ABSTRACT

The article is written by Naman Jain pursuing BBA-LLB from Bennett University, Greater Noida. This article endeavours to demystify the key concepts of force majeure and the repercussions of Covid-19 on contractual obligations. This article insights into the legal permissibility of this clause in the current scenario and highlights the elements to be considered before the invocation or while defending a force majeure claim.

“LAW AND ORDER ARE THE MEDICINE OF THE BODY POLITIC AND WHEN THE BODY POLITIC GETS SICK, MEDICINE MUST BE ADMINISTERED”
~ DR. B.R. AMBEDKAR

INTRODUCTION

The continuous spread of COVID-19 has forced the country into a conspicuous uncertainty. Global disruptions are evident in the business and commercial sector. A significant population of the world has been put under lockdown. Due to this, operations carried by various businesses have been hindered and fulfilment of contractual obligations has been greatly impacted. The disruptions in the supply chain will lead to delay, interruption, or even cancellation of many contracts. As businesses are making plans to address this international emergency, this article provides guidance to inform strategic decision making in accordance with the contractual relationships. To escape from the contractual penalties arising due to missing project deadlines, non-payment, etc as a result of the pandemic, parties to contracts are bringing word like “Force Majeure” in use.

WHAT IS ‘FORCE MAJEURE’ ?

The French phrase means a “superior force”, is a law U/S 32 and 56 of Indian Contract Act, 1872. Black Law Dictionary defines it as “In the law of insurance, superior or irresistible force. Such clause is common in construction contracts to protect the parties in the event that a part of the contract cannot be performed due to causes which are outside the control of the parties and could not be avoided by the exercise of due care”. It is a provision that protects a party in contractual agreement from liability for its failure to function the contractual obligations. It is an expressed provision in contract law which describes an extraordinary event involving circumstances beyond human control as an act of god or a superior force. Further, this clause frees both the parties from a contractual liability when some specified or uncertain events beyond human control obstruct the carrying of obligations under the contract.

As mentioned in the clause, this exhaustive list contains events like wars, riots, fire, flood natural calamities, lockouts, famines, and govt. action affecting any party to function or perform the pre-decided obligations under the contract cause its frustration or impossibility. The clause provides relaxations to perform the contractual obligations, but it does not entirely excuse a party from a contract. Moreover, it suspends the contract for the duration of that superior force. However, if this superior force continues to dominate for more than a specified period, the clause gives the power to both the parties to terminate the contract without any financial effects on either party.

Force Majeure principle is ruled by chapter 3 of the Indian Contract Act dealing with the contingent Contract. S. 32 of the act defines this Supreme power whereas S.56 is a rule of positive law which mentions about frustration. ‘Impossible’ or ‘Frustration’ is only confined to something which is beyond the control of both the parties and not to the literal impossibility to perform i.e. strikes or commercial hardships as held in the case of Satyabrata Ghose V. Mugneeram Bangur.

The Supreme Court in the case of Naihati Jute Mills Ltd. v. Hyaliram Jagannath held that “A contract is not frustrated merely because the circumstances in which it was made are altered. The Courts have no general power to absolve a party from the performance of its part of the contract merely because its performance has become onerous on account of an unforeseen turn of events.” The capacity to invoke the clause depends on the nature of the contract as well as the wordings of the contract. Therefore, with respect to the pandemic situations, implications of the above provisions would be dealt by the adjudicatory bodies on case to case basis.

FORCE MAJEURE AND COVID-19

The Ministry of Finance has clarified the doubt stating that disruption in supply and production chains due to the spread of coronavirus has to be considered as a case of natural calamity and Force Majeure clause may be invoked wherever appropriate according to the circumstance and nature of the contract. Many of the contracts are such in India that do not says explicitly to invoke the benefits of Force Majeure clause. Whether a contract on the account of Covid-19 has the capability to invoke the benefits of this clause is a fact-specific determination that totally depends on the nature of the obligations involved and the specific terms of the contracts. If in case the contract formed by the party does not involve ingredients of Force Majeure, then the party can claim under the “Doctrine of Frustration” U/s 56 of the Indian Contract Act, 1872. This doctrine makes the party excusable if the whole contract becomes impossible to perform. ‘Frustration’ and ‘impossible’ are often used interchangeably.

Force Majeure is an element of a contract being strict in nature while the doctrine of frustration is a common law concept.

In the light of the current situation, the lockdown has been imposed in India restricting the performance of some contracts. As the lockdown is imposed by the Govt. and is construed as an order of the Govt. Therefore, the party having the obligations to perform can issue a notice saying that such an event has occurred i.e. lockdown which is beyond its control and therefore, the provisions of Majeure clause can be triggered giving relaxation to the party by suspending the party till the supreme force i.e. lockdown gets over.
Further, the contracts made before lockdown between 2 parties involving advance payment and non-performed obligations which is impossible to execute at this time of lockdown in the purview of S. 56 of Indian Contract Act become void and the party who had paid advanced can claim for a refund as the one who received the payment in advance is bound to pay back the amount.

KEY ASPECTS WHILE INVOKING/DEFENDING FORCE MAJEURE

Keeping a track of the events that would be in accordance with the ingredients of the clause based on the contractual understanding of the parties and the nature of the contract. The list of the above events can be exhaustive or non-exhaustive in nature.
Actions that have to be taken to invoke the Force Majeure clause should be informed prior, with an issuance of notice to the opposite party.
Repercussions of the Force Majeure events, mitigation strategies, relaxations to be provided in performance and issues dealing with suspension or delay of standard quality performance should be analysed thoroughly.
Mindfulness of businesses in knowing that economic hardships i.e. higher cost of performing the obligations under a contract will not be a strong ground to assert Force Majeure clause or Frustration principle as a defence.

