age of 14 years will be required to work in a factory or to act as apprentice. The Mines Act, 1983 provides that no child below the age of 18 years will be allowed to work in any mine. Also lots of conventions are signed by India to prohibit the child labour and provide certain Human Rights to child.

The punishment provided in these different various Act are not sufficient and they are taken punishment. If we are seriously thinking for avoidance of child labour then punishment should be made harsh and strong regulatory body should function to avoid child labour. To make it compulsory to register the child labour with some competent authority and that competent authority shall make all necessary enquiries about the child, his health, welfare and also about continuance in the job. The competent authority most make necessary arrangement for the education and health of such child labour at cost of employer or through various scheme formulated by state government.

REFERENCE

1. Dr. Rega Surya Rao, “Human Rights and International Law”, Asia Law House

2. A.N.. Sen, “Human Rights”, Shri Sai Law Ppublications

3. http://www.unicef.org

4. http://www.ngosindia.com/resources/child_labour.php

5. Child Labour: Targeting the Intolerable (1998) “Every Child Counts” (2002) and other ILO publications

6. US Dept. of Labor, By the Sweat & Toil of Children, Vo. V: Efforts to Eliminate Child Labor, Appendix C. http://www.dol.gov

7. The Constitution of India Article 32

8. The Constitution of India Article 45

9. Ganga , R. “Children’s rights as basic human rights” Reference Press, new Delhi

10. G Saibaba & K Sreenivasa Rao “Structural Adjustment and Implications of Human Rights”

11. India Human Development Report 2011: Towards Social Inclusion

D.C. Nanjunda “Child Labour and human rights: A Prospective” Kalpaz, Delhi

A Limited Liability Partnership firm (“LLP”) is a form of business organisation with each partner’s liability limited to the contribution made by that partner in relation to the LLP, except in case of fraud, malpractice, wrongs, etc., in which case liability that can attach to the relevant partner may be unlimited liability. Usually LLPs are persons in the eyes of law and are incorporated as persons, unlike normal partnership concerns which are not incorporated as persons in the eyes of law.

LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership. The LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name. The LLP is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP. Further, no partner is liable on account of the independent or un-authorized actions of other partners, thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct.

Mutual rights and duties of the partners within a LLP are governed by an agreement between the partners or between the partners and the LLP as the case may be. The LLP, however, is not relieved of the liability for its other obligations as a separate entity. Since LLP contains elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’ LLP is called a hybrid between a company and a partnership.

Structure of an LLP

LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession.

Advantages of LLP Form

LLP form is a form of business model which:

(i) is organized and operates on the basis of an agreement.

(ii) provides flexibility without imposing detailed legal and procedural requirements.

(iii) enables professional/technical expertise and initiative to combine with financial risk taking capacity in an innovative and efficient manner.

Status in other countries where this form is available

The LLP structure is available in countries like United Kingdom, United States of America, various Gulf countries, Australia and Singapore. On the advice of experts who have studied LLP legislations in various countries, the LLP Act is broadly based on UK LLP Act 2000 and Singapore LLP Act 2005. Both these Acts allow creation of LLPs in a body corporate form i.e. as a separate legal entity, separate from its partners/members.

Difference between LLP & “traditional partnership firm”

Under “traditional partnership firm”, every partner is liable, jointly with all the other partners and also severally for all acts of the firm done while he is a partner. Under LLP structure, liability of the partner is limited to his agreed contribution. Further, no partner is liable on account of the independent or un-authorized acts of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful acts or misconduct.

Difference between LLP & Company

A basic difference between an LLP and a joint stock company lies in that the internal governance structure of a company is regulated by statute (i.e. Companies Act, 1956) whereas for an LLP it would be by a contractual agreement between partners. The management-ownership divide inherent in a company is not there in a limited liability partnership. LLP will have more flexibility as compared to a company. LLP will have lesser compliance requirements as compared to a company.

APPLICABILITY OF THE LLP ACT

Whether the LLP Act is applicable to any specific services like professional services regulated by Statutes?

No. Any two or more persons associating for carrying on a lawful business with a view to profit may set up an LLP.

As regards the applicability of the LLP form to small entities and venture capital funded enterprises, it is proposed that the framework should not be restricted to professional services alone as was earlier recommended by Naresh Chandra Committee. Accordingly, the LLP Act does not restrict the benefit of LLP structure to certain classes of professionals only.

Likely users/beneficiaries of the LLP Law?

India has witnessed considerable growth in services sector and the quality of our professionals is acknowledged internationally. It is necessary that entrepreneurship knowledge and risk capital combine to provide a further impetus to our impressive economic growth. Equally the services sector promises an economic opportunity similar to that provided by information technology over the past few years. It is likely that in the years to come Indian professionals would be providing accountancy, legal and various other professional/technical services to a large number of entities across the globe. Such services would require multidisciplinary combinations that would offer a menu of solutions to international clients. In view of all this, the LLP framework could be used for many enterprises, such as:-

a) Persons providing services of any kind.

b) Enterprises in new knowledge and technology based fields where the corporate form is not suited.

c) For professionals such as Chartered Accountants (CAs), Cost and Works Accountants (CWAs), Company Secretaries (CSs) and Advocates, etc.

d) Venture capital funds where risk capital combines with knowledge and expertise

e) Professionals and enterprises engaged in any scientific, technical or artistic discipline, for any activity relating to research production, design and provision of services.

f) Small Sector Enterprises (including Micro, Small and Medium Enterprises)

g) Producer Companies in Handloom, Handicrafts sector

Whether an entity which has objectives like “charitable or other not for profit objectives” would be able to set up under LLP Act?

No. The essential requirement for setting LLP is ‘carrying on a lawful business with a view to profit’.

Whether provisions of Indian Partnership Act, 1932 would be applicable to LLPs?

No, these shall not be applicable to LLPs.

Why a new legislation for LLP? Why not amendments in Companies Act or Partnership Act are made?

The Companies Act is not suited to the liability and governance structure intended for LLPs. The overall intent of the legislation to regulate widely-held companies is different. Therefore, in accordance with the recommendations of the Irani Committee, it is felt appropriate to bring about a separate legislation for LLPs. The administration and enforcement of partnership firms under the Indian Partnership Act, 1932 is at the State level. Besides, a partnership firm involves full joint and several liability of the partners. Because of this, many firms/enterprises engaged in biotech, information technology, Intellectual property and other knowledge based sectors find traditional partnerships unsuitable. The traditional partnerships are also considered unsuitable for multi-disciplinary combinations comprising a large number of partners, seeking a flexible working environment but with limited liability. LLP structure would promote growth and enable such firms/enterprises expand their trade/business or services across States in India as also abroad.

Committees, which have made recommendations for legislation on LLPs in India

The desirability of LLP form has been expressed in the context of small enterprises by:-

a) Bhat Committee (1972);

b) Naik Committee (1992);

c) Expert Committee on Development of Small Sector Enterprises headed by Sh. Abid Hussain in 1997 and

d) Study Group on Development of Small Sector Enterprises (SSEs) headed by Dr. S P Gupta (2001).

Following Committees set up by M/o Company Affairs have also recommended for legislation on LLPs:-

a) Committee on Regulation of Private Companies and Partnerships headed by Sh. Naresh Chandra (2003)

b) The Committee on New Company Law (Dr. J.J. Irani Committee) (2005)

Whether Ministry has adopted a “Consultative Approach” while bringing out the LLP Act?

Yes. The Ministry of Corporate Affairs, on 2nd November, 2005, placed a Concept Paper on LLP Law on its website so that all interested stakeholders may express their opinions on the concepts involved and suggest formulations for the consideration of the Ministry on various aspects of LLP Law. The Concept Paper was also circulated to various concerned Ministries/Departments and autonomous bodies like Comptroller and Auditor General of India (C&AG), Securities and Exchange Board of India (SEBI), Insurance Regulatory Development Authority (IRDA) etc. for their comments.

Large number of comments and suggestions were received by the Ministry on the Concept Paper. These were examined in light of international practice/law on the subject. The Act has been prepared keeping in view the Indian requirements.

PARTNERS AND DESIGNATED PARTNERS

What are the restrictions in respect of minimum and maximum number of partners in an LLP?

A minimum of two partners will be required for formation of an LLP. There will not be any limit to the maximum number of partners.

Whether a body corporate may be a partner of an LLP?

Yes.

What are the qualifications for becoming a partner?

Any individual or body corporate may be a partner in a LLP. However an individual shall not be capable of becoming a partner of a LLP, if—

a) he has been found to be of unsound mind by a Court of competent jurisdiction and the finding is in force;

b) he is an un discharged insolvent; or

c) he has applied to be adjudicated as an insolvent and his application is pending.

What are the requirements in respect of “Designated Partners”?

Appointment of at least two “Designated Partners” shall be mandatory for all LLPs. “Designated Partners” shall also be accountable for regulatory and legal compliances, besides their liability as ‘partners, per-se”.

Who can be a “Designated Partner”?

Every LLP shall be required to have at least two Designated Partners who shall be individuals and at least one of the Designated Partner shall be a resident of India. In case of a LLP in which all the partners are bodies corporate or in which one or more partners are individuals and bodies corporate, at least two individuals who are partners of such LLP or nominees of such bodies corporate shall act as designated partners.

Should the number of designated partners resident in India not be more than partners from outside India?

LLPs, particularly those as may be engaged in the services or technology-based sectors, may provide services globally. This may require any number of its partners to locate them abroad. In view of liability structure of partners, designated partners and LLP, clearly provided for in the Act, there does not appear to be any necessity and justification for restriction relating to designated partners to out-number partners located abroad. In fact it may pose unnecessary restriction.

Whether there would be any requirement of ‘identification number’ of Designated Partner? Whether Designated Partners would be subject to any other condition/requirement before they are appointed as such?

Every Designated Partner would be required to obtain a “Designated Partner’s Identification Number” (DPIN) on the lines similar to “Director’s Identification Number” (DIN) required in case of directors of companies. Enabling provisions have been made to prescribe under rules conditions, which would have to be fulfilled by an individual who is eligible to be appointed as a ‘designated-partner’.

LLP AGREEMENT

How the mutual rights and duties of partner’s inter-se and those of partners and LLPs would be governed?

The mutual rights and duties of partners inter se and those of the LLP and its partners shall be governed by the agreement between partners or between the LLP and the partners. This Agreement would be known as “LLP Agreement”.

Whether LLP Agreement would be mandatory for all LLPs?

As per provisions of the LLP Act, in the absence of agreement as to any matter, the mutual rights and liabilities shall be as provided for under Schedule I to the Act. Therefore, in case any LLP proposes to exclude provisions/requirements of Schedule I to the Act, it would have to enter into an LLP Agreement, specifically excluding applicability of any or all paragraphs of Schedule I.

REGISTRATION

What are the registration formalities relating to LLPs?

LLPs shall be registered with the Registrar of Companies (ROC) (appointed under the Companies Act, 1956) after following the provisions specified in the LLP Act. Every LLP shall have a registered office. An Incorporation Document subscribed by at least two partners shall have to be filed with the Registrar in a prescribed form. Contents of LLP Agreement, as may be prescribed, shall also be required to be filed with Registrar, online.