In the English case of Tsakiroglou & Co. Ltd. v. Noble Thorl GmbH, the facts comprise of a ship that needs to perform sale of coconuts by transporting it from one place to another. The contract was made but later at execution, it was found that the canal to be used on the customary route was closed. Despite knowing the fact, it was held that the above contract of sale of coconut cannot be considered impossible to perform and hence there was a way for the ship to travel from another passage being 3 times longer than the usual one. Economic hardship that was faced by the ship hence, failed to become a ground for frustration to contract. Therefore, the party failed to get the defence under this principle. The above view of the law was also stated in ‘Chitty on Contracts’, 31st edition. Further, the view of not to trigger Force Majeure clause unless an alternative way is available was evident in ‘Treitel on Frustration and Force Majeure’.

Moreover, legal advisors should be contacted by the parties to have a clear view of the sector they are involved in and the specific events and provisions being invoked to avoid any ambiguity later. Some cases where negligence or malfeasance of a party is seen, those are intended to get the benefit of the above clause. Understanding of the loopholes in law enforcing Force Majeure provisions with the guidance of legal practitioners would help in serving the justice better minimising the misuse of such benefit providing provisions of the law.

OTHER FACTORS AFFECTING FORCE MAJEURE CLAUSE

It would be important to note that the burden to proof of special circumstances, the events under the list of Force Majeure or Frustration principle and the mitigation assurance to be provided is on the party asserting Force Majeure defence. The liability is on the asserting party to prove the existence of Force Majeure conditions. Such clauses are construed strictly by Courts. Force Majeure clause is expressly provided and not implied under the Indian Law. Expressly means that courts will apply usual principles of contractual interpretation as per the scope of the clause to make decisions regarding the protection to be provided to the parties of the contract.

Parties can also attempt to invoke other contractual clauses. For instance, Material adverse Change (MAC) clause, price adjustment clauses, limitation and exclusion clauses to limit or minimise the burden of non-performance. Moreover, the companies can also consider the ramification of non-performance clauses to clarify the liquidity of damages and the amount of compensation for non-performance of contract which is pre-determined and agreed between the parties before making a contract.

REMEDIES

Remedies to the clause depends on the nature of contracts. For instance, some contracts may provide immediate cancellation, or some may put the contract on hold. Some may give leniency in time or in standard quality of performance. In the verdict of Alopi Parshad & Sons Ltd. v. Union of India, it was ruled out that the Indian Contract act does not enable a party to a contract to disregard their expressed statements made earlier and to claim compensation for the non-performance of a contractual obligation which was made at rates different from stipulated rates, on an indeterminate plea of equity. Irrespective of any sudden price hikes or market inflation or deflation, the party to a contract does not itself get rid of the bargain they have made and is liable to perform the obligation until proven in the Court that the above performance is ‘impossible’ or ‘impracticable’.

MITIGATING THE CURRENT CIRCUMSTANCES

With COVID-19 effects all over the globe, Life Insurance companies also have the right to invoke Force Majeure clause and escape the liability of paying the claims to the clients.

TURNING POINT

Insurance companies being private or public, have stated that they will not invoke this clause in cases of COVID-19 related death claims and will process them as fast as possible. This step was taken to assure the premium payers, that the Life Insurance industry is taking every possible measure to mitigate the disruptions and the suffering being caused, due to the lockdown. Further, the company will be providing the clients with maximum digital support to honour COVID-19 death claims in accordance with the “social distancing” rules. A grace period of 30 days is bring provided by the company to pay their premiums. Relaxations in settlements of policy is being given due care and attention to keep the policyholders at ease. All the other special charges are exempted except the fund management charge. Options like partial withdrawal and switching of accounts will be restricted during the settlement period. Other insurance companies will be providing maximum support to cover the loss arising due to special unsure circumstances in the various businesses. Policyholders are falling largely on ‘Force Majeure’ and ‘Act of God clause’.

AROUND THE WORLD

COVID-19 virus arising from the Virus ology labs of China has already made the country to work on the problems arising due to non-performance of Contracts. China Council for The Promotion of International Trade (CCPIT) has already provided thousands of Force Majeure certificates to businesses, relaxing the difficulties in performing the specified obligations of their respective contracts. It is right to conclude that the invocation of the Force Majeure clause has been successful in China. If the clause is a failure to some of the businesses, then those companies can go for the provisions governing non-performance of contract due to impossibility or impracticability also known as ‘Frustration’ to contract as mentioned in the Uniform Commercial Code (UCC) of China.

In India, Department of Expenditure, Procurement Policy Division, Ministry of Finance discharged an Office Memorandum on February 19, 2020, with regard to the Government’s ‘Manual for Procurement of Goods, 2017, which sets out the direction for procurement by the government. Further, it states that COVID-19 could be brought under Force Majeure clause based on ‘Natural calamity’ providing that ‘due procedure’ has to be followed.

CONCLUSION

COVID-19 is having an unforeseeable impact on businesses and the companies. It has restricted the parties to perform their contractual obligations, leading to a decline in the economy. As discussed in detail, Force Majeure is an express provision and invoking it for the purpose of invocation or as a defence, depends on the nature of a contract, impossibility to perform, alternativity to perform and various other circumstances that are different in different cases and would be assessed by the Courts on a case by case basis. Contracting parties must go through the language of the contract so formed by them and the various provisions regarding them. This would help in determining the plausibility of their success. Presently, massive challenges are being faced by the society. The hope for everyone is that the wrecks of COVID-19 will go by swiftly.