Contents of LLP Agreement or any changes made therein, if any, may be filed in Form 3 and details of partners/designated partners may be filed in Form 4 in accordance with LLP Rules, 2009.

Whether foreigners can incorporate LLP?

Yes, the LLP Act 2008 allows Foreign Nationals including Foreign Companies & LLPs to incorporate a LLP in India provided at least one designated partner is resident of India. However, the LLP/Partners would have to comply with all relevant Foreign Exchange Laws/ Rules/ Regulations/ Guidelines.

What are the broad provisions of the Act in respect of names of LLPs?

Every limited liability partnership shall have either the words “limited liability partnership” or the acronym “LLP” as the last words of its name. LLPs would not be given names, which, in the opinion of the Central Government, are undesirable. Registrar would be under obligation to follow such rules, which would be framed by the Central Government in connection with allotting names to LLPs. There are also provisions in respect of ‘rectification of name’ in case two LLPs have been registered with the same name, inadvertently.

For what period a name can be reserved by Registrar?

The name can be reserved by ROC on approval of Form 1, for a period of 3 months from the date of intimation by the Registrar. However, Foreign LLP/Companies have an option to reserve their existing names, under which they are operating outside India, for a period of 3 years in India, which can be further renewed on application to Registrar in Form 25.

Can LLP give any other address (besides its registered office) for the purpose of receiving communication from Registrar?

It has been provided in the Act that a document may be served on a LLP or a partner or designated partner by sending it by post or by any other mode (to be prescribed under Rules) at the registered office and any other address specifically declared by the LLP for the purpose in such form and manner as may be prescribed (in the rules). Thus, an LLP shall have option to declare one more address (other than the registered office) for getting statutory notices/letters etc. from Registrar.

CHANGE IN PARTNERS

How can a person become a partner of an LLP?

Persons, who subscribed to the “Incorporation Document” at the time of incorporation of LLP, shall be partners of LLP. Subsequent to incorporation, new partners can be admitted in the LLP as per conditions and requirements of LLP Agreement.

How can an existing partner cease to be a partner of an LLP?

A person may cease to be a partner in accordance with the agreement or in the absence of agreement, by giving 30 days notice to the other partners.

A person shall also cease to be a partner of a limited liability partnership-

a) on his death or dissolution of the limited liability partnership; or

b) if he is declared to be of unsound mind by a competent court; or

c) if he has applied to be adjudged as an insolvent or declared as an insolvent.

Notice is required to be given to ROC when a person becomes or ceases to be partner or for any change in partners.

What will be the obligation of a partner in case he changes his name or address?

Every partner shall inform the LLP of any change in his name or address within a period of fifteen days of such change. The LLP, in turn, would be under obligation to file such details with the Registrar within thirty days of such change in Form 4.

PARTNER’S CONTRIBUTION AND TRANSACTIONS OF PARTNERS WITH LLP

What is the manner in which a partner of an LLP can bring his contribution? How will it be recorded/disclosed in the accounts?

Partner’s contribution may consist of both tangible and/or intangible property and any other benefit to the LLP. The monetary value of contribution of each partner shall be accounted for and disclosed in the accounts of the limited liability partnership in the manner as may be prescribed in the rules.

Whether a partner would be able to give loan to or transact other commercial transactions with LLP? What will be his rights and obligations in this regard?

A partner may lend money to and transact other business with the LLP and shall have the same rights and obligations with respect to the loan or other transactions as a person who is not a partner.

Whether a partner would be able to transfer his ‘economic rights’?

A partner’s economic rights (i.e. rights of a partner to a share of the profits and losses of the LLP and to receive distribution at the time of winding up) in the LLP shall be transferable. However, such a transfer shall not by itself cause the partner’s disassociation or a dissolution and winding up of the LLP.

However, such transfer shall not entitle the transferee or assignee to participate in the management or conduct of the LLP’s activities. Therefore, the transferee would not be deemed to be a ‘partner’ of the LLP just because a partner has transferred him the ‘economic rights’. For becoming a partner of LLP, the manner specified in the LLP Agreement or the provisions of the Act would have to be followed.

LIABILITY OF PARTNERS

Nature & extent of liability of a partner of an LLP?

Every partner of an LLP would be, for the purpose of the business of the LLP, an agent of the LLP but not of the other partners. Liability of partners shall be limited except in case of unauthorized acts, fraud and negligence. But a partner shall not be personally liable for the wrongful acts or omission of any other partner. An obligation of the limited liability partnership whether arising in contract or otherwise, is solely the obligation of the limited liability partnership. The liabilities of LLP shall be met out of the property of the LLP.

What is the liability of a Partner upon reduction of minimum number of members in an LLP?

The Act provides for the minimum of two partners to carry on LLP. If at any time the number of partners of a limited liability partnership is reduced below two and the limited liability partnership carries on business for more than six months while the number is so reduced, the person, who is the only partner of the limited liability partnership during the time that it so carries on business after those six months and has the knowledge of the fact that it is carrying on business with him alone, shall be liable personally for the obligations of the limited liability partnership incurred during that period.

Whether a ‘partner by holding out’ will be liable under the Act?

The Act provides that any person (not being a partner in any LLP), who by words spoken or written or by conduct, represents himself, or knowingly permits himself to be represented to be a partner in a LLP (known as ‘partner by Holding out’) is liable to any person who has on the faith of any such representation given credit to the LLP, whether the person representing himself or represented to be a partner does or does not know that the representation has reached the person so giving credit.

It has further been provided that where any credit is received by the LLP as a result of such representation, the LLP shall, without prejudice to the liability of the person so representing himself or represented to be a partner, be liable to the extent of credit received by it or any financial benefit derived thereon.

The provisions have also been made in the Act to provide that where after a partner’s death the business is continued in the same LLP name, the continued use of that name or of the deceased partner’s name as a part thereof shall not of itself make his legal representative or his estate liable for any act of the LLP done after his death.

How penal action on errant partners who are not residents of India will be taken?

For statutory compliances provisions of at least one resident designated partner (DP) in every LLP is would ensure that at least one partner is available in India for at least six months for regulatory compliance requirements. The LLPs would have freedom to appoint more than one resident as DP. LLP as an entity would always remain liable for regulatory or other compliances. Civil liability on such a partner would be adjudicated by the courts under civil law which recognises ‘foreign awards’. Criminal liability would require adjudication/ enforcement by the courts including using the extradition process. Position would be similar to the cases of directors of companies who are foreign nationals.

DISCLOSURE, AUDIT AND FILING REQUIREMENTS

Whether every LLP would be required to maintain and file accounts?

An LLP shall be under obligation to maintain annual accounts reflecting true and fair view of its state of affairs. A “Statement of Accounts and Solvency” in prescribed form shall be filed by every LLP with the Registrar every year.

Whether audit of all LLPs would be mandatory?

The accounts of every LLP shall be audited in accordance with Rule 24 of LLP, Rules 2009.

Such rules, inter-alia, provides that any LLP, whose turnover does not exceed, in any financial year, forty lakh rupees, or whose contribution does not exceed twenty five lakh rupees, is not required to get its accounts audited. However, if the partners of such limited liability partnership decide to get the accounts of such LLP audited, the accounts shall be audited only in accordance with such rule.

Whether any provisions in respect of ‘mandatory insurance’ are being proposed in the Act?

No mandatory insurance has been proposed in the Act. It would be difficult to assess insurance requirements of different types and sizes of LLPs. This would depend upon the nature of commercial risk attached with work or assignment handled by each. Applying common insurance requirements across a class of LLPs would result in increasing their costs of operation. Therefore, the underlying concern as to the credit worthiness of the LLP in the event of a contractual default is being addressed through statutory provisions for solvency declaration, disclosure of financial information and audit.

Whether any Annual Return would be required to be filed by an LLP?

Every LLP would be required to file annual return in Form 11 with ROC within 60 days of closer of financial year. The annual return will be available for public inspection on payment of prescribed fees to Registrar.

Whether the Registrar would have any power to call for information from LLPs?

Registrar would have power to obtain such information which he may consider necessary for the purposes of carrying out the provisions of the Act, from any designated partner, partner or employee of the LLP. He would also have power to summon any designated partner, partner or employee of any LLP before him for any such purpose, in case the information has not been furnished to him or in case the Registrar is not satisfied with the information furnished to him.

Which documents will be available for public inspection in the office of Registrar?

The following documents/information will be available for inspection by any person:-

a) Incorporation document,

b) Names of partners and changes, if any, made therein,

c) Statement of Account and Solvency

d) Annual Return

The fees for such inspection of an LLP is ` 50/- and fees for certified copy or extract of any document u/s 36 shall ` 5/- per page.

How would compliance management (i.e. ensuring that LLPs file their documents with Registrars timely and otherwise comply with other procedural requirements under the Act) be ensured in the Act?

The provisions of the Act require LLPs to file the documents like Statement of Account and Solvency (SAS) and Annual Return (AR) and notices in respect of changes among partners etc. within the time specifically indicated in relevant provisions. The Act contains provisions for allowing LLPs to file such documents after their due dates on payment of additional fees. It has been provided that in case LLPs file relevant documents after their due dates with additional fees upto 300 days, no action for prosecution will be taken against them. In case there is delay of 300 days or more, the LLPs will be required to pay normal filing fees, additional fee and shall also be liable to be prosecuted.

The Act also contains provisions for compounding of offences which are punishable with fine only.

INVESTIGATION OF AFFAIRS OF LLPs AND ROLE OF GOVERNMENT TO CHECK UNSCRUPULOUS LLPs ETC

What are the measures, which can be taken against an LLP, which has engaged in fraudulent activities?

Central Govt. may appoint inspectors to investigate the affairs of an LLP. The manner and procedure for conduct of investigation has been specified in the Act.

What will be the role of Government in regulation of LLPs? How will the Act able to prevent ‘fly-by-night’ promoters or LLPs vanishing after incorporation?

LLP structure is proposed to allow entrepreneurs and businessmen/servicemen to combine themselves with a view to run a business/service for profit in a more flexible manner than companies. The internal processes of LLPs shall be governed by the LLP Agreement. To protect interests of various stakeholders, following approach has been followed in the LLP Act:-

a) Mandatory incorporation of LLPs with registrar with suitable due diligence to be followed by promotes/professionals at the time of incorporation. Provisions for mandatory Designated Partners Identification Number (DPIN) to be obtained by every designated partner (similar to DIP for directors of companies) have been proposed in the Act.

b) MCA-21 e-Governance process will be used for incorporation purposes which will help to track any unscrupulous promoter/partner of an LLP.

c) Details of partners and any changes made therein shall be required to be filed with the registrar;

d) Filing of annual documents like (SAS and Annual Return) with the Registrars will be mandatory. Such documents will also be open for public inspection;

e) Audit of all LLPs (except small LLPs which may be exempted by way of notification by Central Govt) shall be mandatory;

f) Provisions have been proposed in the Act to empower Registrar to conduct scrutiny of documents filed with him and for calling of any other relevant information from LLP or its partners/officials and also for summoning of LLPs’ partners/officials in certain cases.

g) The Act also contains provisions for investigation of affairs of LLPs by competent inspectors to be appointed by Central Government, wherever circumstances so require.

TAXATION

What is the tax treatment being provided for LLPs?

Since the taxation related matters in India are provided under Tax Laws, the taxation of LLPs has not been provided in the LLP Act. The Finance Bill, 2009 has made provisions in this regard, pursuant to which the taxation scheme of LLPs has been proposed to be introduced in the Income Tax Act. The Finance Bill, 2009 has proposed following regarding taxation of LLPs:-

a) LLPs to be taxed on the lines similar to general partnerships under Indian Partnership Act, 1932, i.e. taxation in the hands of the entity and exemption from tax in the hands of its partners.

b) Consequent changes to be made in the Income-tax Act, 1961 like (i) the word ‘partner’ to include within its meaning a partner of a limited liability partnership, (ii) the word ‘firm’ to include within its meaning a limited liability partnership and (iii) the word ‘partnership’ to include within its meaning a limited liability partnership

c) The designated partner shall sign the income tax return of an LLP, or, where, for any unavoidable reason such designated partner is not able to sign the return or where there is no designated partner as such, any partner shall sign the return.

d) In case of liquidation of an LLP, every partner will be jointly and severally liable for payment of tax unless he proves that non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part.

e) As an LLP and a general partnership is being treated as equivalent (except for recovery purposes) in the Income-tax Act, the conversion from a general partnership firm to an LLP will have no tax implications if the rights and obligations of the partners remain the same after conversion and if there is no transfer of any asset or liability after conversion.

f) If there is a violation of these conditions, the provisions of section 45 of Income-tax Act shall apply.

g) These amendments are proposed to be made effective from the 1st day of April 2010 i.e. assessment year 2010-11.

CONVERSION OF OTHER ENTITIES INTO LLPs AND VICE VERSA

Whether other business entities like firm or company would be able to convert themselves into LLP?

Yes. The LLP Act contains enabling provisions pursuant to which a firm (set up under Indian Partnership Act, 1932) and private company or unlisted public company (incorporated under Companies Act) would be able to convert themselves into LLPs. Provisions of clause 58 and Schedule II to Schedule IV to the Act provide procedure in this regard.

Whether LLP would be able to convert itself into company under the Companies Act, 1956?

This would not be allowed under LLP Act. However, enabling provisions would be required to be made in the Companies Act for such conversion. Necessary action in this regard would be taken when Companies Act would be revised.

What is the treatment for stamp duty issues, both in terms of original incorporation and conversion from other business structures? Would there be any stamp duty exemption in case of conversion?

Since Stamp Duty is the subject reserved for the States, the LLP Act does not contain any provision for treatment of stamp duty issues. The stamp duty payable will depend upon the relevant Stamp Act prescribed by the State Government/Union Territory.

What are the requirements and consequence provided in the Act in respect of licences, permits, approvals etc obtained by a firm, private company or an unlisted public company, prior to its conversion into LLP?

It has been provided in the Act that on conversion of a firm/private company/unlisted public company into LLP, any approval, permit or licence issued to the firm/private company/unlisted company under any other Act shall, subject to the provisions of such other Act under which such approval, permit or licence was issued, be transferred in the name of converted entity viz LLP.

MERGER AND WINDING-UP OF LLPs

Whether two LLPs would be allowed to merge?

Provisions of section 60 to 62 of the Act provide for the manner in which compromises or arrangements including mergers and amalgamations involving LLPs shall be allowed.

What would be the provisions in respect of winding- up of LLPs?

It is proposed to provide the provisions and procedures required to be complied with when the affairs of an LLP are to be wound-up and dissolved, by enabling the Central Government to make rules under the LLP Act, 2008.

OFFENCES & PENALTIES AND JURISDICTION OF COURTS/TRIBUNAL

Broad provisions in respect of Offences and Penalties

Offences and penalties arising out of the non-compliance with the provisions of the Act have been defined along with the substantive provisions themselves. However, for defaults/ non-compliance on procedural matters such as time limits for filing requirements, penalties have been provided for application in a non-discretionary manner, through the levy of a default fee for every day for which the default continues. Such default fee would be payable at the rate of rupee one hundred per day after the expiry of the date of filing (as prescribed in relevant provision) up to a period of three hundred days. Charging of such default fees would, however, be without prejudice to any other action or liability under the Act, in case the filing is made beyond the expiry of three hundred days.

The offences can be punished either (i) through payment of fine or (ii) through payment of fine as well as imprisonment of the offender. The Judicial Magistrate of the first class, or, as the case may be, the Metropolitan Magistrate shall have jurisdiction to try offences under the LLP Act.

Though most of the offences in the Act provide for punishment by way of charging fine, imprisonment has been provided for in respect of violations relating to:

(i) making by any person a false statement at the time of incorporation of LLP (ii) carrying on business of LLP with intent to defraud or for any fraudulent purposes and (iii) making, knowingly, false statements or omitting any material fact, in any return, documents etc under the Act. The offences which are punishable with fine only can be compounded by the Central Government, by collecting a sum not exceeding the amount of maximum fine prescribed for the offence.

Further, for defaults/non-compliance on procedural matters such as time limits for filing requirements provisions have been made for charging default fees (on daily basis) in a non-discretionary manner.

Whether offences would be compounded under the LLP Act? Whether any protection to whistle-blowers is being proposed in the Act?

The Act contains provisions empowering Central Government to compound any offence punishable with fine only by collecting a sum not exceeding the amount of maximum fine prescribed for the offence.

Enabling provisions have also been made in the Act in respect of protection to “Whistle Blowers”.

MISCELLANEOUS PROVISIONS

What are the provisions being proposed in the Act for striking off defunct LLPs? Whether LLPs would be allowed a less stringent framework for closing of business?

The Act empowers Registrars to strike off names of LLPs which are not carrying on any business or operation. They will be under obligation to give an opportunity of being heard to LLP concerned. Details for manner of striking off would be prescribed through rules. Since LLPs would be governed by LLP Agreement it would be possible for LLPs to make suitable clauses in such Agreement prescribing time limits or duration of LLPs. In such cases, provisions for striking off names could be used.

Besides, the Act empowers Central Government to make rules in respect of winding up and dissolution of LLPs. It is proposed to prescribe a simple procedure for voluntary winding up of LLPs under such rules.

Whether electronic filing of documents with ROC would be allowed? How far MCA-21 e-Governance initiative will be extended and be useful for LLPs structure under the Act?

The LLP Act contains enabling provisions for use of electronic mode for filing of documents with Registrars. Details have been specified in the LLP Rules, 2009. Authentication of documents as per Information Technology Act, 2000 has also been recognized in the LLP Act.

At present, Office of Registrar for registration etc of LLPs has been set up at Delhi (3rd Floor, Paryavaran Bhavan, CGO Complex, New Delhi-3). The filing and inspection of documents with the Registrar pursuant to LLP Act, 2008/ LLP Rules, 2009 can be made through website www.llp.gov.in

Whether provisions of the Companies Act, 1956 would be applicable to LLPs?

Since LLP shall be in the form of a body corporate, it is proposed that to address various situations applicable to LLPs as such, the relevant provisions of the Companies Act, 1956 may be made applicable to LLPs at any time in the future by Notification by Central Government, with such changes or modifications as appropriate.

Whether, amendments will be required in the Regulatory Acts governing the various professional services so that these can be aligned with the objectives of the Act?

Yes. Amendments to various such Acts would be necessary which can be considered by concerned Ministries/Departments.

INTRODUCTION OF LLP BILL, 2006 IN THE PARLIAMENT AND EXAMINATION BY STANDING COMMITTEE AND SUBSEQUENT ACTION

When was the LLP Bill, 2006 was introduced? Whether the Bill was referred to Standing Committee? Has the Bill been revised?

The Limited Liability Partnership (LLP) Bill, 2006 was introduced in the Rajya Sabha on 15th December, 2006. The Bill was referred to the Lok Sabha Standing Committee on Finance, for examination. The Standing Committee consulted various chambers of commerce, professional institutes and other experts and also heard the M/o Corporate Affairs.

The said Committee presented/submitted its report to the Parliament on 27th November, 2007. Based on such report the Ministry of Corporate Affairs revised the LLP Bill and the revised LLP Bill, 2008 was introduced in the Rajya Sabha on 21st October, 2008. This was passed by the Rajya Sabha on 24th October, 2008. The Bill was passed by Lok Sabha on 12th December, 2008. The President has given assent to this Bill on 7th January, 2009.

Whether all recommendations made by Standing committee have been accepted by the Government?

All the recommendations except one made by Hon’ble Standing Committee have been accepted by the Government. The recommendation which has not been accepted related to proposing a restriction on number of LLPs in which a designated partner may become designated partner. During examination of this recommendation, it was felt that since under the Companies Act, 1956 there is no restriction on a person to become directors in any number of private companies. Since proposed structure for LLPs would be similar to private companies, it was felt that putting a restriction relating to maximum number of LLPs in which a person may become designated partner may not be necessary.

Whether the ongoing financial crisis across the globe requires any change in thoughts regarding the LLP Act, 2008?

The ongoing financial crisis across the globe does not appear to have affected Indian economy. The Indian companies and other business entities, including those engaged in banking and financial business are not likely to have any major impact in view of financial crisis of US or Europe, thanks to the strict and conservative legal and regulatory systems working in India.

Since a more professional and mature approach is needed in any country to handle such kinds of crisis, the LLP Act, 2008, which would allow professionals from various fields to combine and work together in providing various services, would be even more useful.

CONCLUSION

The hybrid structure of an LLP, which combines the organisational flexibility of general partnership and the limited liability benefits of an incorporated company is innovative, appealing and is likely to attract small and medium size entrepreneurs, service providers and professionals into setting up LLPs in India. The structure is also likely to improve the efficiency of Indian enterprises and facilitate an increased participation of the Indian service industry in the global market. Even the issues that arise are not irresolvable. The LLP Act is, no doubt, a step in the positive direction.

However, with each passing day, we come to know of different areas of human rights violation being explored. One such area is discrimination based on sexual orientation of a person. Same sex couples are denied those rights which are available to opposite sex couples. Varnum v. Brien[1], case being discussed herein, is an Iowa Supreme Court case, in which, the courts, taking a different stance, declared the discrimination directed towards same sex couples as violative of Right to Equal Protection of Law.

Facts of the Case:

Six same-sex couples went to the Office of the Polk County Recorder in Iowa at various times between November 2005 and January 2006 in an attempt to apply for marriage licenses. Each couple’s application was denied because in each case the couple was composed of two people of the same sex, and Iowa law only permitted couples composed of one man and one woman to marry. The couples filed suit in Polk County District Court, arguing that this law violated the Doctrine of Equal Protection enshrined in The Iowa Constitution. Equal protection under the Iowa Constitution “is essentially a direction that all persons similarly situated should be treated alike.”