REFERENCES

https://www.bloombergquint.com/opinion/coronavirus-key-legal-issues-for-india-inc-with-covid-19
https://www.wsgr.com/en/insights/covid-19-and-force-majeure-clauses.html
https://amlegals.com/covid-19-force-majeure/
https://www.mondaq.com/india/litigation-contracts-and-force-majeure/918092/time-it-or-time-out–force-majeure
https://www.business-standard.com/article/companies/life-insurers-will-not-invoke-force-majeure-clause-for-covid-19-claims-120040601452_1.html
https://www.lexology.com/library/detail.aspx?g=d63bbf8d-64ec-4595-ab87-633934115ab0

LATEST POSTS

EVENT: Online Internship Opportunity
HOST: Videaim IP
STIPEND:3000
DURATION: 30 days
NO OF SEAT VACANT:2
CONTACT INFO.
Email.id-infovideaimip@gmail.com

REGISTRATION: To apply click on the link

https://www.videaimip.com/contact.html

FOR FURTHER INFO: click on the website link

https://www.videaimip.com/

EVENT: Virtual Dialogue Session
ORGANISER: Bar Council of Punjab and Haryana
DATE : May16th 2020
TIME: 4 p.m
TOPIC: challenging and Enforcing domestic arbitral award in India and International Arbitration during COVID-19
KEYNOTE SPEAKERS:
Mrs justice Indu Malhotra: judge Supreme Court of India
Dr Anmol Rattan Sidhu senior advocate and founding member of ICADR
Professor Lawrence boo: head the arbitration chamber and first CEO SIAC Singapore
Mr Rajeev Bhatnagar: business expert and manager managing committee PHDDCI

REGISTRATION click on the link

https://register.gotowebinar.com/webinarOver

This article is written by Deepika, pursuing BA-LLB from IIMT & School of Law, GGSIPU, Delhi. In this article, she has discussed ‘kidnapping’ and ‘abduction’ which are offences punishable under the Indian Penal Code along with this, she has also discussed the difference between both the offences.

INTRODUCTION

‘Kidnapping’ and ‘Abduction’ are offences which take place all over the world. From North-America to Asia, the governments are working hard in order to deliver justice by prosecuting the perpetrators. Kidnapping and Abduction are mainly done in return for something which could be anything ranging from money to making others do acts which are illegal in nature to save their loved ones and bring them back home safely.

In our country ‘Kidnapping’ and ‘Abduction’ are increasing at an alarming rate creating a concern both for the government and society. The reason for the seriousness of these two crimes is that they lead to various other crimes and in most cases, their common targets are women and children.

Both these offences of kidnapping and abduction are covered under Chapter XVI of IPC titled ‘of offences affecting the human body’. Apart from the general definition, the Indian Penal Code has given a wider spectrum to define the terms.

Kidnapping

Section 359, 360 & 361 of Indian Penal Code deals with ‘Kidnapping’.

Section – 359, IPC states that Kidnapping can be classified into two kinds ‘Kidnapping from India’ or ‘Kidnapping from Lawful Guardianship’.
Section – 360, IPC states that whoever conveys any person beyond the limits of India without that person’s consent, the person who takes such person is said to kidnap that person from India.
Section 361, IPC provides that when a person entices a minor (16 years for male and 18 years for female) or a person of unsound mind, the person so enticing will be held liable for kidnapping such minor or person from lawful guardianship.

Essential ingredients of the section are

Taking or enticing away a minor or a person of unsound mind by someone
Such a minor must be under the age of sixteen years, if a male, or under eighteen years, if a female;
The taking or enticing must be out of the keeping of lawful guardian of such minor or person of unsound mind,
Such taking or enticing of the minor must be without the consent of the lawful guardian.

Taking or enticing

To prove the presence of taking or enticing element it is required to show some active part played by the accused.

In S Varadarajan v. State of Madras a girl who was on the verge of attaining majority, voluntarily left her father’s house, arranged to meet the accused at a certain place and went to the sub- registrar’s office, where the accused and the girl registered an agreement to marry. In this case, the accused had not ‘taken’ her out of the lawful guardianship of her parents, as there was no active part played by the accused to persuade the girl to leave the house. It was held that no offence under this section was made out.

The word ‘entice’ embodies the idea of inducement or pursuance by offer of pleasure or some other form of allurement.

Keeping of lawful guardian

The expression lawful guardian is much wider term than the expression legal guardian. Lawful guardian includes in its meaning not only legal guardians, but also such persons like relatives, teacher who are lawfully entrusted with care and custody of a minor.

In the State of Haryana v. Raja Ram, the court observed that the word keeping connotes the idea of charge, protection, maintenance and control. Out of keeping of lawful guardian means away from parental roof or control.

Age of Minor

As per the section, the age of a minor child at the relevant point of time should be less than 16 in respect of a male, and less than 18 in respect of a female in order to constitute an offence under this section.

In the State of Haryana v. Raja Ram, the prosecutrix was a young girl of 14 years she was constantly persuaded by one Raja Ram to leave the house and come with Jai Narain, who would give her a life full of a lot of material comforts. The question before the Supreme court was whether Raja Ram could be said to have ‘taken’ the minor girl since she willingly accompanied him.

The Supreme court held that persuasion by the accused person which creates willingness on the part of minor to be taken out of the keeping of lawful guardian would be sufficient to attract the section.

Abduction

Section-362, Indian Penal Code deals with ‘Abduction’

Section 362 of the Indian Penal Code states that if a person either by force compels a person or induces another person to go from any place is said to abduct such person.

Essential ingredients of this section are

Forcible compulsion or inducement by deceitful means.
The object with which such compulsion or inducement caused must be to make a person go from someplace.

DIFFERENCE BETWEEN KIDNAPPING AND ABDUCTION

Society very frequently uses both the terms ‘Kidnapping’ and ‘Abduction’ synonymously as if they were the same thing. The reason behind the confusion is because there’s a thin line difference between both the terms. Following are the differences between the terms ‘Kidnapping’ and ‘Abduction’, which makes both the terms different from each other:

Age

Kidnapping from guardianship is committed only in respect of a minor (16 years old, in case of males and 18 years old, in case of females) or a person of unsound mind.
Abduction may be in respect of a person of any age. Any person by force compelled or induced any other person to go from any place irrespective of the age shall be booked with abduction.

Removal From Lawful Guardianship

In Kidnapping, a person is taken away from the guardianship of a person who has been authorized by law to take care of the person who has yet not attained the age of majority.
In Abduction, concerns the person who has been abducted, there’s no involvement of a lawful guardian.

Means

In Kidnapping, the means used are irrelevant.
In Abduction, means of force, compulsion and deceitful means are used.

Consent

In Kidnapping, the consent of the person taken away has no significance, as the person being kidnapped is a minor, who’s incapable of giving a ‘free consent’
In Abduction, person condones the offence of abduction.