If the case is closely analyzed, keeping the most basic rights available to a human being in mind, it is observed that at least four basic rights, viz. a) Equality, b) Individual Liberty, c) Privacy, and, d) Freedom to marry, have been violated by County Recorder in this case by denying those couples the marriage license on the ground of their sexual orientation. These rights, as mentioned above, are some of the most basic and inalienable rights. Apart from being a part of various Human Rights Conventions, these rights are in some or the other way promised to people by their National Law.

Since Varnum v. Brien is a US case, the International Aspect of the issue will be analyzed before we move on to the Indian take on this issue.

International Scenario:

Most countries in Europe have repealed sodomy statutes, with France being the first country to do so, in 1791, with the introduction of the Code Napoleon. In this century, countries that have repealed similar statutes criminalizing homosexuality have generally done so on the grounds of violations of fundamental civil rights of right to life, liberty, privacy and equality.

Right to Equality:

‘Equality’ means ‘Equal treatment to similarly situated persons’, i.e. ‘Equality among Equals’. While Article 7 of the UNDHR recognizes this Right as Right to Equality before law and Equal Protection of law, it is recognized as right against discrimination in International Covenant on Civil and Political Rights (hereinafter referred to as ICCPR) and International Covenant on Economic, Social and Cultural Rights (ICESCR) as well Articles 20 and 21 (1) European Convention on Human Rights. Apart from these, Article 24 of American Convention on Human Rights (ACHR),  Article 2, 3 and 18 (3) of African Charter on Human and People’s Rights, Section 15 of Canadian Charter of Rights and Freedoms and UK’s Equality Act, 2006 recognize Equality as a Human Right. These articles have been interpreted so as to include right against discrimination on basis of sexual orientation. Also, Article 21(1) of Charter of Fundamental Rights of EU, Part III of Equality Act, 2006, guarantee right against discrimination on basis of sexual orientation.

As in this case, and many other cases, couples are denied the rights that are available to ordinary heterosexual couples, just because they are homosexual couples, i.e. both partners belong to same sex. It was held to be a violative of Equality clause of South African Constitution by Constitutional Court of South Africa in Minister of Home Affairs and Another v. Fourie and Another[2], where the couples were denied their marriage license on similar grounds as in Varnum v. Brien. In this case, the act of officials was held to be violative of Equal Protection Clause that guarantees Right against Discrimination and mentions sexual orientation as one of the grounds on which discrimination is prohibited.

Right to Personal Liberty and Privacy:

‘Liberty’ means absence of constraints and not the absence of restraints and limitations. ’ The real meaning of liberty involves within its folds both the individual and social sides of man’s existence.

Liberty in the personal sphere refers to the right of a person to make choices in those areas of his life where the result of his efforts mainly affects him. Article 3 of UNDHR, Article 9 of ICCPR, Article 6 of Charter of the Fundamental Rights of EU, Article 7 of ACHR, and Article 6 of African Charter guarantee protection against interference with personal liberty except for reasons and conditions laid down by law.

Privacy is a notoriously difficult term to define. It has been categorized as a choice, a function, a desire, a right, a condition and/or a need. Privacy has also been defined as the desire of individuals for solitude, intimacy, anonymity, and reserve. Right to Privacy comprises ‘freedom from unwarranted and unreasonable intrusions into activities that society recognizes as belonging to the realm of individual autonomy. The ‘sphere of individual autonomy’ has been described as ‘the field of action [that] does not touch upon the liberty of others’, where one may withdraw from others, to ‘shape one’s life according to one’s own wishes and expectations’.

Regulation of sexual behavior that takes place in private may be an interference with privacy. As observed by UN Human Rights Committee in Toonen v. Australia[3], “…adult consensual sexual activity in private is covered by the concept of ‘privacy’…”

In Lawrence v. Texas[4], landmark case in this concern, the Court struck down a Texas statute criminalizing same-sex sodomy between consenting adults in private, and held:

“These matters, involving the most intimate and personal choices a person may make in a lifetime, choices central to personal dignity and autonomy, are central to the liberty… At the heart of liberty is the right to define one’s own concept of existence, of meaning, of the universe, and of the mystery of human life. Beliefs about these matters could not define the attributes of personhood were they formed under compulsion of the State.”

As held by Alaskan Superior Court Judge Peter Michalski in one of the cases, “…choosing a partner is a fundamental right…” and it is for the State to honour both traditional and non-traditional choice.

Right to Marry:

The right of an individual to live their life in the way they choose is wide-ranging. Right to life, personal liberty and privacy when read together, give a person the right to form a family, and subsequently, the right to marry. Article 16 of UNDHR, Article 23 of ICCPR, Article 12 of ECHR, Article 9 of Charter of Fundamental Rights of EU and Article 17(2) of ACHR recognize the right of individuals of marriageable age to marry and to found a family. These conventions have been interpreted by Courts so as to include same sex relationships. However, European Court of Human Rights has refused to apply the protection of Article 12 of ECHR to same sex marriages. The Court has defended this on the grounds that the article was intended to apply only to different-sex marriage, and that a wide margin of appreciation must be granted to parties in this area.

Government recognition of same-sex marriage is presently available in seven countries and five U.S. states. The Netherlands was the first country to authorize same-sex marriage in 2001 and they are also recognized in Belgium, Canada, South Africa, Spain, Norway, Sweden and the US states of Massachusetts, Connecticut, Iowa, Vermont, New Hampshire, and Maine. The states of New York, Rhode Island and New Mexico do not allow same-sex marriages to be performed, but do recognize such marriages performed elsewhere. Israel’s High Court of Justice ruled to recognize same-sex marriages performed in other countries, although it is still illegal to perform them within the country.

Other countries, including the majority of European nations, New Zealand and Uruguay, have enacted laws allowing civil unions or registered partnerships, designed to give gay couples similar rights as married couples concerning legal issues such as inheritance and immigration.

Apart from the five states providing same-sex marriage, jurisdictions in the U.S. that offer civil unions or domestic partnerships granting nearly all of the state-recognized rights of marriage to same-sex couples include California (2000), the District of Columbia (2001), New Jersey (2006), Oregon (2007), New Hampshire (2008), Washington State (2007/2009) and Nevada. States in the U.S. with domestic partnerships or similar status granting some of the rights of marriage include Hawaii (1996), Maryland (2008) and Colorado (2009).

Judgment of Iowa Supreme Court:

Interpreting the Equal Protection Clause in favor of homosexuality, Iowa SC held the state marriage law as a violation of Right to Equality. The Court stated that the equal protection clause of the Iowa Constitution requires that laws treat alike all those who are similarly situated with respect to the purposes of the law, and concluded that homosexual persons are similarly situated compared to heterosexual persons for purposes of Iowa’s marriage laws.

Indian Scenario:

Homosexuality is generally considered a taboo subject by both Indian civil society and the government. Public discussion of homosexuality in India has been inhibited by the fact that sexuality in any form is rarely discussed openly. In recent years, however, attitudes towards homosexuality have shifted slightly. In particular, there have been more depictions and discussions of homosexuality in the Indian news media and by Bollywood.

Homosexual relations are legally still a crime in India under an old British era statute dating from 1860 called Section 377 of the Indian Penal Code which criminalises ‘carnal intercourse against the order of nature.’ The vague nature of the legislation has resulted in it being used against a wide range sexual behaviour like oral sex (heterosexual and homosexual), sodomy, bestiality, etc. The punishment ranges from ten years to lifelong imprisonment.

The relevant section reads:

Whoever voluntarily has carnal intercourse against the order of nature with any man, woman or animal, shall be punished with imprisonment for life, or with imprisonment of either description for a term which may extend to ten years, and shall also be liable to fine.

The question which the judiciary has struggled with since 1860 is to determine what exactly ‘carnal intercourse against the order of nature’ means. The meaning of Section 377 in 1884 was restricted to anal sex, by 1925, with the case of Khanu v. Emperor[5], it was broadened to include oral sex and the judgements in contemporary India have broadened it to also include thigh sex.

This idea of sex without the possibility of conception has been used by the judiciary over the last 140 years to characterize homosexuality as a ‘perversion’, ‘despicable specimen of humanity’, ‘abhorrent crime’, ‘result of a perverse mind’ and ‘abhorred by civilized society’. What judicial interpretation did was to include both acts of consensual sex as well as acts of sexual assault under its catch all category of ‘carnal intercourse against the order of nature’. It is also important to note that technically speaking, Section 377 does not prohibit homosexuality or criminalise homosexuals as a class but targets instead sexual acts. However, the fact that these sexual acts are commonly associated with only homosexuals has made them far more vulnerable to prosecution under the law than heterosexuals.

In recent years, the continued existence of this section had become controversial. The Law Commission of India had historically favoured that the retention of this section, but in its 172nd report, delivered in 2000 it recommended its repeal, as did the then Health minister, Ambumani Ramadoss, in 2008. On 2 July 2009, in the case of Naz Foundation v National Capital Territory of Delhi[6], the High Court of Delhi struck down much of S. 377 of the IPC as being unconstitutional. The Court held that the extent to which S. 377 criminalises consensual non-vaginal sexual acts between adults, it violates an individual’s fundamental rights to equality before the law, freedom from discrimination and to life and personal liberty under Articles 14, 15 and 21 of the Constitution of India. The High Court did not strike down S. 377 completely - it held the section was valid to the extent it related to non-consensual non-vaginal intercourse or to intercourse with minors - and it expressed the hope that Parliament would soon legislatively address the issue.

However, people have interpreted the judgement as one that legalizes homosexuality. It should be understood by everyone that decriminalizing and legalizing are two entirely different things. While one means removal of crime aspect from an act, the other means legitimizing and making an act legally acceptable. In words of Justice J.S. Verma, “It is a misreading of the Delhi High Court judgment to contend that it approves or legalizes, much less glorify the practice of homosexuality, practiced in privacy. It merely decriminalizes consensual homosexuality or unnatural sex practiced in privacy between consenting adults. This was the limited point at issue and the scope of this decision. To read anything more in it is not justified.”

However, with due respect to any further considerations that might be undertaken by Honourable Supreme Court and Indian Government, it will be more discriminatory than an equalizing act to legalise homosexuality if Indian Society and its norms are taken into consideration. Once homosexuality is legalized, such couples would definitely opt for adopting a child. Any such child will have to face discrimination, and that would definitely go against his or hers rights. Moreover, this change would involve amendments to many laws, which at the end, might contradict each other in more than one ways. Keeping these points in mind, it is humbly submitted that any such decisions should be taken after giving due consideration to probable results.

The status of same-sex marriage changes nearly on a daily basis as legislation and legal action takes place around the world. Same-sex marriage is among the most controversial issues currently being debated in a worldwide setting. Across the globe, a number of issues come up for debate and resolution-poverty, civil strife, healthcare, racial and gender equality, and basic human rights among others-but same-sex marriage differs from these political debates in a distinctive way. Rather than affirming traditionally recognized rights, it pushes the boundaries of traditional rights to new definitions which include practices and ideas once thought contrary to the rights themselves. While some laws push nations forward and others hold them back, still other laws can push nations off their charted course. Whether such a change should be welcomed or discouraged, it is important that we realize which direction the waves of cultural change are pushing so that we can weigh our options accordingly.

The law speaks of a corporation as a ‘legal person’ — as a subject of rights and duties capable of owning real property, entering into contracts, and suing and being sued in its own name separate and distinct from its shareholders. For many centuries there has been a heated controversy amongst the jurists as to the ‘essence’ of this soulless and bodiless person. The first purpose of this paper is to end this age-old ‘corporate personality controversy’ once and for all. To achieve the purpose mentioned above the evolution, rights, and liabilities of the corporation is being dealt with, in this paper along with the individual liability of the directors and shareholders in certain cases of lifting or piercing of the corporate veil. This paper also aims to deal with the judicial pronouncements wherein the Courts will avoid the corporate existence of the corporation and will pierce the veil to reach the person behind the veil or reveal the true form and character of the concerned company. Finally, it is also intended to answer the question as to whether lifting of the veil is always detrimental to the company and shareholders or sometimes it can result in their benefit as well. To achieve the abovementioned purpose the judicial pronouncements have been divided into four categories.

Introduction:

In India the law relating to company is governed by the Companies Act, 1956. The word company is derived from the latin word ‘com’ meaning ‘with or together’ and ‘panis’ meaning ‘bread’. Thus, company means together for bread or meals. But, company in its ordinary sense, means an association or group of person, associated together with a common objective, may be for profit making by doing business or for attainment of any social or economic objective, or for any other charitable purpose. In other words we can say that the company is a group of common minded people grouped together for common goal, for promoting business, research, religion, trade, commerce or any other charitable purpose.

A company acquires the corporate personality on its incorporation, i.e. when it comes into existence. A company comes into existence by registration at the office of the registrar of companies. Section 33 of the Act provides for registration of the memorandum and articles. The Registrar under Section 34 certifies that the company is incorporated. From the date of incorporation, the subscribers of the memorandum and other persons, namely, the members, shall be a body corporate by the name contained in the memorandum, capable of exercising all the functions of an incorporated company and having perpetual succession and a common seal.

One of the characteristics of the company thus is that it is an incorporated body of persons. Incorporation is the formation of a legal body. It is not mere aggregate of its members. The company is constituted into a distinct and independent person in law and is endowed with special rights and privileges; it is in law a person distinct from its members. The advantage of incorporation is that a company never dies. It has perpetual succession and remains in existence however often its members change, until its dissolution. This prevents the dissolution of the company by the death, bankruptcy, or lunacy of any of its members. This characteristic offers to a company and its shareholders various special advantages; more particularly, the company is permitted to acquire and hold property in its corporate name, and enables the company to use a common seal, to contract with its shareholders and others. In the event of the winding up of the company as stipulated in the Act, the members shall have a limited liability to contribute to the assets of the company.

Evolution of the Principle of Corporate Personality:

The principle of the independent corporate existence and the principle of corporate personality of a company was recognized in the case of Saloman v. Saloman & Co. The facts of the case are as such:

Mr. Aron Salomon was a British leader merchant who for many years operated a sole proprietorship, specialized in manufacturing leather boots. In 1892, his son, also expressed interest in the businesses. Salomon then decided to incorporate his businesses into a limited company, which he did in the name of Salomon & Co. Ltd.

However, then an important requirement for incorporation of a company into a limited company was that at least seven persons must subscribe as shareholders or members. Salomon honored the clause by including his wife, four sons and daughter into the businesses, making two of his sons the directors of the company, and he himself acted as the managing director. Interestingly, Mr. Salomon owned 20,001 of the company’s 20,007 shares - the remaining six were owned by the other six shareholders. Later, the company went into liquidation. Mr. Salomon sold his business to a new corporation for almost £39,000, of which £10,000 was a debt to him. He was thus simultaneously the company’s principal shareholder and its principal creditor.

At the time of liquidation of the company, the liquidators argued that the debentures used by Mr. Salomon as security for the debt were invalid, and that they were based on fraud. Vaughan Williams J. accepted this argument, ruling that since Mr. Salomon had created the company solely to transfer his business to it, the company was in reality his agent and he as principal was liable for debts to unsecured creditors.

The lord justices of appeal variously described the company as a myth and a fiction and said that the incorporation of the business by Mr. Salomon had been a mere scheme to enable him to carry on as before but with limited liability.

However, the House of Lords later quashed that Court of Appeal (CA) ruling, upon critical interpretation of the 1862 Companies Act. The court unanimously ruled that there was nothing in the Act about whether the subscribers (i.e. the shareholders) should be independent of the majority shareholders. The Court ruled that the company was duly constituted under the Act by fulfilling all the necessary requirements. The 1862 Act created limited liability companies as legal persons separate and distinct from the shareholders. It was held that even if one individual held almost all the shares and debentures in a company, and if the remaining shares were held on trust for him, the company is not to be regarded mere shadow of that individual. Lord Mac Naughten stated that:

“The company is at law a different person altogether from the subscribers of the Memorandum, and although it may be that after incorporation the business is precisely the same as it was before, and the same persons are managers, and the same hands receive the profits, the company in law is not the agent of the subscribers or the trustee for them. Nor are subscribers as members liable, in any shape or form, except to the extent and the manner provided for in the Act.”

In other words, by the terms of the Salomon case, members of a company would not automatically, in their personal capacity, be entitled to the benefits nor would they be liable for the responsibilities or the obligations of the company. It thus had the effect that members rights and/or obligations were restricted to their share of the profits and capital invested. The rule in the Salomon case that upon incorporation, a company is generally considered to be a new legal entity separate from its shareholders is recognized till date. The case is of particular significance and a landmark in company law because firstly, it established the canon that when a company acts, it does so in its own name and right, and not merely as an alias or agent of its owners. Secondly, it established the important doctrine that shareholders under common law are not liable for the company’s debts beyond their initial capital investment, and have no proprietary interest in the property of the company.

Another important landmark case is Macaura v. Northern Assurance Co. Ltd. The facts of the case are that Mr. Macaura owned an estate and some timber. He agreed to sell all the timber on the estate in return for the entire issued share capital of Irish Canadian Saw Mills Ltd. The timber, which amounted to almost the entire assets of the company, was then stored on the estate. On 6 February 1922 Mr. Macaura insured the timber in his own name. Two weeks later a fire destroyed all the timber on the estate. Mr. Macaura tried to claim under the insurance policy. The insurance company refused to pay out arguing that he had no insurable interest in the timber as the timber belonged to the company. Allegations of fraud were also made against Mr. Macaura but were never proven. Eventually in 1925, the case arrived before the House of Lords which decided that:

“The timber belongs to the company and not to Mr. Macaura. Even though he owns all the shares in the company, he had no insurable interest in the property of the company. Just as corporate personality facilitates limited liability by making the corporation liable for the debts and not the members, in a similar manner the company’s assets belongs to it and not to the shareholders.”

The principle of distinct and independent existence of company consequent to its incorporation was recognized in India even before the decision in Salomon case. The High Court of Calcutta in a case observed that the company was altogether a separate person, different from its shareholders and therefore the transfer was as much a conveyance, a transfer of the property, as if the shareholders had been totally different persons. In this case, the members transferred a Tea Estate to a company and claimed exemption from ad valorem duty on the ground that they themselves were the shareholders in the company. It was in fact a transfer to themselves in another name. The Court, however, rejected their contention and ruled that in the eyes of law the company was a distinct independent person, separate from its shareholders.

The Supreme Court in M/s. Electronics Corporation of India Ltd. v. Secretary, Revenue Department, Government of Andhra Pradesh, inter-alia observed that a clear distinction must be drawn between a company and its shareholders, even though the number of such shareholders may be restricted only to one. In the eyes of the law, a company registered under the Companies Act is a distinct legal entity other than the legal entity or entities that hold its shares.

Attributes of Corporate Personality:

Distinct Legal Entity:

A new legal personality emerges from the moment of incorporation and from that date the persons subscribing to the memorandum of association and other persons joining as members are regarded as a body corporate or a corporation aggregate and the new person begins to function as an entity. But the members who form the incorporated company do not pool their status or their personality. If all of them are citizens of India the company does not become a citizen of India any more than if all are married the company would be a married person. The personality of the members has little to do with the persona of the incorporated company. The persona that comes into being is not the aggregate of the personae either in law or in metaphor. The corporation really has no existence; it is a mere “abstraction of law”. Corporate identity of a company does not change by changing the directors or shareholders.

Perpetual Succession:

In company law, perpetual succession is the continuation of a corporation’s or other organization’s existence despite the death, bankruptcy, insanity, lunacy of any owner or member leading to a change in membership or an exit from the business. It is said in common parlance that members may come and go but the company continues to stay forever, unless terminated by the process of law.

Common Seal:

A company being a legal person does not have any physical existence. Companies don’t have any body or soul to work, thus, they work through their agents. Agents while representing the company use the name of the company under the common seal. This common seal of the company is very significant as every work done by the agent under the common seal is treated as work done by the company and the company is bound by that act of the company. If any document does not bear any common seal, it does not have any binding effect on the company. A common seal sometimes referred to as the corporate seal or company seal is an official seal used by a company. The seal is of legal significance because the affixing of the seal signifies that the document is the act and deed of the company. Common seals are used for execution of deeds, entering into contracts, and also on certain corporate documents.

Power to sue and be sued:

Companies incorporated under the Companies Act are capable of suing and being sued in their corporate names. This feature considerably facilitates legal proceedings by and against company. The company’s corporate identity is not affected by any change in shareholding or membership. A suit filed by a company is not to be dismissed only because the ownership of the company has changed and it has resulted in change of name. The court also said that a change in the membership of the company is no ground for dismissal of a suit pending against it. The change in this case was due to takeover of the company by a French group.

A company’s right to sue arises when some loss is caused to its own personality. A company was held not entitled to sue its advisers who advised a pension scheme suitable for directors and the scheme turned out to be less beneficial than other available schemes. The company could not establish any loss on its part. Any loss would be felt by the beneficiaries of the scheme and not by the employing company. The company was under no obligation to make up any shortfall.

A company, with a separate legal personality of its own, can alone complain of wrongs done to it. In a suit by or against a corporation, any pleading may be signed and verified on behalf of the corporation by the secretary or by any director or other principal officer of the corporation who is able to depose to the facts of the case. But it is open to a corporation to authorise any person to institute a suit on its behalf, and any person acquainted with the facts of the case can verify the plaint. In Nibro Ltd. v. National Insurance Co. Ltd., the Court has held that the power to institute a suit in the case of a company vests with the Board of Directors and an individual director can institute a suit only if he is specifically empowered.

A company being an incorporeal entity can institute or attend as a complainant, in a criminal case through a natural person (its employee/director). On occasions when a different person represents the company, it can take permission of the judge.

An action brought by a dissatisfied minority cannot be recognized as an action on behalf of the company. However, there are certain exceptions to it. The exception to the majority rule is an action brought by some of the members, notionally in the interests of all, to enforce the rules of conduct governing the conduct of the company’s affairs. And the exception to the locus standi rule is an action against third persons who have wronged the company, and where the plaintiffs are supposed to be the champions of the company’s interests. In both these cases, the plaintiffs will be asserting their corporate rights in a representative capacity.