Continuity of crime

Kidnapping is not a continuing offence. It is complete, the moment a person is removed from India or from the keeping of lawful custody of the guardian.
Abduction is a continuing offence. It continues as long as the abducted person is removed from one place to another.

Punishment

Kidnapping is substantive offence, punishment for kidnapping is given in Section – 363, where a person shall be punished with imprisonment of either description of a term which may extend to seven years and in addition, he will also be liable to fine.
Abduction is an auxiliary act. It becomes punishable only when it is done with either of the intents specified in Section – 364 to 366.

Conclusion

So, after going through all these points, we can say though they are differences between Kidnapping and Abduction. But, both the offences have a detrimental effect upon the society. The victims of such offences goes through a traumatic experience. Though the crime itself may have ended but its manifestation in the mind of the victim remains there for a long time.

Reference

PSA Pillai 13^th Edition
K D Gaur 6^th Edition
NCRB report 2018

Latest Posts

Archives

This article has been written by Mansi Tyagi, a student at Symbiosis Law School, Pune. In this article, taking cognizance of the different sections of the Companies Act’ 1956, she has discussed the procedure and steps concerning a company meeting and the different types of company meetings.

What is a Company Meeting?

Generally, a meeting can be defined as “a gathering, assembling or coming together of two or more persons for the objective of discussing lawful business. Companies Act, 1956, nowhere defines a meeting. But, if we are to further define a company meeting on the pretext of the meaning of a meeting, then it is this gathering whose participants are the members of a company, a meeting is often a formal setting. For any company meeting to take place, it is important that there is a quorum of members who come together on a previous notice for discussing a lawful common business interest. Therefore we can conclude requisites for a valid company meeting as:

Two or more than two members;
With an objective of the meeting – discussion on common business interests;
Through a previous notice;
At a particular place, date and time;
As per the provisions of the Companies’ Act.

However, it is important to note that in a few exceptional cases one member meetings are also declared to be valid. For example, where there is only a single shareholder in a company, he can alone hold a valid meeting. On similar lines, this goes for situations where there is a single creditor or board of director for the company. Except for these exceptions, the requisites cannot be compromised with.

What is the Procedure for any company meeting?

For any company meeting to validly happen it is important that the procedure laid down by the Companies’ Act is followed. Section 170 of the Companies Act’ 1956 states that the forthcoming sections i.e. Sections 171-186 shall apply to every general meeting of any public or private company. These steps can be briefly enlisted as:

Notice (Sections 171-173)
A Quorum (Section 174)
A Chairman (Section 175)
Proxies (Section 176)
Voting procedure (Sections 177, 179-185)
Result (Section 178)
Power of Tribunal to call a meeting (Section 186)

Thus, now we will read into the detailed requirements of each step for a general meeting:

1. Notice

Notice prior to the meeting is the most important prerequisite for any meeting. Section 171 lays down that a notice is to be served to the joining members of a meeting twenty one days prior to such meeting. However the same can be reduced at the admissal of the members to such modification. Every notice by virtue of Section 172 of the act shall specify the itinerary of the meeting including the agenda for the meeting. These notices shall be served in writing to all the members of the company at their residences. Also in case any member’s death or insolvency, the same shall be addressed to the person entitled to such member’s shares. Section 173 requires such notices to be annexed with an explanatory note concerning the ‘special’ business to be discussed in the meeting. However, in case a member is ‘accidentally’ omitted this serving of notice, the meeting shall not get invalidated ipso facto.

2. Quorum and Chairman

Section 174 of the act constitutes a quorum of five persons in case of a public company and two when it is any other company. If within half an hour of the commencement of the meeting there is no quorum constituted, it will dissolve the meeting arranged for. Likewise, section 175 of the act lays down the requirement of a chairman for the meeting. The members present shall elect a chairman for the forthcoming meeting. This election shall be a simple show of hands. Once a member is thereof elected, he acts as the chairman for the whole meeting.

3. Proxies

Every member by virtue of section 176 of the act is empowered to appoint any other person as his proxy for the meeting. However, such proxy’s powers are limited to voting on polls. He at no instance can speak his opinion at the meeting. Also, such empowerment is prohibited in case of companies with no share capital. Likewise, members of private companies are limited to use only one proxy per occasion. The member appointing any proxy has to provide a duly signed written proxy authorizing the proxy to vote in his place and be deposited to the company before forty-eight business hours of such meeting.

4. Voting

In case of companies with share capital, any member or proxy present in person can ask for voting on a particular motion; which the same section 179 lays that in companies with no share capital, one member or a proxy in presence of less than total seven members and two members or a proxy in presence of more than total seven members can ask for the voting initiation. After such demand is made under section 179, there shall be a polling procedure by show of hands by virtue of section 177. The Chairman shall then state conclusively if the resolution was to be carried out. The same is to be noted down in the minutes’ book of the company as per section 178. However, section 183 lays down that there is no hard and fast rule for the members or the proxies to use their multiple votes in the same manner. Later, section 180 lays down that in case of a decision on adjournment the polling shall be conducted instantaneously once asked for, while in any other cases such polling shall be conducted within forty-eight hours of such demand. Section 181 and 182 on the other hand put restrictions on these polling rights of the members. Through the former, the company can restrict the defaulter members from voting who are yet to pay on their shares or when their shares are under a right of lien by the company; while through the latter the company can restrict the members who did not hold shares preceding the voting or any other ground not specified in the former section. To scrutinize the votes, under section 184, the chairman is empowered to appoint two scrutineers amongst whom one has to be the member present at the voting.

5. Result of the voting

Finally, section 185 of the act lays that firstly, it is the chairman who decides the manner of polling. Secondly, he then declares the result of the polling. And finally, the result of the polling shall be deemed to have been the result upon the proposed resolution in the meeting.

However, an exception to this usual procedure is section 186 where instead of the board, the tribunal calls for the meeting. As empowered by Section 186^[1] and solidified by cases like ‘R. Rangachari vs. S. Suppiah and Ors.’^[2] in situations where it is ‘impracticable’ for the board to call for meetings other than annual general meetings, the National Company Law Tribunal has the power to call for such meetings either at its own, or on the requisition of a director or even a single eligible member to ask for a requisition. Such meetings will also have a status similar to those held on requisitions by members of the board.

What are the types of company meetings?

Company meetings can be divided into three: Shareholders’, directors’ and special. These three categories further diversify into eight more. Firstly, Shareholders’ meetings consist of Statutory meetings, Annual general meeting and Extraordinary general meeting. Secondly, the Directors’ meetings consist of Board meetings and Committee meetings. Lastly, Special meetings are made of Class meetings, Creditors’ meetings and Debenture Holders’ meetings.

Shareholders’ Meetings

1. Statutory Meetings

Statutory meetings are the first general meetings of any public company after they become entitled to business. Section 165^[3] of the Companies Act, 1956, defined statutory meetings as the one which shall be conducted between one to six months from the date of commencement of business. Additionally, such a company shall be one limited by shares or guarantee with a share capital. Also, the nature of such meetings is to be general. The section further puts down the requirement of a statutory report which needs to be forwarded to all the members twenty one days before the meeting is held. This report is required to have all the information related to the companies’ shares. For eg. the distribution of shares, payments made against each share sold, etc. The members can cast their votes and discuss matters enlisted in the notice served prior to the meeting. However, in no case can there be a discussion on matters not enlisted in such notice. Also, statutory reports are supposed to be registered with the registrar office after its copies are sent off to all members. However, none of these requirements is imposable on private companies or public companies which are not limited by shares or guarantees with shares.

2. Annual General Meeting

Annual general meetings, as the term suggests, are held once in a year by companies irrespective of having a share capital. Section 166^[4] of the Companies’ Act, 1956 lays down that apart from other meetings, an annual general meeting should take place in every company irrespective of its nature, whether public or private. Additionally, there must not be a gap of more than fifteen months between two annual general meetings. However, there are two exceptions to this condition. Firstly, if it is the first annual general meeting after the inception of the business, the fifteen-month gap can be extended to an eighteen-month gap. Secondly, this period can be relaxed for another three months if the registrar office permits owing to special reasons. There is one more facet to such meetings: Annual Returns. In the case of ‘Anita Malhotra vs. Apparel Export Promotion Council and Ors.’^[5] section 159^[6] was given clarity in the sense that it required companies with share capital to submit their annual returns within sixty days of their annual general meetings to the registrar office. Such returns shall include details of directors, shareholders, debts, debenture-holders, other members and the registered office. Generally, such meetings are to be held on an official day during business hours in the registered office or anywhere in the city where such office was located. Section 168^[7] of the act imposes fine in case there is a default in complying with annual general meetings despite the instructions and notice being served without a reasonable cause.

3. Extraordinary General Meeting

Section 169^[8] of the Companies Act, 1956 lays down the rules for an Extraordinary meeting. Meetings held between two annual general meetings are called Extraordinary general meetings. These meetings are called upon by members for discussing urgent matters that fall outside the general scope and cannot wait until the next annual general meeting. In companies with share capital members holding one-tenth paid-up share capital can send a requisition for convening the meeting to the board of directors. And, in companies with no share capitals, one-tenth of members having the right to vote can ask for similar requisition. For any or every matter to be taken up in the meeting, the requisitioners must sign the requisition and send it off to the registrar office. If a meeting is not called within twenty-one days of such requisition submission, the requisition makers can themselves call the meeting.

Directors’ Meetings

1. Board Meetings

Section 285^[9] of the Companies Act, 1956 rules out that every company shall have a board of directors’ meeting every three months annually. Thus, each company is required to observe four board meetings each year with a three-month gap in between. The notice of every such meeting shall be given to each director in writing at his place of residence^[10]. Such notices are to have the specified businesses to be discussed in the forthcoming meeting. In no case can a director waive this requirement. The objective of such meetings is to ensure that the directors are well-aware of the business proceedings going on in the company. However, the requirement of four meetings yearly can be relaxed by the central government for certain classes of companies. Also, the act under section 287^[11] requires for a formation of a quorum of either minimum of two directors or one-third of the total strength, whichever is higher. Usually known as ‘Standing orders’, each company has the power to lay down rules concerning the itineraries of the Board meetings. These meetings are generally held to discuss the development of the company and any other major issue of the company.

2. Committee Meetings

Committee meetings are a dilute form of board meetings. Here instead of the board of directors, the committee of directors made in the board come together for a meeting. Generally, the board delegates the powers to its committees to organize work. For eg., a board might consist of one committee that solely takes care of finances and another that takes over completely of workforce issues. These committees are formed on the lines of the articles of the company and follow the same procedure as that of the board for meetings.

Special Meetings

1. Class Meetings

The shares that a company holds are all of the different kinds. So when shareholders of a particular class arrange for a meeting, it is called a class meeting. So when a company decides to give the bonus only to the equity holders of the company, the meeting that will be convened for the equity holders will be an example of a class meeting.

2. Creditors’ Meetings

These types of meetings are called by the directors when they propose to set a scheme for arrangement and compromise with its creditors. Section 391^[12] of the act empowers the company or the liquidator in case of winding up of the company to ask the tribunal to call for a meeting of creditors. In such meetings, if any proposal is passed with a three-fourth majority of the creditor value, then the same is held to be binding on all the creditors and the company. For the final order to be effectual, it has to be submitted to the registrar. In case the tribunal observes the impracticability to implement the order, it can ask for modifications by virtue of section 392^[13]. The peculiar feature of such kinds of meetings is that the procedure is directed by the National Company Law Tribunal directly.

3. Debenture Holders’ Meetings

The debenture trust deed lays down the procedure and principles concerning the debenture holders’ meetings. These meetings are arranged by debenture holders of a particular class. Also, these meetings are held whenever there is a concern regarding the rights and interests of the debenture holders.