Where a company was the recipient of a cheque which was dishonoured, it was held that the company was competent to make a complaint under Section 138 of the Negotiable Instruments Act. The money represented by the cheque was the company’s money and not that of its functionaries and therefore the company alone could file a complaint.

Companies also have the right to sue for defamation and other wrongs. Incorporation brings into existence a legal person which develops into its own separate existence as a business or enterprise entities. The publication of any statement which disparages its business, defames the company at the same time. Hence the company is entitled to sue in damages for libel or slander as the case may be.

Limited Liability:

The concept of limited liability is the most cardinal attribute and privilege of a company. It is a celebrated principle of company law, which limits the liability of a shareholder of a company towards his company and also towards its creditors. The members of the company are not part owners of the company or its property unlike in the case of a partnership firm, which does acquire a separate legal entity from its partners. Hence, the members of the company are not personally liable for the company’s debts either. The debts of the company are its own independent debts like the property and assets of the company, which are its own. The shareholders can at the most be held liable for their contribution in share capital of the company which is not paid by them.

For example, if in a company the face value of one share is Rs. 100 and one of the shareholders has paid only Rs. 70, he can at the most be held liable to pay the remaining Rs. 30, being the value unpaid at the time of allotment of the share, in the life time of the company. However this is possible only in case the company is limited by shares. If the company is limited by guarantee, the liability of the members is limited to the amount which they have agreed to pay in case of winding up of the company.

However, if the directors personally guarantee a debt or loan obtained by the company, they render themselves liable for the debt due from the company, in their personal capacity as sureties. This was held in the famous case of Hrushikesh Panda v. Indramani Swain.

In Sidana (HS) v. Rajesh Enterprises , it was held that where there was a decree for recovery of sums due to a bank from the company, in a suit against the company and its managing director, the liability to discharge the decretal amount was the company’s liability and not of the managing director.

Also, it has been held in a case law that tax due from a company cannot be permitted to be recovered from the Director personally unless such recovery is permitted by a specific provision of law or agreement between the parties.

For limited liability to apply, the company must act for itself and not as an agent of the shareholder. Clear evidence of agency will be required to defeat the presumption that the company is acting on its own behalf. A contract made by a corporation will not be imputed back to the owner of the corporation on an agency basis unless it can be shown that both parties so intended at the time of the formation of the contract. If the company never carries on business, but it continues to be conducted by the shareholder personally, then the shareholder will be responsible for the debts, obligations and liabilities arising from the business. In other words, to retain its separate legal personality and keep the corporate veil intact, the corporation cannot be used solely as front for essential acts and operations of the principal shareholder.

The Companies Act in a few sections contain a provision making directors personally liable for the obligation enjoined primarily upon the company, and to discharge certain monetary obligations, in the capacity of directors. For instance, Section 73 renders the directors personally liable along with the company to repay the share application money or excess share application money, as the case may be, if the same is not repaid within the stipulated time limit. Likewise, Section 62, which stipulates civil liabilities for mis-statements in the prospectus, casts upon directors the liability to pay compensation to the person who has subscribed to the shares of a company on the faith of the prospectus.

Company as a Citizen and Right to Claim Fundamental Rights:

A company is a legal person, but it is not a citizen so as to claim the fundamental rights granted to it by the Constitution of India. Section 2(f) of the Citizenship Act of 1955 expressly excludes a company or association or body of individuals from citizenship. The companies can claim the benefit of all the fundamental rights other than those which are guaranteed specifically to citizens only. It has been held by the Supreme Court in a number of cases that a citizen shareholder may on his own behalf and also on behalf of the company claim the benefit of Article 19 if as a result of some action of the State his rights which he was enjoying through the company were also affected.

On the basis of the judgments given by the Courts, the following principles have emerged in course of time:

· A company is not a ‘citizen’ and, therefore, cannot maintain a writ petition for enforcement of fundamental freedoms under Article 19 which are conferred on ‘citizens’ alone;

· If fundamental or other constitutional right is conferred on a ‘person’, a writ can be filed by a company because it is a person.

· A writ petition filed by a shareholder will be maintainable for enforcement of the fundamental freedoms only if he can establish that by the action of the Government, his company’s rights have been impaired.

· The rights of a company and the rights of its shareholders are not co-extensive.

· Generally writ is filed by a company along with a shareholder, who is an Indian citizen, so that the petition is maintainable.

Alter Ego Doctrine:

It is a doctrine used by the courts to ignore the corporate status of a group of stockholders, officers, and directors of a corporation in reference to their limited liability so that they may be held personally liable for their actions when they have acted fraudulently or unjustly or when to refuse to do so would deprive an innocent victim of redress for an injury caused by them. This doctrine allows the law to attribute the mental state of those who control and determine the management to the company itself as being its directing mind and will.

A corporation is considered the alter ego of its stockholders, directors, or officers when it is used merely for the transaction of their personal business for which they want immunity from individual liability. A parent corporation is the alter ego of a subsidiary corporation if it controls and directs its activities so that it will have limited liability for its wrongful acts.

The alter ego doctrine is also known as the instrumentality rule because the corporation becomes an instrument for the personal advantage of its parent corporation, stockholders, directors, or officers. When a court applies it, the court is said to pierce the corporate veil.

Lifting the Corporate Veil:

A corporation is clothed with a distinct personality by fiction of law, yet in reality it is an association of persons who are in fact, in a way, the beneficial owners of the property of the body corporate. A company being an artificial person cannot act on its own. It can act only through natural persons. The whole theory of incorporation is based on the theory of corporate entity but the separate personality of the company and its statutory privileges should be used for legitimate purposes only. Where the legal entity of the company is being used for fraudulent and dishonest purposes, the individuals concerned will not be allowed to take the shelter behind the corporate personality. The court in such cases shall break through the corporate shell and apply the principle of what is known as “lifting or piercing the corporate veil”. The corporate veil of a company may be lifted to ascertain the true character and economic realities behind the legal personality of the company. The doctrine laid down in Salomon v. Salomon & co. ltd. has to be watched very carefully. It has often been supposed to cast a veil over the personality of a limited company through which the courts cannot see. But that is not true. The courts can and often do draw aside the veil. They can, and often do, pull off the mask. They look to see what really lies behind.

If we look into the foreign laws, we will find out that the concept of ‘piercing the veil’ in the United States is much more developed than in the UK. The motto, which was laid down by Sanborn, J. and cited since then as the law is that ‘when the notion of legal entity is used to defeat public convenience, justify wrong, fraud, or defend crime, the law will regard the corporation as an association of persons. The same can be seen in various European jurisdictions.

The general nomenclature of the subject in England is ‘lifting the veil’, although ‘veil’ is but one of the metaphors selected by the court. Other labels include ‘cloak’, ‘alias’, ‘alter ego’, ‘agent’, ‘fiction’, ‘instrumentality’, ‘puppet’, and ‘sham’.

The principle is of general application. Lifting can be resorted to in all cases depending upon:

· The relevant statutory or other provisions;

· The object sought to be achieved;

· The impugned conduct;

· The involvement of public interest; and

· The interest of the affected parties.

As regards the true legal position of a company or corporate body and the circumstances under which its entity as a corporate body will be ignored and the corporate veil lifted, so that the individual shareholder may be treated liable for its acts, the Supreme Court has expressed itself as follows:

“The true legal position in regard to the character of a corporation or a company which owes its incorporation to a statutory authority is not in doubt or dispute. The corporation in law is equal to a natural person and has a legal entity of its own. This principle is well established ever since the decision in case of Salomon v. Salomon & Co. and indeed it has always been the well recognized principle of common law. However, in course of time, the doctrine that a corporation or company has legal and separate entity of its own has been subjected to certain exceptions by the application of the fiction that the veil of the corporation can be lifted and its face examined in substance. The doctrine of the lifting of the veil thus marks a change in the attitude that la w had originally adopted towards the concept of the separate entity or personality of the corporation. As a result of the impact of the economic factors, judicial decisions have sometimes recognized exceptions to the rule, about the juristic personality of the corporation. It may be that in course of time these exceptions may grow in number and to meet the requirements of different economic problems, the theory, about the personality of the corporation may be confined more and more”.

The doctrine of lifting of the veil has been applied in five categories of cases:

· Where companies are in relationship of holding and subsidiary companies;

· Where a shareholder has lost the privilege of limited liability and has become directly liable to certain creditors of the company on the ground that, with his knowledge, the company continued to carry on business six months after the number of its members was reduced below the legal minimum;

· In certain matters pertaining to the law of taxes, death duties and stamps, particularly where the question of the “controlling interest” is in issue;

· In the law relating to exchange control, and

· In the law relating to trading with the enemy where the test of control is adopted.

At present the judicial approach in cracking open the corporate shell is somewhat cautious and circumspect. It is only where the legislative provision justifies the adoption of such course that the veil has been lifted. The courts have only construed statutes as “cracking open the corporate shield” when compelled to do so by the clear words of the statute; indeed they have gone out of their way to avoid this construction whenever possible. It is only where the legislative provision justifies the adoption of such a course that the veil has been lifted. In exceptional cases where courts have felt “themselves able to ignore the corporate entity and to treat the individual shareholder as liable for his acts” the same course has been adopted.

Statutory Provisions wherein the Members/directors shall be individually liable:

The Act itself provides for circumstances when corporate veil will be lifted and the individual member/directors will be made liable for certain transactions. The statutory provisions are as follows:

· Reduction of membership below statutory minimum (Section 45): This Section provides that if the number of a company is reduced below 7 in the case of a public company or below 2 in the case of a private company and the company continues to carry on the business for more than 6 months, while the number is so reduced, every person who knows this fact and is a member of the company is severally liable for the debts of the company contracted during that time.

The increased liability of a member under this Section can be avoided by the existing members by transferring some of their shares to some nominees or other persons and thus increasing the number of members of the company, up to or more than the minimum number required within the time prescribed.

Liability for the payment of debts under this Section extends to the liabilities under various tax statutes.

A member of a company became liable severally and jointly with the company for the debts incurred during the period when he was the sole member of the company. He had himself purchased the shares of the only other member of the company. All the members would be necessary parties even if they contend that they would not be severally liable under the circumstances of the case.

· Improper use of name (Section 147): Under sub-section (4) of this section, an officer of a company who signs any bill of exchange, hundi, promissory note, cheque wherein the name of the company is not mentioned in the prescribed manner, such officer can be held personally liable to the holder of the bill of exchange, hundi, etc. unless it is duly paid by the company.

Where, through an oversight, however innocent and honest, an officer of the company fails to comply with any one requirement of the provisions of sub-section (4), the personal liability of such officer cannot be avoided even though the creditor or other person knows that the bill, cheque, or promissory note was executed only for and on behalf of the company.