Conclusion

Every general meeting has to undergo a specified procedure either mentioned in the Companies Act, 1956 or the articles of the particular company. There are as many as eight kinds of company meetings. And interestingly, any company meeting does not end in the meeting room with the polling rule. Instead, all the proceedings of the meetings are laid down in the minutes of the meetings’ book of the company. All such minutes are duly signed by the chairman present in the meeting. This helps in recording all the resolutions passed, motioned down or other details of the meetings for future reference of the company.

^[1] COMPANIES ACT, 1956 Section 186 – Power of Tribunal to order meeting to be called.

^[2] R. Rangachari vs. S. Suppiah and Ors., (1975) 2 SCC 605.

^[3] COMPANIES ACT, 1956 Section 165 – Statutory meeting and statutory report of company.

^[4] COMPANIES ACT, 1956 Section 166 – Annual general meeting.

^[5] Anita Malhotra vs. Apparel Export Promotion Council and Ors., (2012) 1 SCC 520.

^[6] COMPANIES ACT, 1956 Section 159 – Annual return to be made by a company having a share capital.

^[7] COMPANIES ACT, 1956 Section 168 – Penalty for default in complying with section 166 or 167.

^[8] COMPANIES ACT, 1956 Section 169 – Calling of extraordinary general meeting on requisition.

^[9] COMPANIES ACT, 1956 Section 285 – Board to meet at least once in every three calendar months.

^[10] COMPANIES ACT, 1956 Section 286 – Notice of meetings.

^[11] COMPANIES ACT, 1956 Section 287 – Quorum for meetings.

^[12] COMPANIES ACT, 1956 Section 391 – Power to compromise or make arrangements with creditors and members.

^[13] COMPANIES ACT, 1956 Section 392 – Power of Tribunal to enforce compromise and arrangement.

Latest Posts

Archives

EVENT: Online Internship Opportunity
HOST: Securities and Exchange board of India
PREFERENCE: •Student should have Completed atleast 3rd year of 5 year llb course and 2nd year of 3 year llb course
• The Applicants shall be a student of law recognised by BCI
• student pursuing LLM course are also eligible.
• the applicants should be secured a minimum 60% aggregate marks or equivalent CGPA in their previous semester
DURATION: internship shall not be less than 4 week
LAST DATE TO APPLY: 19th May 2020
FOR FURTHER INFO: Click on the link below

https://www.sebi.gov.in/legal/internship-program-in-the-legal-department/may-2020/online-internship-program-in-legal-department-during-covid-19-pandemic-commencement-of-internship-program-in-the-legal-department_46670.html

EVENT: Online Internship Opportunity
HOST: Legal Armor
PREFERENCE: 4th and 5th year law students
NO.OF INTERNS REQUIRED:4
DURATION: Minimum one Month but can extend
REGISTRATION FORM: click on the link below

https://docs.google.com/forms/d/e/1FAIpQLScWv6O1T304G5W72FdxF3ocXm7eNPkZpW2qqi8A2SUgNg3yoQ/viewform

FOR FURTHER DETAILS:Click on the link below

https://www.legalarmor.co.in/

This article is written by Sharat Gopal pursuing BA.LL.B from Delhi Metropolitan Education, GGSIPU. He has discussed the legal provisions that govern the corporate while giving loans, guarantees, securities or making investments.

Introduction

Before discussing about inter-corporate loans, it is important to understand what ‘corporate’ means. ‘Corporate’ literally means “a large company or group”. ‘Company’ in literal term means “commercial business”. There is a difference between ‘corporate’ and ‘company’. The main difference between them is the size. ‘Corporation’ is big business or entity whereas a ‘Company’ is a small business or entity.

In the business world, both the terms are treated alike, it is just the size that draws a line between the two.

Now there are some basic characters which all corporate companies possess, that is –

It is a legal entity and has all the rights and responsibilities that an individual has. It has to pay taxes, it can enter into contracts, it can file lawsuits and lawsuits can also be filed against it.
It has a board of directors who decide all the actions of the companies.
As a business entity, it has a separate existence from its owners.
Ownership of the company is divided into share know as “corporate stocks”, and the people who own them are called shareholders.

Company

The Indian Companies Act was amended a lot of times. The last amendment was made in 2013, and it is in current use. The Companies Amendment bill 2019 was introduced in Lok Sabha on July 25^th, 2019, which brings more changes to the act. As of now, the 2013 amendment is in use.

Section (2)(20) of the Indian companies act states the definition of “company”. It states that “company” means a company which is incorporated under this Act or any previous company law.

Every company has a board of directors, who take decisions for the company. As a company doesn’t have a natural existence, but has a legal existence. Therefore all the decisions of the company are taken by this board of directors.

Inter-Corporate Loans and Investments

For the better functioning of the companies, section 186 of Companies Act, 2013 was introduced. It brought a few modifications and changes in the concept of Inter Corporate loans and Investments made by the company. This act makes it clear, which company can or cannot give loans, security, or make investments.

When a company provides loan, security or guarantee to another company, it is known as inter-corporate loans. When a company invests in another company, it is known as inter-corporate investments.

A firm can provide loans, investments, guarantees or securities to other companies only after the board of directors have given consent to it.

Legal status

Section 186 of the companies act, 2013 deals with the loans and investments made by the company. Section 186(1), states that a company can make investments through not with companies more than 2 layers of investment companies.

Now “layer” is defined under section explanation (d) of section 2 (87) of the Companies Act. It states that “layer” in relation to a company means its subsidiary or subsidiaries.

Investment Company is a financial institution, whose primary activity is investing in securities. The principal business of an Investment Company is:

buying of shares
buying of debentures
buying of other securities

Cases where provisions of section 186(1) won’t affect:

When a company acquire any company which was incorporated outside India and that company had Investment subsidiary beyond 2 layers.
A subsidiary Company from having any investment subsidiary for the purpose of meeting the requirement under any law or under any rule or regulation framed under any law for the time being in force.

Others places where section 186 (1) is not applicable-

Section 186 (1) is not applicable to, Housing Companies, Insurance Companies, etc.
Companies whose primary business is buying and selling of shares, or security etc.
Companies acquiring shares on right issues basis, which is explained in section 62 (1)(a).
Government companies that operate defence production
Unlisted companies which are legally authorised by the govt authorities.

Amendments to the Act

Before the amendment of 2013, the Companies Act of 1956 was followed. Act of 1956 had a lot of problems, which were solved after the 2013 amendment. Section 372A, of the Companies Act 1956 dealt with the Inter Corporate Loans, Investments, Guarantee, Securities. After the 2013 amendment of the act, section 186 was introduced, this stated that there cannot be inter-corporate investments through more than 2 layers of investments. This was not required before the 2013 amendment. This restriction was used to keep a check on the misuse of multiple layers of subsidiaries for diversion of funds.

The act was amended again in 2017, which brought changes to section 185 and 186, which deals with loans to directors. With these modifications to the act, it was now more convenient for businessmen and investors to do business.

Section 186(2) talks about giving loans, securities etc. It states that no company shall directly or indirectly –

Give any loan to any person or other body corporate.
give any guarantee or provide security in connection with a loan to any other body corporate or person
and acquire by way of subscription, purchase or otherwise, the securities of any other body corporate

Which would be exceeding, 60% of its paid-up capital, plus free reserve, plus security premium account or 100% of its free reserve, plus security premium account, whichever is more.

Free reserve are the reserves which are there as per the latest audited balance sheet of the company.

Body corporate means a company corporate outside India, but should not be a corporative society which is registered under any corporative societal laws or any other body corporate not being defined under Companies Act or any authority.

Individual does not include a person who is underemployment of the same company.

Requirements mentioned in Section-186, Indian Companies Act

There are some criteria’s to be followed for having inter-corporate loans and investments. These are also mentioned in section 186.

Approval from members is mentioned in section 186(3). It states that the company can give loans beyond the restriction imposed in section 186(2), but only after prior approval by the members by special resolution passed at a general meeting.
Section 186(5), states that no loan or guarantee or security should be given by the company, until and unless it is sanctioned by the board of directors.
Section 186(4) states that the company has to disclose all its financial statements for loan given, an investment made, guarantee given, to all the members. Such disclosure should be in the board’s report also.
Section 186(6) states that no company which is registered under section 12 of Securities and Exchange Board of India Act,1992 and covered under such class or classes of companies, shall take inter-corporate loan or deposit, exceeding the prescribed limit and such companies must provide its financial statement in detail of the loan.
Section 186(10) states that every company must maintain a register which has all the details of loan given, guarantee given or security provided or investment made. This register must be open and shall be provided if demanded by the members on payment of fees prescribed.
Section 186(7) talks about the interest rate of the loan given. It states that no loan should be given below interest rate which is lower than the prevailing yield of 1 year, 3-year, 5-year or 10-year government security closest to the tenor of the loan.
Section 186(13) talks about the punishments imposed when there is contravenes in the provisions provided in the act. It states that if a company contravenes the provisions of the act, then the company is liable for a penalty not less than ₹25,000, which may also extend to 5 lacs. If an officer is at fault then he is liable for imprisonment for a term which may extend to 2 years and fine of ₹25,000, which may extend to 1 lac.

Summary

The above article explains the legal provisions by which inter-corporate loans are governed. It basically gives guidelines, how loans, guarantees, securities are given to other companies. This act also punishes companies and people, if they do not follow these laws.

Latest Posts

This article is authored by Pankhuri Pankaj, a 2nd year student pursuing her BA-LLB degree from Vivekananda Institute of Professional Studies. She is currently interning with Lexpeeps. This article summarises certain key provisions of “attempt to suicide and abetment to suicide” under the Indian Penal Code and is qualified in its entirety by reference to the Indian Penal Code, 1860.

INTRODUCTION

In simple terms, if one may attempt to define the term suicide, it is the act of taking one’s life voluntarily. It is the practice of doing away with one’s life by themself. Currently in India suicide have unfortunately become a very common sight to come across and the suicide rates can be seen to be increasing at an alarmingly high rate, especially in the student community due to high competitiveness, anxiousness, stress, and fear of failure. In India, every life is considered precious and has been dignified with the right to life and not even the person who is in possession of that right is granted to violate that fundamental right. It is important to know that in India not suicide in itself but offences like attempt to suicide and abetment to suicide are considered penal offences liable with punishment.

ATTEMPT TO SUICIDE

Till 2017, under section 309 of the Indian Penal Code, 1860, attempt to suicide has been defined as a punishable offence. This section lays down that a person shall be liable with the punishment of simple imprisonment for a term which may extend to one year or with a fine, or both, if he attempts to commit suicide and does any act towards the commission of such offence.

This section can be made applicable for only those who fail to commit suicide and survive the attempt to suicide, those who succeed in committing suicide obviously cannot be charged under this offence since they seize to exist. This section makes the person accountable for attempting to take a life, even though it’s his own, and sets an example for others to not commit the same offence.

This particular section has been the centre of multiple debates across the nation where the validity of section 309 has been discussed on an elaborate level. Broadly these debates were divided into two parts, on one hand, it was felt by many that it was inhumane to punish a person who had already hit rock bottom and tried to take his own life. It was understood as cruelty and was believed to further encourage that person to succeed in the act of committing suicide which he failed earlier. On the other hand, it was argued that Article 21 of the constitution graciously rewards the people with the right to live with dignity and have a right over their life but nowhere the right to take one’s own life has been granted as a right. Punishment for individuals who attempt to commit suicide was rather seen as a preventive measure to lower the rates of suicide.

After weighing all the arguments raised on the legality and morality of Section 309, various Law Commission Reports were approved and finally, the Supreme Court decriminalized Attempt to Suicide under Medical Health Care Act, 2017.

In the case of State v. Sanjay Kumar Bhatia (1985 CriLJ 931) for the first time, decriminalization of Section 309 was favoured. The Delhi Court highly condemned Section 309 and said that the continuance of Section 309 I.P.C. is unworthy of human society like ours and has no justified right to continue to remain on the statute book. It further sympathised with the fact that a person who was unfortunately driven to such frustration so as to seek his life to escape human punishment is hounded by the police for his failure rather than being attended by a psychiatric clinic is nowhere justified.