· Liability for fraudulent conduct of business (Section 542): If in the course of the winding up of a company, it appears that any business of the company has been carried on with intent to defraud the creditors of the company or any other person or for any fraudulent purpose, the persons who were knowingly parties to the carrying on of the business, in the manner aforesaid, shall be personally responsible, without any limitation of liability for all or any of the debts or other liabilities of the company, as the court may direct.

Specific Circumstances Under Which the Corporate Veil is Pierced:

Fraud:

In Shri Ambica Mills Ltd., Re, it was held that when the question of fraud by some officers is on the anvil, the court cannot be precluded from tearing off the veil to reach the substance of the matter. Likewise where unjust enrichment has resulted from a transaction the veil would be pierced by Court to prevent that.

In the case of P.N.B. Finance Ltd. v. Shital Prasad Jain, a Division Bench of the Delhi High Court granted to the plaintiff company an order of interim injunction restraining defendant companies from alienating the properties of their ownership on the ground that the defendant companies were merely nominees of 1^st defendant who had fraudulently used the money borrowed from the plaintiff company and bought properties in the name of defendant companies. Protection under the doctrine of corporate veil could not be invoked in the facts and circumstances of the case.

The court can lift the corporate veil so as to find out and expose persons who were floating fraudulent investment schemes at high returns in the name of the company. The fraud is criminal offence of cheating. The court ordered police investigation. The property acquired by fraud, cheating, etc. was ordered to be followed and seized from wherever it was lying.

According to a decision of the Supreme Court, corporate veil can be lifted so as to expose any person to liability who has committed a fraud upon the public from his sheltered position. In this case a large number of persons were deceived by a company in a scheme of booking plots-flats which was operated with utter dishonesty and fraud towards persons coming into the scheme. Persons playing such frauds, though in the name of a company, can be held personally liable.

Tax Evasion Matters:

An attempt of a taxing department to club the income of two companies in a single assessment was challenged in Deputy Commissioner (CT) v. Cheran Transport Corpn. Ltd. An engineering company and a transport company about which it was observed that they were once by mistake assessed separately and that their income should have been brought under single assessment, the court could not dispose of the matter on merits and remitted it back to the assessing officer for reconsideration saying that in cases like this it is not enough to find that the two companies were separate legal entities and that it was necessary to examine whether they were truly separate and independent or one was dependent on the other or was a colourable device  for avoiding legal obligations. In this case, Mishra J adopted the six point rule which was given in Apthorpe v. Peter Schoenhoffen Brewing Co. case for the guidance of the taxing authorities:

· Were the turnovers treated separately for each corporation?

· Were the persons conducting the business guided by the same head and brain?

· Were the persons conducting the business of the engineering corporation the same as those conducting the business of the transport corporation?

· Did the engineering corporation decide for itself what should be done and what capital should be embarked upon the venture?

· Did the business turnover of the engineering corporation stand separately and independently?

· Who effectually controlled the engineering corporation?

In the famous Juggi Lal Kamalapat v. CIT, a company promoted by the assessee firm prematurely terminated the managing agency contract with the firm and assigned the managing agency to another company in which the partners of the assessee firm held controlling shares. The same partners continued to conduct the managing agency business of the (managed) company but as directors of the newly formed managing agency company. The assessee firm sought to avoid tax on the amount of compensation received for loss of office by claiming that it was capital gain. It was found that the termination of the contract of managing agency with the firm was a colourable transaction, the payment of compensation was collusive and the partners of the firm continued to run and enjoy the benefit of managing agency as shareholders and directors of the newly formed company. It was a collusive device practiced by the managed company and the assessee firm for the purpose of income tax both in the hands of the payer and of the payee. Thus, in this case, the whole transaction was a sham one and was stage-managed merely with a view to evade income tax. The court did not, therefore, accept the plea that managing agency company was a separate legal entity different from the assessee firm and observed that in a matter of this description the Income tax authorities were entitled to pierce the veil of the corporate entity and look at the reality of the transaction.

Holding- Subsidiary Relationships:

The principle of lifting or piercing the veil is also applicable to cases of holding company- subsidiary relationships, where in spite of their being separate legal personalities, the facts and circumstances show that they are in reality parts of one concern owned by a parent company or a group as a whole. Failure to delineate between the operation of both may mislead the creditors and the public into believing that they are dealing with the broader corporate entity and not with the subsidiary as a separate business. Where, the subsidiary, being under-capitalized, is operating only some portions of the business of the parent or holding company there is no reason why it is not to be treated, so far as the liabilities incurred by it are concerned, as an agent of the parent company.

In Industrial Development Corpn., Orissa v. Regional Provident Fund Commr., the court said that a holding company could not be made liable for dues of its subsidiary in respect of the Employees Provident Fund. The holding company, being an independent incorporated entity, was not an employer of its subsidiary’s workmen. The subsidiary was not a branch of the holding company. Sums due from the subsidiary could not be recovered from the holding company.

For the purpose of considering whether a company which was a member of a group of companies was employing less or more than 20 persons, the employees of the whole group were not permitted to be taken into account. The court said that the Parliament was aware of the group phenomenon when it enacted the piece of legislation and could have drafted the statute in such a way to address itself to the matter but chose not to do so.

Two public companies were holding shares in each other and had common directors. Even so the Supreme was of the view that it could not be said that the shareholders of one company had interest in the business of each other. They could not be regarded as “related persons” for the purposes of the Central Excise Act, 1944.

Evasion of Personal and Statutory Obligations:

The court may disregard the separate existence of the company where it appears that the company was incorporated for evading contractual and statutory obligations. Thus, in Gilford Motor Co. v. Horne, Horne a former employee of the plaintiffs covenanted not to solicit its customers. He attempted to evade this obligation by forming a company which undertook the soliciting. An injunction was granted against both him and the company. The court described the company as “a device, strategam” and a “mere cloak or sham”. In this case the corporate veil was pierced to see who acted behind the company by disallowing him to do something in the name of the company which he himself was forbidden from doing.

In a very dynamic judgment by the Supreme Court in Delhi Development Authority v. Skipper Construction Co. P. Ltd., the properties of two companies were ordered to be attached in order to do justice to persons whom the promoter of the companies had duped by allotting a floor to more than one person.

Using Corporate Structure for Hiding Criminal Activities:

As to the law, the general principle remains that which was enunciated in Salomon v. Salomon & Co., namely that a company duly formed and registered is a separate legal entity and must be treated like any other independent person with its own rights and liabilities distinct from those of its shareholders. However, where the character of a company, or the nature of the persons who control it, is a relevant feature the court will go behind the mere status of the company as a legal entity, and will consider who are the persons as shareholders or even as agents who direct and control the activities of a company which is incapable of doing anything without human assistance.

Where the defendant used the corporate structure as a device or facade to conceal his criminal activities, the court could lift the corporate veil and treat the assets of the company as the realisable property of the shareholder. On the facts, there was a prima facie case that the defendants controlled the two companies, that the companies had been used for the fraudulent evasion of the excise duty on a large scale, that the defendants regarded the companies as carrying on a family business and that they had benefited from companies’ cash in substantial amounts; and further no useful purpose would have been served by involving the companies in the criminal proceedings. In all the circumstances therefore it was appropriate to lift the corporate veil and treat the stock in the companies’ warehouses and the companies’ motor vehicles as realisable property held by the defendants.

Tortious Liability:

A finding of tortious liability against a shareholder or a director for activities carried out through the medium of a company has the possibility of negating the Salomon principle. The courts have been increasingly facing this possibility. The leading case on this issue is Williams v Natural Life Health Foods Ltd. The the House of Lords in this case emphasised the Salomon principle in the context of a negligent misstatement claim. The managing director of Natural Life Health Foods Ltd. (NLHF) was also its majority shareholder. The company’s business was selling franchises to run retail health food shops. One such franchise had been sold to the claimant on the basis of a brochure which included detailed financial projections. The managing director had provided much of the information for the brochure. The claimant had not dealt with the managing director but only with an employee of NLHF. The claimant entered into a franchise agreement with NLHF but the franchised shop ceased trading after losing a substantial amount of money. He subsequently brought an action against NLHF for losses suffered as a result of negligent information contained in the brochure. NLHF subsequently ceased to trade and was dissolved. The claimant then continued the action against the managing director and majority shareholder alone, alleging he had assumed a personal responsibility towards the claimant. The House of Lords seemed particularly aware that the effect of this claim was a trial to nullify the protection offered by limited liability. In its judgment, the House of Lords, considered that a director or employee of a company could only be personally liable for negligent misstatement if there was reasonable reliance by the claimant on an assumption of personal responsibility by the director so as to create a special relationship between them. In the present case there was no evidence that there had been any personal dealings which could have conveyed to the claimant that the managing director was prepared to assume personal liability for the franchise agreement. Other recent cases suggest that if the tort is deceit rather than negligence the courts will more readily allow personal liability to flow to a director or employee.

However, directors’ liability in torts has been more or less settled now. In MCA Records Inc v Charly Records Ltd, a director had authorised a number of infringing acts under the Copyright Designs and Patent Act 1988. The Court of Appeal in a very detailed consideration of the issue of directors’ liability in tort, took a more relaxed approach to the possibility of liability. The court held that there is no reason why a person who happens to be a director or controlling shareholder of a company should not be liable with the company as a joint tortfeasor if he is not exercising control through the constitutional organs of the company and the circumstances are such that he would be so liable if he were not a director or controlling shareholder. The court, in the instant case found the director liable as a joint tortfeasor

Categorization:

1. Peeping Behind the Veil:

The first category is the least offensive with respect to the separate entity theory. We can regard this attitude as an act of curiosity: the veil is lifted only to get information involving the persons who control the company, such as who are the shareholders, what is the proportion of their holdings, and what is their inter-relationship with regard to the control of the company? Having gathered this information, the veil is then pulled down and once more the company is treated as a separate legal personality, to which special characteristics are now attributed in consequence of that ‘curiosity’.

Peeping behind the veil at the corporators, enables the Court to satisfy itself as to the true legal situation of the case, to make an order against the company itself, or to refrain from making the required order. As mentioned, peeping behind the veil can also result in an advantage to the company. Such was the case, for example, of a company whose shareholders were trustees of a charitable trust. It was held that the company could claim to be exempt from paying a development charge because of this charitable status.

It is evident, therefore, that peeping behind the veil is not the step which leads to personal liability of the shareholder for the debts of the company. It is only the first but essential step by which the courts examine certain features of the company: its composition, control, type (holding, subsidiary, etc.), character (alien), residence (for tax purposes) etc. After collecting this information, the courts decide what to do with it, i.e., whether to be satisfied with it and adjudicate on the company alone, or to move up the ladder of lifting the veil, to more serious repercussions.

2. Penetrating the Veil:

The second category of lifting of the veil is more operative with regard to the shareholders. The courts reach through the veil and grasp the controlling shareholders personally. The purpose of penetrating the veil is to impose upon the shareholders responsibility for the company’s acts or to establish their direct interest in the company’s assets.

The other aspect of penetrating the veil is the recognition of a direct interest of the shareholder in the company’s assets. An example of such an attitude on the part of the legislature is taxation. There are, for instance, stipulations for the apportionment of certain income of a ‘close company’ among its participators, or requiring members of a close company to pay tax on transfers made by a company, the value being apportioned among them according to their respective interests in the company. The members are regarded here as if they privately own portions of the company’s property.

A special mode of penetrating the veil is by way of declaring an agency relationship between the controlling shareholder and his company. It was Vaughan Williams, J. who, in the Salomon case, based his judgment on an agency relationship, stating that the company had no personality of its own, being nothing more than the agent of Salomon. The House of Lords found a contradiction: if the company was an agent, it had a personality of its own. As a consequence, the House of Lords denied the existence of such a relationship.

The current wisdom is that agency is one of the cases in which the court will lift the veil. But surely agency does not precede lifting the veil; it is the other way around. In consequence of peeping behind the veil, the courts reach the conclusion that an agency relationship exists between the controlling shareholder and his company. Agency, therefore, is only a way by which the courts penetrate the veil: they construct the direct interest of the shareholders in their controlled company’s acts and property by way of imputing agency relationship between the company and its controlling shareholder, whether a private person or a holding company. Agency is not the aim, but the means of lifting the veil.

3. Extending the Veil:

The third technique of lifting of the veil is by its extension so that it embraces a bunch of companies, here, the veil of each one of the companies is lifted, only to draw it again over a large number of components. Such is the case when a group of legal entities is conducting a common activity, so that instead of referring to each one separately, one can regard them all as a single going concern, under one extended veil of incorporation. Each corporate entity does not concern us any more: it is the ‘enterprise entity’ on which we focus attention.

Generally, however, the veil is extended in the case of several companies. The most notable example of legislation is provision in the Companies Act, according to which a holding company must include in its accounts the profits earned or losses suffered by its subsidiaries, together with the collective assets and liabilities- group accounts. This extension of the veil can also ensue in an advantage for the company, as in the case of dividends paid by one member of the group to another or in the claim for the group relief.

The courts have started to follow suit and in some cases have taken this approach to a group of companies, without attributing too much importance to the separate entities of its various components. This has sometimes been done when the group was identically or wholly owned. When the court was satisfied, however, that the holding company did not have full control over the subsidiary, it did not regard them as one entity.

4. Ignoring the veil:

The most extreme form of lifting the veil is when the courts ignore it completely. This approach is as a sanction to which the courts turn when they think that the company was not founded for commercial or other sound grounds, but only as a means to defraud or defeat creditors or to circumvent laws.

Although the bahaviour of the controlling shareholder is contemptible, it is suggested that this method of disregarding the company’s separate entity has gone too far. Not only is it against the legal system: taken literally, it deprives the courts themselves of the possibility of issuing orders against the company as such, if and when they deem fit. Thus, for example, when the court states that the company was no more than a device and a sham, a mask which he holds before his face in an attempt to avoid recognition by the eye of equity, it contradicts its own order issued later on against this same company.

The desire of the court to ignore the company does not always do justice, especially when other parties are affected. In such cases, a remedy can be found in a more conventional way, namely to nullify the hurtful action.

Judicial Pronouncements:

Two judgments delivered by the Supreme Court in the year 2004 touched upon the perennial problem of “lifting the corporate veil” to find out the substance behind it. Both were cases of suspected evasion of excise duty and the facts of each case led to different results. In Rollatainers Ltd v. The Commissioner of Central Excise, the company won the appeal against the decision of the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT), whereas in the commissioner’s appeal against Modi Alkalies & Chemicals Ltd, the company received severe drubbing for floating three dummy units to evade duty. In the first case, the company had several units out of which one produced paper board and another manufactured specialty paper. They were separately registered for central excise. The government issued a notification in 2000 regarding paper, paper board and related articles. The company claimed concessions under the notification for each of the factories. The department, however, issued show cause notices to the company for demanding the benefit for each unit. It maintained that both the factories were in common premises, balance sheet was common and the owners were also the same. CEGAT dismissed the company’s petition and upheld the contention of the department. So the company appealed to the Supreme Court. Allowing the appeal, the Supreme Court said: “Simply because both the factories are in the same premises, does not lead to the inference that both the factories are one and the same. In the present case, from the facts it is apparent that there is no commonality of purpose, both factories have separate entrance, they are not complimentary to each other nor are they subsidiary to each other. The end product is also different; one manufactures duplex board and the other manufactures paper. They are separately registered with the department. There is no commonality between both the factories. Both are separate establishment run by separate managers, though at the apex level, it is maintained by the appellant company.”

However, the case of Modi Alkalies (MACL) was contrasting to this. It was engaged in producing caustic soda of which hydrogen is a by-product. The authorities noticed that in reality MACL was engaged in the manufacture of hydrogen. But with a view to evade payment of excise, and get the benefit given to small-scale industries, it floated three front companies near the main factory. Gas was sent to the dummy companies through pipelines and they compressed and bottled it. On inspection, it was found that all the three bottling units were located in one single shed and were separated from each other by a small brick wall. The directors of the three companies were employees of the Modi group. MACL arranged unsecured loans for the dummies that had only Rs 200 as share capital. These factors prompted the department to send show cause notice to MACL. The company maintained that the three companies were separate entities. However, the department imposed duty and penalty. The company moved CEGAT, which quashed the order. So the commissioner appealed to the Supreme Court. It accepted the contention of the department. “When the corporate veil is lifted, what comes into focus is only the shadow and not any substance about the existence of the three companies independently,” The judgment observed, that “suppression of material features and factors has been clearly established.” The statements of the directors showed that the whole show was controlled, both on financial and management aspects by MACL. “If these are not sufficient to show interdependence, probably nothing better would show the same,” the Supreme Court remarked, describing the CEGAT judgment as indefensible.

Conclusion:

The act of piercing the corporate veil until now remains one of the most controversial subjects in corporate law, and it would continue to remain so, even for the years to come. It is important to note at the outset that the courts are generally unwilling to pierce the corporate veil. The policy rationale is that the constant recognition of a corporate personality promotes stability as otherwise investors and business people would be unable to predict when the corporate form would be respected.  It appears that the courts will pierce the corporate veil only where required by statute or where extraordinary circumstances exist. By and large, as discussed above, the doctrine of piercing the corporate veil remains only an exceptional act orchestrated by courts of law. Courts are most prepared to respect the rule of corporate personality, that a company is a separate legal entity from its shareholders, having its own rights, duties, and liabilities.

As we move from jurisdiction to jurisdiction across the globe, it’s application narrows down to how that system of the law appreciates the subject. Common law jurisdictions are examples par excellence where the piercing of the corporate veil has gained notoriety. However, in India the principle of lifting of corporate veil is still in its transitory stage and the courts generally appreciate every case by its merits. The above notwithstanding, there are general categories such as fraud, agency, sham or façade, unfairness and group enterprises which are believed to be the most peculiar basis under which the Indian law courts would pierce the corporate veil. But these categories are just a guideline and by no means far from being exhaustive.

The Instrument

The polygraph instrument usually measures four to six physiological reactions recorded by three different medical instruments that are combined in one machine. The three components of the polygraph instrument include the cardio-sphygmograph, the pneumograph and the galvanograph. The cardio-sphygmograph measures heart rate and pulse. The pneumograph measures chest activity and upper body movement and the galvanograph measures sweat gland activity.

In the cardio-sphygmograph component of the polygraph, a blood pressure cuff is wrapped around the subject’s arm. During questioning the cuff remains inflated. The movement of blood through the subject’s veins generates a sound that is transmitted through the air in the cuff. The magnitude of the sound relates to the blood pressure and the frequency of the changes in the sound relates to the heart rate.

The pneumograph component of the polygraph records the subject’s respiratory rate. One tube is placed around the subject’s chest and a second is placed around his or her abdomen. The tubes are filled with air. When the subject breathes, changes in the air pressure in the tubes are recorded on the polygraph

The galvanograph section records the amount of perspiration produced. It consists of electrical sensors called galvanometers that are attached to the subject’s fingertips. The skin of the fingertips contain a high density of sweat gland, making them a good location to measure perspiration. As the amount touching the galvanometers increases, the resistance of the electrical current measured decreases and these changes are recorded by the polygraph.

Older polygraph machines were equipped with long strips of paper that moved slowly beneath pens that recorded the various physiological responses. The newer equipment uses transducers to convert the information to digital signals that can be stored on computers and analyzed using sophisticated mathematical algorithms.

Phases of Polygraph test

There are three phases of the polygraph test:

1. Pre-test

This is the first step. Without carrying out this test, the subject cannot be asked to undergo the subsequent tests. It is the foundation step of the polygraph test. In this stage the examiner spends a lot of time to interact with the subject. The examiner builds a baseline on the subject’s emotional state and develops the questions that are going to be asked from the subject. Before the test begins, the examiner goes over each question with the subject so that he or she knows what exactly to expect.

2. In-test

In this step, various tests are conducted. The questions are asked in a mixed order. The examiner asks “relevant questions” and “control questions”. Relevant questions relate directly to the focus of the polygraph test whereas control questions generally evoke an emotional response. In this stage if the physiological responses to the relevant questions are greater than to the control questions, that will indicate deceptive behaviour.

3. Post test

In this stage charts are prepared and are numerically scored. The results are given to the examinee. There is a discussion of the results whether further interrogation is needed or not.

Analysis

Polygraph testing is based upon deception. The polygrapher needs to be able to deceive the subject without the subject getting any hint of the deception. The effectiveness of the polygraph is based on fear and intimidation. The results of the polygraph are based on interpretation. This means that the polygrapher’s biases and preconceptions will also influence and effect the results. A person who is guilty may be able to pass the test and because of that he may be considered innocent. This generally happens when the subjects have tremendous control over their physiological responses and know how to employ countermeasures. Having said that it may also be a case wherein the subject may be innocent but he fails the polygraph due to nervousness, fear, etc and because of which he may be deemed guilty. The polygraph is an instrument which is far from infallability and thus the results may not be in the best interest of either the parties or the judicial system as a whole. Since the examiner is trained to deceive the subject, failure on the part of the examiner to deceive the subject may lead to injustice. The employment of human personnel may lead to errors and it is not decisive that the subject will fail. We have to keep in mind the fact that the examiner and the subject are also humans and it is not hard for a particular human mind to overpower the other and because of this, the reliability of the polygraph comes under the scanner. Efforts need to be made to make the polygraph a full proof method without any loopholes as we cannot deny that a mechanism such great as polygraph, if made infallible, can be a boon to the judicial system. It can be a great source for collecting information as evidence especially in cases where the circumstantial evidence and other factors are not conclusive and decisive. Even though the polygraph suffers from many drawbacks, still it is widely used in countries like U.S.A and Japan. In India, there is no provision in the Code of Criminal Procedure, Evidence Act and the Indian Constitution to accept the results of the polygraph test. If a full proof mechanism can be developed then I would not be surprised to see it being employed in countries across the globe. A mechanism need to be developed to aid justice and not hamper or obstruct the achievement of justice. I feel that it is inaccurate and an unreliable way of separating truth from deception. To place trust in it, as of now, would not only be foolish but it could also be dangerous.