In the case of Maruti Shripati Dubal v. State of Maharashtra (1987 CriLJ 743), the Bombay High Court held that Section 309 is directly contrary to the provisions enshrined under Article 14 and 21, which lay out the ideals of equality before law and right to life. The court ruled that under Right to Life under Article 21 also includes the Right not to Live and therefore punishing someone for attempting to suicide is violative of the right under Article 21.

In Rathinam v. Union of India (AIR 1994 SC 1844), the Supreme Court held that the right not to live a forced life is a part of life.

However, in Gian Kaur v. State of Punjab (AIR 1996 SC 946) the Supreme Court overruled the judgement given by the Delhi and Bombay High Court and upheld the constitutionality of Section 309, and similarly, in Chenna Jagadeeswar v. State of Andhra Pradesh, the honourable High Court of Andhra Pradesh also upheld the constitutionality of Section 309.

The 156th Law Commission Report presented in the year 1997, favoured Section 309 and recommended retention of criminalization of attempt to suicide. Later the 210th Law Commission Report presented in 2008, chaired by Dr. Justice AR Lakshmanan, and titled- “Humanization and Decriminalization of Attempt to Suicide¨, strongly recommended to repeal Section 309 from the IPC.

After failing to get an approval over decriminalization of Section 309 with the Indian Penal Code (Amendment) Bill, finally, when the Mental Healthcare Bill, 2016, got the assent of the President, Section 309 was decriminalized and was repealed.

ABETMENT TO COMMIT SUICIDE

Under Section 306 of the Indian Penal Code, 1860, Abetment to Suicide has been considered a penal offence and any person committing this offence can be held liable with punishment. It states that any person who abets or assists a person in the commission of suicide shall be punished with imprisonment for a term which may extend up to 10 years and shall also be liable to fine.

It’s first important to understand the meaning of the term “abetment” which has been defined under Section 107 of Indian Penal Code, 1860. In general terms, a person is understood to abet an act when he/she instigates or engages in conspiracy or assistance in the commission of the offence. Voluntarily encouraging or pushing a person to do an act through words or actions can be understood as abetment. The person responsible for abetment is referred to as an abettor, defined under section 108 of the Indian Penal Code, 1860. In the case of abetment to commit suicide, the offence can be understood as instigating or pushing an already overly emotional person to the point of considering suicide as the only option to escape.

It is necessary that the instigation should be intentional. For instance, in the case of Sanju alias Sanjay Singh v. State of Madhya Pradesh (2002 5 SCC 371: 2000 Supp SC 2246), the Supreme Court quashed the chargesheets and held that words uttered in a fight in the spur of the moment cannot be taken to be uttered with mens rea and cannot be held against the defender and he is not liable under Section 306 for abetment to suicide.

Section 306 creates a specific offence and the liability arises only when the suicide is committed. In the case of Mohit Pandey (1871 3 NWP 316), the accused was held guilty for the death of the widow and the court held that one cannot escape liability on the ground that he expected a miracle to happen and did not anticipate that the pyre would be ignited by the human agency.

In the case of Chitresh Kumar Chopra v State (Govt. of NCT of Delhi), the court held that each person has their own reasons and problems which leads to a suicidal pattern which is different in every case and hence it is important to look at the facts to draw a conclusion rather than trying to fit the case into a straight jacket formula. The court also dealt with the terms “instigation” and “goading”, and also pronounced the opinion that mala fide intention is necessary to establish abetment. Similar contentions were held in State of West Bengal v Orilal Jaiswal & Another ([1994] 1 SCC 73), and Ramesh Kumar v State of Chattisgarh ([2001] 9 SCC 618).

The case of Manikandan v State ([2016] SC 316) was a landmark judgement where the court held that the mere mention of a person in a suicide note would not make him or her accountable for abetment to suicide. To invoke Section 306 the suicide letter needs to be scrutinized carefully first. The court further stated that it is not the wish and willingness nor the desire of the victim to die, it must be the wish of the accused, it is the intention on the part of the accused that the victim should die that matters much. There must be a positive act on the part of the accused.

To combat the ever-increasing menace of dowry deaths, Criminal Law (Second Amendment) Act, 1983 has provided that where a married girl commits suicide within Seven years of her marriage, the court may presume that her husband and his relatives abetted her to commit suicide by virtue of Section 113A in the Indian Evidence Act, 1872. The case of State of Punjab v. Iqbal Singh (AIR 1991 SC 1532) and Brij Lal v. Prem Chand (AIR 1989 SC 1661) can be taken into account to understand this concept better.

It is also important to understand that Abetment to Suicide is very different from Consent Killing. While the former is punishable under Section 306 of the IPC, the latter is homicide by consent which falls under Exception 5 of Section 300, IPC and is punishable under Section 304.

Thus concluding, Section 306 of the Indian Penal Code, 1860 has to be used responsibly since it’s quite sensitive. In India, the life of a person is considered of paramount importance and the unfortunate incident of suicide is considered a grave loss of a life which needs to be brought to justice by punishing those who abetted the unfortunate act.

Latest Posts

Archives

NAME OF THE EVENT : Article writing competition
ORGANIZER: Journal of legal Management and research
ELIGIBILITY : students and research scholar
THEME: Emerging issues in the E-Commerce sector and its impact on fair Competition
DEADLINES OF REGISTRATION:28th May 2020
DEADLINES OF SUBMISSION: 31st May 2020
ANNOUNCEMENT OF RESULT: 2nd week of june 2020
AWARDS:
1st Rank: Cash prize of 2500/-
2nd Rank: Cash prize of 1500/-
3rd Rank: Cash prize of 1000/-

All the participants shall be awarded with e-certificate.
REGISTRATION: Rs.600 for Single Author
Rs.1000 for Co Author

EMAIL ID:Jim.research@gmail.com

Click here For further Details:https://www.jlmr-research.com/